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Manufacturers may face issues, concerns under Physician Payments Sunshine Act, Part 2

Continuation of Part 3 in this series on the Sunshine Act focuses on considerations for manufacturers and medical device companies.

Issue: August 10, 2014

ByAbraham Gitterman

ByAlan E. Reider, JD, MPH

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To ensure compliance with the Sunshine Act, medical device manufacturers have several unique factors to consider due to the nuances and intricacies of medical device development not applicable to manufacturers of drugs, biologicals or suppliers. For example, in many cases, physicians need to test, evaluate and be trained on medical devices before their practice or institution will purchase or use the device, which in some cases is mandated by the U.S. Food and Drug Administration in its device clearance or approval letter. These interactions, which are necessary to ensure the safety and efficacy of the medical device in patients, are all subject to the reporting requirements under the Sunshine Act, eg, education or training; associated educational or training materials; meals, travel and lodging; or honoraria.

In addition, the Centers for Medicare and Medicaid Services excluded from reporting short-term loans of a covered device up to 90 days. In the final rule, CMS expanded this exclusion to include covered devices under development, including “a supply of disposable or single use devices (including medical supplies) intended to last for no more than 90 days.” Further, CMS clarified that once a short-term loan exceeds the 90-day exclusion period, “regardless of whether the days were consecutive,” the manufacturer must begin reporting the value of the device from the 91st day.

CMS also explained that certain medical devices may be excluded from reporting as product samples while others may fall under the short-term loan exclusion. Specifically, CMS noted that “single use or disposable devices, demonstration devices or evaluation equipment” are excluded from reporting as samples as long as they “are intended for use by patients”; otherwise, such items “may be excluded from reporting … [as] short term loans.”

Alan E. Reider

Abraham Gitterman

CMS also excluded from reporting “items and services provided under a contractual warranty [or maintenance agreement], including the replacement of a covered device, where the terms of the warranty are set forth in the purchase or lease agreement.” CMS explained that contractual warranty exclusions may extend to items and services provided outside the expiration period “as long as the contractual warranty specified the terms prior to expiration.”

Importantly, CMS explained that manufacturers are not responsible for reporting the value of “replacement products in the case of a product recall” because such replacements are materially similar to maintenance or warranty agreements. CMS also explained in an FAQ that free repairs, services and/or additional training offered by manufacturers are excluded from reporting so long as these terms are included in the warranty set forth in the purchase or lease agreement for the device.

Accordingly, these unique reporting exclusions should be considered carefully when engaging with physicians, group practices and institutions to make sure applicable exclusion requirements are met to avoid triggering reporting (eg, device loans that exceed 90 days). In particular, medical device manufacturers should consider revising warranty and maintenance agreements as well as device loan or evaluation agreements to capture these exclusions.

Enforcement implications

While this article focuses on some of the particular difficulties and challenges manufacturers may face in reporting payment data and complying with the Sunshine Act, there are additional implications for manufacturers once these data are submitted to CMS and posted on Open Payments. Such data likely will be scrutinized by other federal agencies such as the Office of Inspector General for the U.S. Department of Health and Human Services, the U.S. Department of Justice, federal and state prosecutors, whistleblowers, academic medical centers and other health care institutions, and the media, as was noted in the second article of this series.

There have long been concerns that payments to physicians for speaking, travel, meals, research, honoraria, consulting and other services that cannot be justified as necessary or that fail to reflect fair market value may violate the federal Anti-Kickback Statute. Violations of the Anti-Kickback Statute also serve as the basis for False Claims Act violations for all claims submitted that resulted from illegal remuneration. Government officials may also use a physician’s reported specialty to try to determine if payments are being made to a physician for an off-label use (eg, a psychiatrist receives a payment related to an anti-epileptic drug) because manufacturers must report the associated covered product for marketing, research and education. Further, CMS’s collection of physician NPI numbers may raise concerns for manufacturers because it will permit researchers to link information on providers’ financial relationships with manufacturers to Medicare claims data (eg, Part D drugs) to evaluate the impact of these interactions on prescribing practices. In addition, payments for consulting fees or other services that are or appear to be above fair market value could also lead to allegations of “disguised discounts” that the manufacturer failed to include in its price reporting to CMS.

Beyond the federal Sunshine Act, several states — Massachusetts, California, the District of Columbia, Minnesota, Nevada, Vermont and West Virginia — have related transparency reporting laws and gift bans that prohibit manufacturers from providing certain items of value to health care professionals or entities. Such laws may have increasing importance as the Sunshine Act requires CMS to send individual state reports describing applicable payment data (eg, number or amount of payments to Pennsylvania-licensed physicians or teaching hospitals located in the state). In fact, Vermont has been active in enforcing its disclosure and gift ban law, sending a memorandum to all drug and device manufacturers in February 2014 offering a limited penalty for failing to register and report required payments — $10,000 per reporting period, which began on July 1, 2009.

While the Sunshine Act pre-empts similar reporting requirements for physicians and teaching hospitals, the Sunshine Act does not ban gifts and does not prevent states from enforcing broader reporting of payments to other health care professionals (eg, nurses, pharmacists) or entities. Therefore, discrepancies or inconsistencies with state reporting (eg, reporting a prohibited item to a physician licensed in Vermont) could also lead to additional scrutiny or penalties. Payment reporting to physicians associated with academic medical centers or hospitals that have strong conflict of interest policies (eg, banning sales reps or speakers bureaus) may also result in negative publicity or damaged relationships with such institutions.

Conclusion

With these and other considerations in mind, manufacturers should begin to prepare for the ramifications once the data are published. Some manufacturers have begun by proactively notifying physicians and teaching hospitals of the amounts and kinds of information that will be attributed to the physicians in order to avoid surprises or discrepancies. Other manufacturers have long maintained webpages that discuss the importance of transparency and the nature of industry relationships with health care professionals and entities. Manufacturers should adhere to clear and concise recordkeeping and retention requirements in advance of any CMS/OIG audits or inspections, and finalize any assumption documents that may be shared with CMS.

This portion of Part 3 in this series is a continuation from the OSN July 25, 2014, issue.