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Practical implications of the Sunshine Act explained in detail
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In a previous Orthopedic Medial Legal Advisor column, we presented legislative details related to the Sunshine Act and its implications for physicians. Here, we follow up with more details concerning this act, and how they will impact physicians. The guest author for this column is Jon Hyman, MD, director of the orthopedic surgeon professional network, www.orthomind.com.
B. Sonny Bal, MD, JD, MBA;
and Lawrence H. Brenner, JD
Co-Editors
The Physician Payment Sunshine Act (Sunshine Act) is a subset part of the Affordable Care Act (ACA). The Sunshine Act requires all types of life sciences companies — pharmaceutical, biotech, medical device and diagnostic manufacturers — to disclose their financial relationships with physicians and teaching hospitals. Sen, Kohl and Sen. Grassley drafted the Sunshine Act in 2007 and put it forward for enactment. It did not get through at that time, but following a 2008 Senate hearing entitled, “Surgeons for Sale,” it was reintroduced, and ultimately found its way into the ACA, with the support of many consumer advocate groups.
Jon Hyman
The new Sunshine Act requires public reporting of payments to physicians and hospitals made by pharmaceutical and medical implant manufacturers. The law covers grants, meals, honoraria, travel expenses and other items that will be posted on a public website. Three types of payments are to be reported and tracked: general payments, research grants, and ownership and investment interests.
The law covers all physicians, regardless of the kind of degree they hold (i.e., MD, DO, chiropractic practitioners, osteopathy, dentistry, optometry and podiatry), and whether they participate in government reimbursement programs. All teaching hospitals are covered under the act. Any prescription drug or device manufacturer, even those of foreign origin, making sales in the United States is subject to the reporting requirements. The act covers a broad range of payments, as long as the transfer of value is at least $10. The practical implications of the act and related penalties for noncompliance are presented below.
Under the Sunshine Act, there are two layers of reporting. One layer is what the company representatives must report to their corporate offices under their own corporate compliance programs; and the second layer is what the companies must report to the federal government. Physicians must recognize that corporate representatives will be required to report everything to the head office now. The reason is that companies cannot afford the penalties that can arise if they trust the representatives’ discretion as to what is reportable. Essentially, everything is reportable, and any free items or services that physicians receive from manufacturers may become public knowledge under the rule.
As one example, free patient educational materials dropped off in the office will be reported by representatives to their corporate offices, but not by the company to the government. That may change, if the “more than $10 per transfer or $100 in the annual aggregate” low figure is revised by the government. As another example, if a representative/distributor buys a cup of coffee for a physician, that transfer of value must be reported to the parent company, and possibly later to the government. This information will be available publicly. For example, the IRS can review the data to check the accuracy of reported income. Lawyers will have ready access to such payment data. Thus, plaintiff attorneys and divorce attorneys will now be able to access reportable assets like royalties and consulting payments. Industry can review it to see what their competitors are doing.
All meal receipts will be itemized. A representative cannot claim that he or she took three physicians to dinner and divided the total bill by four. Information now required must identify who ate what, and how many dollars in received value were assigned to each physician. Penalties apply for misreporting this information. If the company reports that a physician received $125 of value in the meal, and the physician later disputes it, claiming that he or she ate only the salad with no wine, the company can face a fine from CMS regarding the reporting error.
Specifically, it is not sufficient to disclose merely the number and sums transferred. Rather, for each payment, companies will have to clearly identify the form and nature of each payment based on specific categories. These categories cover not only items like consulting fees, royalties, investments and services, but also things like gifts, food, entertainment, travel, speaking engagements and charities.
It is not clear who will assign the dollar monetary value on every transfer of value, especially for transactions that are not easily measured in price. Practically, anytime a physician accepts something from a representative that has intrinsic value, it is safe to assume that the transfer will be reported to the company, where in-house compliance officers will determine if the transfer is reportable to the government and the value attached to the transfer. At least for now, “in-kind” value transfers to physician extenders or allied health personnel are not currently reportable to CMS, but representatives have to report these under their own corporate compliance program.
The industry is understandably cautious about the Sunshine Act, with internal compliance meetings and training of distributors and sales forces. On the one hand, companies stand to suffer stiff financial penalties for noncompliance or errors. On the other side, industry also stands to lose valuable touch points of engagement with surgeons if physicians sour on the company for inaccurate reporting or misrepresentation. Expect industry to use documented fair-market value methodology for all compensation. Also, expect annual limits on health care provider services relationships, with a fixed-fee compensation model for training and education events. There will be new restrictions on royalty earners and their participation in clinical research for royalty-generating products. General consulting contracts with physicians will disappear, in favor of contracts where the specifics of all such relationships will be spelled out in detail.
Liability, opportunity for industry
The Sunshine Act creates significant penalties for reporting errors. Penalties for erroneous reporting to the government are $1,000 to $10,000 per line item on an expense report. The penalties for willful or fraudulent reporting jump to $10,000 to $100,000 per line item. The government sees purposeful inaccurate reporting as a crime, and these penalties are designed to convince industry of this view.
Previously, when representatives would take physicians out to dinner, they would sometimes list their managers or distributors as being present to raise the headcount, and thereby divide the total expense of the meal to remain within capped allowances. Such an infraction now will likely lead to termination, especially if the company is faced with a $100,000 dinner bill when federal penalties are added into the equation.
Companies also face new opportunities to gain surgeon business from new users. If a company irritates a surgeon because of misreporting its relationship with that surgeon, that surgeon is probably more likely to switch allegiance, and will be viewed by other companies as a fair target for new business. Each company will position itself to attract new business, and traditional allegiances between surgeons and industry are tested by the new reporting model.
Established companies fear physician disengagement and the attendant loss of revenue, and must balance that fear with the risk of financial penalties. It is unclear how the Sunshine Act will affect the so-called “key opinion leaders” in medicine, typically academic physicians with extensive industry relationships. Equally unclear is how these conflicts will play out in the public view, which is already jaundiced in light of several media reports of lucrative deals between physicians and industry.
As of Aug. 1, group purchasing organizations (GPOs) are required to report data on payments and transfers to value to a public database. The information available to the public will include: practitioner name, address and NPI number; the amount and date of the payment; the form of the payment, such as cash or stocks; and the detailed nature of the payment, such as consulting fees, gifts or entertainment expenses. Payments provided to a consulting firm or third party, which in turn benefits a covered recipient, must also be reported. Payments less than $10 are exempt from reporting until the aggregate annual total per company per covered recipient reaches $100, at which point all payments must be disclosed. To determine if payments or other value transfers exceed the $100 threshold and must be reported, manufacturers and GPOs must aggregate payments of less than $10 across multiple payment categories.
To place how much of an impact the Sunshine Act may have, consider that in 2007 it was reported that 94% of U.S. physicians had a relationship with industry — 83% received gifts and 28% received payments for professional services, such as consulting or research participation. Of the physicians reporting industry relationships, 60% were involved in medical education and 40% in creating clinical practice guidelines. By 2001, industry had become the major source of research and development funding, accounting for 55% to 60% of some $100 billion annually. Commercial funding for continuing medical education (CME) also increased, with industry paying for more than a third of all CME offerings.
The new regulations and reporting requirements mean that physicians should keep records of all payments and transfers of value, however burdensome that may be. Also, at year-end, this information should be furnished to the tax accountant so it is properly listed as income on the tax return. Physicians should scrutinize their established relationships with industry vendors, and obtain legal counsel to clarify those relationships if there is any doubt. Alternatively, it may make sense to avoid receiving anything of value from any manufacturer or vendor, at least until the law and its practical implications become clear.
To join this discussion with your colleagues on OrthoMind, please click https://orthomind.com/posts/1629-sunshine-act-the-real-danger.
References:
Lo B. Conflict of interest in medical research, education, and practice. Washington, D.C.: National Academies Press, 2009.
www.accme.org/sites/default/files/null/630_2011_Annual_Report_20120724.pdf
For more information:
Disclosure: Hyman is a teaching consultant for Smith & Nephew and is on the advisory board of OrthoMind.com.