CMS Issues Proposed Physician Payment Sunshine Rule
In an action that could have broad implications for drug and device manufacturers, teaching hospitals and physicians, on December 19, 2011, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register its long-awaited proposed rule to implement the “Physician Sunshine Payment” provisions of the Affordable Care Act. Those provisions added section 1128G to the Social Security Act and required applicable manufacturers of drugs, devices, biologicals or medical supplies covered under Medicare, Medicaid or the Children’s Health Insurance Program (CHIP) to report annually to the Secretary certain payments or other transfers of value to physicians and teaching hospitals (so-called “covered recipients”). They also required applicable manufacturers and applicable group purchasing organizations (GPOs) to report certain information regarding the ownership or investment interests held by physicians or the immediate family members of physicians in such entities.
The proposal seeks public comment on many of the key issues in the statute such as the definition of an “applicable manufacturer,” what constitutes a “transfer of value,” and when compliance requirements should begin. How these and other issues are resolved in final regulation will affect how the statute will be implemented and how manufacturers and health providers will interact in the future.
Comments are due by February 17, 2012.
According to the statute, manufacturers of covered drugs, devices, biologicals and medical supplies (applicable manufacturers) are required to submit on an annual basis the information required in section 1128G(a)(1) of the Act for certain payments or other transfers of value made to physicians and teaching hospitals during the preceding calendar year. Similarly, section 1128G(a)(2) of the Act requires applicable manufacturers and applicable GPOs to disclose any ownership or investment interests in such entities held by physicians or their immediate family members, as well as information on any payments or other transfers of value provided to such physicians.
Applicable manufacturers must report the required payment and other transfer of value information to CMS in an electronic format by March 31, 2013, and on the 90th day of each calendar year thereafter. Applicable manufacturers and applicable GPOs must report the required information about physician ownership and investment interests, including those held by immediate family members, as well as information on any payments or other transfers of value to such physician owners or investors in the same format, by the same date.
Applicable manufacturers and applicable GPOs are subject to civil monetary penalties (CMPs) for failing to comply with the reporting requirements of the statute.
HHS is required to publish the reported data on a public website. The agency also must submit annual reports to the Congress and each state summarizing the data reported. These provisions generally preempt state laws that require disclosure of the same type of information by manufacturers.
The agency intends to publish a final rule “as soon as possible during calendar year (CY) 2012” and depending on the publication date of the final rule, is considering requiring that the collection of data for part of 2012 be reported to CMS by the statutory date of March 31, 2013.
The following is a synopsis of the proposed rule’s provisions regarding a few key issues.
Timing and Challenge of Collecting and Reporting Data
Although the statute required manufacturers to begin collecting relevant data on Jan. 1, 2012, CMS acknowledges in the proposal that this requirement will be delayed until after publication of the final rule. The proposal seeks comment on how long manufacturers would need after publication of the final rule to begin complying with the data collection requirements. CMS is considering a 90-day period and requesting comments about whether that is sufficient amount of time.
CMS also seeks comments on the feasibility of submitting the required information for part of 2012 by March 31, 2013.
Moreover, the agency wants input about the “specific challenges” manufacturers (and GPOs) may face when setting up the necessary data collection and reporting systems.
Definition of “Applicable Manufacturer”
CMS seeks comments on its definition of applicable manufacturer. In the proposal, CMS defines “applicable manufacturer” as an entity that is:
“(1) Engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States; or (2) Under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of
the United States.”
According to CMS, manufacturers of a covered drug, device, biological or medical supply are deemed to be an “applicable manufacturer” if their products are sold or distributed in the United States, regardless of where the covered drug, device, biological or medical supply is actually produced or where the entity is actually located or incorporated.
The agency also says that any manufacturer that meets the definition of applicable manufacturer by selling or distributing in the United States at least one covered drug, device, biological or medical supply is considered an applicable manufacturer, even though it may also manufacturer products that do not fall within that category. All payments or transfers of value made by an applicable manufacturer to a covered recipient must be reported as required by the Act regardless of whether the particular payment or other transfer of value is associated with a covered drug, device, biological or medical supply. Moreover, CMS says that the proposed definition includes entities that hold Food and Drug Administration (FDA) approval, licensure or clearance for a covered drug, device, biological or medical supply, even if they contract out the actual physical manufacturing of the product to another entity.
Covered Drug, Device, Biological or Medical Supply
The agency proposes this definition and seeks comment:
“Any drug, device, biological, or medical supply for which payment is available under Medicare, Medicaid, or CHIP, either separately, as part of a fee schedule payment, or as part of a composite payment rate (for example, the hospital inpatient prospective payment system or the hospital outpatient prospective payment system).”
With respect to a drug or biological, the proposal states that this definition is limited to those drug and biological products that, by law, require a prescription to be dispensed. With respect to a device or medical supply, this definition is limited to those devices (including medical supplies) that, by law, require premarket approval by or premarket notification to the Food and Drug Administration.
Thus, manufacturers of only OTC drugs and biologicals products as well as manufacturers who only produce devices or medical supplies that are exempt from premarket notification requirements (and not also products which fall within the proposed definition of “covered drug, device, biological, or medical supply”), would not be required to report. However, manufacturers who manufacture both devices or medical supplies that are exempt from premarket notification requirements and at least one product that falls within the definition of a covered drug, device, biological or medical supply would be required to report all payments or transfers of value to covered recipients.
Is a Teaching Hospital a Covered Recipient?
Under section 1128G(a)(1) of the Act, applicable manufacturers are required to disclose certain payments or other transfers of value made to covered recipients, or to entities or individuals at the request of, or designated on behalf of, a covered recipient. Teaching hospitals are listed in the statute as a “covered recipient.”
CMS notes, however, that “teaching hospital” is not explicitly defined in the Act. The agency defines it by linking it to Medicare graduate medical education (GME). Specifically, the proposal defines a teaching hospital as “any institution that received Indirect Medical Education or direct Graduate Medical Education payments.” The agency seeks comments regarding this definition.