Physician Payments Sunshine Provisions in Healthcare Reform Tracking and Monitoring Spending on Healthcare Professionals and Organizations

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1 Physician Payments Sunshine Provisions in Healthcare Reform Tracking and Monitoring Spending on Healthcare Professionals and Organizations Background Consumer advocates and the media have commented in recent years on the need for transparency and disclosure of financial interests related to payments made to physicians by pharmaceutical and medical device manufacturers. They suggest such payments can potentially create conflicts of interest. In response to this concern, Senators Chuck Grassley (R-Iowa) and Herb Kohl (D-Wis.) introduced the Physician Payments Sunshine Act of The senators conducted investigations that revealed potential conflicts of interest in the relationships between physicians and drug and device manufacturers. In 2009, the senators reintroduced the Physician Payments Sunshine Act, and on March 23, 2010, the Patient Protection and Affordable Health Care Act of 2009 (the Act ) was signed into law. On March 31, 2013, and on the 90 th day of each successive calendar year beginning thereafter, any applicable manufacturer that provides a payment or other transfer of value to a covered recipient (physicians and teaching hospitals) or to an entity or individual at the request of, or designated on behalf of, a covered recipient, shall submit a report of payments to covered recipients to the U.S. Secretary of Health and Human Services (the Secretary ). These manufacturers should be capturing this information beginning in January 2012 to determine their ability to comply with the first reporting requirement in March It is important for organizations to be mindful of this deadline and get started quickly, especially since many companies still rely on spreadsheets and manual reports to comply with reporting requirements, which explains why many are still struggling with data issues. What is the current environment? The Physician Payments Sunshine provisions require that pharmaceutical, medical device, biological and medical supply manufacturers begin reporting to the federal government the payments they make to covered recipients. The Act also requires manufacturers and group purchasing organizations to report physician ownership interests in those covered recipients. The law further requires the Secretary to make the payment and ownership interest information available on a publicly accessible website. This legislation adds a

2 federally mandated reporting requirement on physician spending similar to what several states already require. As such, it may be expanding the scope of the reporting many manufacturers already may be doing. Requirements include, but are not limited to: General Applicable manufacturers shall submit to the Secretary the following information in an approved electronic format for the preceding calendar year: The name of the covered recipient The business address of the covered recipient and, in the case of a covered recipient who is a physician, the specialty and National Provider Identifier of the covered recipient The amount of the payment or other transfer of value The date on which the payment or other transfer of value was provided to the covered recipient A description of the form of the payment or other transfer of value, indicated (as appropriate for all that apply) as: Cash or a cash equivalent In-kind items or services Stock, a stock option, or any other ownership interest, dividend, profit or other return on investment Any other form of payment or other transfer of value (as defined by the Secretary) A description of the nature of the payment or other transfer of value, indicated (as appropriate for all that apply) as: Consulting fees Compensation for services other than consulting Honoraria Gift Entertainment Food Travel (including the specified destinations) Education Research Charitable contribution Royalty or license Current or prospective ownership or investment interest Direct compensation for serving as faculty or as a speaker for a medical education program Protiviti 2

3 Grant The nature of any other payment or other transfer of value (as defined by the Secretary) If the payment or other transfer of value is related to marketing, education or research specific to a covered drug, device, or biological or medical supply, the name of that covered drug, device, or biological or medical supply Any other categories of information regarding the payment or other transfer of value the Secretary determines appropriate Physician Ownership On March 31, 2013, and on the 90 th day of each successive calendar year beginning thereafter, any applicable manufacturer or applicable group purchasing organization shall submit to the Secretary in an approved electronic format the following information regarding any ownership or investment interest (other than an ownership or investment interest in a publicly traded security or mutual fund) held by a physician (or an immediate family member of such physician) in the applicable manufacturer or applicable group purchasing organization during the preceding year: The dollar amount invested by each physician holding such an ownership or investment interest The value and terms of each such ownership or investment interest Any payment or other transfer of value provided to a physician holding such an ownership or investment interest (or to an entity or individual at the request of, or designated on behalf of, a physician holding such an ownership or investment interest), including the information described in the requirements listed above, except that physician shall be substituted for covered recipient each place it appears Any other information regarding the ownership or investment interest that the Secretary determines appropriate Penalties for Noncompliance Failure to Report Any applicable manufacturer or applicable group purchasing organization that fails to submit the information required above in a timely manner in accordance with the rules or regulations promulgated shall be subject to a civil money penalty of not less than $1,000, but not more than $10,000, for each payment or other transfer of value or ownership or investment interest not reported as required. The total amount of civil money penalties imposed with respect to each annual submission of information by an applicable manufacturer or applicable group purchasing organization shall not exceed $150,000. Knowing Failure to Report Any applicable manufacturer or applicable group purchasing organization that knowingly fails to submit information required above in a timely manner in accordance with the rules or regulations promulgated shall be subject to a civil money penalty of not less than $10,000, but not more than $100,000, for each payment or other transfer of value or ownership or investment interest not reported as required. The total amount of civil money penalties imposed with respect to each annual submission of information by an applicable manufacturer or applicable group purchasing organization shall not exceed $1,000,000. Protiviti 3

4 What is the organization s risk appetite? An effective sales and marketing compliance program is critical to ensuring an organization s ability to comply with this new legislation. But before refining the existing commercial compliance programs to adhere to the requirements, the following questions should be considered: What is the organization s willingness to accept the effectiveness of current compliance programs? Is the organization confident that it can comply effectively with the regulations? If the organization is currently under investigation or governed by a corporate integrity agreement, does this impact its willingness to accept the risk of noncompliance? It is important to assess how the organization s risk appetite correlates with the necessary maturity of its compliance programs. When evaluating the risk appetite for noncompliance What is at stake? For an organization to comply effectively with the Physician Payments Sunshine provisions reporting requirements, it needs an effective sales and marketing compliance program. The risk of noncompliance is substantial, as shown in the following examples: 2011 A company reached a $44.3 million settlement to resolve allegations that it illegally promoted one of its drugs to doctors A company completed a deal to pay $520 million to settle federal investigations into illegal marketing practices A company paid $1.4 billion to settle investigations into illegal marketing A company returned more than $650 million to federal and state taxpayers. The government alleged that the company employed several payment schemes with doctors and hospitals for drugs whose patent protections expired in A company paid $515 million to settle federal and state investigations into illegal marketing activities. within the organization, consider measuring it in terms of the requisite robustness of its compliance programs. The lower the appetite for risk, the more formalized and automated the compliance programs should be. Consider the robustness of the following: Policies and procedures Compliance management process Organization of the compliance programs and empowerment of the compliance function Training and development program Completeness of management reports used to ensure compliance and identify instances of noncompliance Timely and accurate information Organizations must assess the effectiveness of these control mechanisms in limiting their exposure to noncompliance with the Physician Payments Sunshine provisions and existing state reporting requirements. How effectively are compliance programs managing the acceptable level of risk? For the compliance function to be effective and sustainable, it should reduce the risk of noncompliance to a level whereby the likelihood and significance of an event of noncompliance is within the organization s risk appetite. The programs should be implemented in a manner that does not impede the business s ability to execute its strategy; rather, the compliance programs should provide a framework for effective decision-making. Protiviti 4

5 At Protiviti, we have developed a framework for risk management programs, including compliance programs, that we call the Six Elements of Risk Management Infrastructure. This framework is used as a basis for determining the maturity of the compliance process. If any infrastructure component is deficient, the organization is at risk. Thus, a successful compliance program is driven by all six elements: Listed below are some of the risks associated with failing to implement all six elements of the infrastructure within a compliance program effectively: Business processes may not align with strategy. Sales and marketing people are unable to perform necessary processes adequately. Current reports do not provide information for effective management. Management s methodologies do not adequately analyze relevant information. Business system information is not available for analysis and reporting. To identify specific points within the organization where compliance programs may be deficient, consider the level of maturity defined in each element of the risk management infrastructure. Based on Protiviti s compliance capability maturity model, risk management maturity may be characterized as follows. Protiviti 5

6 What is the value of an integrated enterprisewide solution to identify and report healthcare professional (HCP) spending? By creating an integrated enterprisewide solution, an organization can increase control and create a standardized companywide process to decrease the risk of noncompliance. The integrated solution ensures compliance requirements are integrated fully across all business lines. If the current compliance environment in the organization is characterized as ad hoc, the integrated enterprisewide solution will decrease the unpredictability and instability of the environment. The following illustration presents an example of an enterprisewide solution. Conclusion Protiviti s Point of View on Integrated HCP Spending For an organization to comply effectively with the Physician Payments Sunshine provisions reporting requirements, it needs an effective sales and marketing compliance program. Once the core commercial compliance program has been established, management must evaluate that program s ability to provide accurate and timely information for the purposes of reporting. The risk of noncompliance is substantial. To minimize this risk, we believe an integrated solution to track and monitor applicable expenditures to healthcare professionals and organizations is necessary. An enterprisewide solution enables the organization to: Stay current on regulatory changes. Understand risk appetite. Manage a compliance program that includes the Six Elements of Risk Management Infrastructure. Capture and integrate all sources of HCP-related spending. Keep the process simple. Protiviti 6

7 About Protiviti Protiviti ( is a global business consulting and internal audit firm composed of experts specializing in risk, advisory and transaction services. We help solve problems in finance and transactions, operations, technology, litigation, governance, risk, and compliance. Our highly trained, results-oriented professionals provide a unique perspective on a wide range of critical business issues for clients in the Americas, Asia-Pacific, Europe and the Middle East. Protiviti has more than 60 locations worldwide and is a wholly owned subsidiary of Robert Half International Inc. (NYSE symbol: RHI). Founded in 1948, Robert Half International is a member of the S&P 500 index. Our Healthcare and Life Sciences Practice Protiviti s dedicated Healthcare and Life Sciences practice includes professionals who have deep industry experience with pharmaceutical, biotech and medical device manufacturers; hospitals, physicians groups and healthcare providers; and healthcare payers. Our professionals can work with you to find approaches to improve and establish strategies for your business as changes in the industry and regulatory environment impact your organization. For further information about the issues reviewed in this white paper or Protiviti s services, please contact: Susan Haseley Managing Director susan.haseley@protiviti.com Kyle Furtis Managing Director kyle.furtis@protiviti.com Gordon Tucker Managing Director gordon.tucker@protiviti.com 2011 Protiviti Inc. An Equal Opportunity Employer. Protiviti is not licensed or registered as a public accounting firm and does not issue opinions on financial statements or offer attestation services.