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Here Comes the Sun: Anticipating Sunshine Act Regulations

Physicians and institutions engaged in research should keep these in mind

In the war against healthcare fraud, waste and abuse, provider reporting requirements and self-disclosure obligations continue to mount. After all, transparency is the presumed antidote to bad acts in the healthcare industry. The underlying idea is that if you would not want the government to know about a particular “relationship” or “business interaction,” then it is probably not okay.

Along these lines, the Physician Payment Sunshine Act (the “Sunshine Act”) targets these relationships in the context of clinical research. The Sunshine Act was legislated as part of the Patient Protection and Affordable Care Act (the “ACA”) to reduce the risk of inappropriate financial incentives interfering with medical judgment and patient care by enhancing the transparency of financial relationships between certain healthcare providers (i.e., physicians and teaching hospitals) and manufacturers of covered drugs and devices.

The Sunshine Act authorizes the Centers for Medicaid and Medicare (“CMS”) to track and oversee certain financial relationships and interactions within the healthcare industry through reporting requirements aimed to expose improper relationships and violations of the law; to alter the industry mindset by dissuading improper relationships; to punish improper behavior, especially the failure to disclose; and to aid patient choice of provider through information about its relationships with others.

Who will be subject to the Sunshine Act reporting requirements?

Under the proposed rule, which CMS issued on Dec. 19, 2011, manufacturers of covered drugs and biologicals (i.e., those requiring a prescription to be dispensed) and covered devices (i.e., those that require premarket approval by or notification to the Food and Drug Administration or FDA) covered by Medicare, Medicaid or the Children’s Health Insurance Program will be subject to annual reporting requirements regarding their clinical research.

The reporting obligations apply to clinical research sponsors, but who is included in this group remains to be determined. For example, the proposed rule includes modifications to limit the group by exempting start-ups with no FDA-approved products from these obligations until they have an FDA-approved product, apparently relieving young companies of the burden and expense of reporting so resources can be dedicated to early research and product development. On the other hand, the proposed rule also includes an expanded definition of “manufacturer” to include companies that are incorporated outside of the United States but sell products here.

Clinical research sponsors may use contract research organizations or CROs, which make payments to the teaching hospitals or physicians. CMS seems to take the position that it will not be involved in arbitrating disputes between covered entities or CROs and recipient teaching hospitals and physicians.

What will and will not be reportable?

Manufacturers of covered drugs and biological and covered devices will be required to report annually payments and transfers of value to other providers, suppliers and manufacturers. Reportable data is expected to include information classifying the form and the nature of the payment as well as certain information regarding ownership or investment interests held by physicians in such manufacturers.

There are 15 categories that encompass a broad scope of potential interactions and payments subject to the reporting requirements:

Consulting fee;

Compensation for services other than consulting;




Investment/Ownership offers or interest;

Travel and lodging;

Charitable contribution;



Royalty or license;


Food and beverage;

ª Direct compensation or service as faculty or speaker for a medical education program; and


However, there are also at least 10 types of payments and transfers of value expected to be excluded from the reporting obligation. These include, among others:

Transfers with a value less than $10, except when a repeated transfer exceeds $100 comprehensively over that calendar year;

Indirect or third-party transfers, where the manufacturer is not privy to the identity of the recipient;

Educational materials provided to a provider with the sole intent to directly benefit the patient;

Devices loaned for evaluation purposes, on a short-term basis not to exceed 90 days;

Items or services provided under a contractual warranty;

Transfers of value directly to a patient, even if professionally the patient is also provider, as long as the patient is not acting in their professional capacity;

Gifts-in-kind to use for charity care;


Rebates; and

Patient-use product samples that are not for sale.

Clearly, the Sunshine Act is intended to target exchanges related to clinical research and not those associated with sales or marketing. This distinction, however, may not be so clear to patients.

When will the Sunshine Act take effect?

Implementation of the Sunshine Provisions is a work in progress. Apparently, CMS received more than 300 written comments submitted during the public comment period and is still revising to the rule. The fact that then final rule release date continues to be postponed demonstrates the complexity of regulating this area of healthcare.

After the publication of the final rule on the provisions, there will be a 90-day preparation period, which will provide a few months to adjust. Registration with CMS is supposed to occur by March 31, 2013. Most likely the continued postponement of releasing the Sunshine regulations, however, will result in pushing back deadlines. For example, the deadline for required data collection, which is targeted for Jan. 1, 2013, will have to be extended.

What will be the consequences of noncompliance?

The Sunshine Act includes express statutory penalties for not reporting reportable data. Further, the Sunshine Act imposes civil monetary penalties that range from $1,000 to $10,000 for each payment or transfer of value not reported, with a maximum penalty of $150,000 per year per organization for failure to report, and it imposes steeper penalties on those organizations that knowingly fail to report payments or transfers of value. For knowingly failing to report, the Sunshine Act imposes civil monetary penalties that range from $10,000 to $100,000 for each unreported payment or transfer of value, with a maximum penalty of $1 million per year per organization.

Other potential areas of liability that could be pursued by regulators or prosecutors in association with violations of the Sunshine Act include the Anti-Kickback Statute and the False Claims Act, among others.

How could the new law impact physicians?

All reportable clinical research payments will be classified as payments made directly to the principle investigator (the individual that is ultimately responsible for the research at the site or “PI”), payments made to a teaching hospital or payments made to an institution. Some fear that the way that the data is reported, however, could negatively impact patients’ view of physicians connected to these payments. For example, the entire amount paid to a hospital for the clinical research fees and expenses, staff salaries, Institutional Review Board (“IRB”) fees and overhead that are indirectly reported for physicians could be interpreted by patients as the physician receiving large sums from pharmaceutical and device companies. As demonstrated in the comments, some fear this risk of patient misperception will have a chilling effect on physicians’ willingness to conduct clinical trials or even encourage research sites to assign less-qualified physicians as PIs in order to insulate more-qualified physicians from being associated with the reported payments, even though this could jeopardize patient safety and data integrity.

What can be done while you wait?

It is prudent for physicians and institutions who are engaged in research to keep the Sunshine Act in the forefront of their thinking. Adopting policies and procedures for tracking payments internally, limiting annual spending and conducting regular audits can all help mitigate risks of violation and ease transition once the regulations are finalized.

By Molly Nicol Lewis, McBrayer, McGinnis, Leslie & Kirkland, PLLC

Molly Nicol Lewis is an Associate of McBrayer, McGinnis, Leslie & Kirkland, PLLC. Ms. Lewis concentrates her practice in healthcare law and is located in the firm’s Lexington office. She can be reached at mlewis@mmlk.com or (859) 231-8780.

This article is intended as a summary of newly enacted federal law and does not constitute legal advice.



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