MEMORANDUM. Bob Saner, MGMA Washington Counsel and Johanna Michaels Kreisel, Attorneys in the Powers Law Firm

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1 MEMORANDUM To: From: MGMA Bob Saner, MGMA Washington Counsel and Johanna Michaels Kreisel, Attorneys in the Powers Law Firm Date: May 1, 2013 Re: Final Rule Implementing the Physician Payments Sunshine Act The Centers for Medicare and Medicaid Services (CMS) recently issued its final rule implementing the Physician Payments Sunshine Act (PPSA), which was part of the Patient Protection and Affordable Care Act ( PPACA ). 1 The final rule, which CMS refers to as OPEN PAYMENTS, requires manufacturers of drugs, devices, and certain other health care products, as well as group purchasing organizations ( GPOs ), to report to CMS their financial relationships with physicians and teaching hospitals. CMS received over 370 comments on its proposed rule. This memorandum summarizes the key provisions of the final rule and highlights its effects on physicians and medical group administrators. Summary of Final Rule The final rule imposes two reporting requirements on applicable manufacturers, defined as those companies that manufacture a Medicare, Medicaid or CHIP-covered drug, device, biological or medical supply and whose products are sold or distributed in the United States. 2 First, it requires any manufacturer of drugs, devices, biologicals or medical supplies covered under Medicare, Medicaid or the Children s Health Insurance Program ( CHIP ) to report transfers of value to a physician or teaching hospital, which the final rule refers to as covered recipients. Second, applicable manufacturers are required to report separately any physician ownership and investment interests and payments of value to physician owners, investors and immediate family members. This includes physicians with ownership interest or stock with an applicable manufacturer, regardless of the amount. 3 GPOs, which are defined as entities that purchase, arrange for or negotiate for the purchase of a Medicare, Medicaid or CHIP covered drug, device, biological or medical supply are required to report physician ownership and investments and transfers of value to physician owners and investors. Failure to adhere to these reporting requirements may result in civil monetary penalties for manufacturers and GPOs Fed. Reg (Feb. 8, 2013), available at 2 Manufacturers with less than 10 percent of gross revenue from covered products only have to report payments related to those covered products, not all products. 78 Fed. Reg Manufacturers and GPOs will not have to report physicians receiving stock as compensation until or unless such options are exercised. Additionally, manufacturers and GPOs will not have to report physician or immediate family member ownership/investment interests when they are unaware of such interest. 78 Fed. Reg

2 The final rule requires manufacturers to report a transfer of anything of value to a covered recipient, regardless of whether it was requested, to a physician or teaching hospital. Anything of value includes cash or cash equivalents, space rental or facility fees, in-kind items or services, stocks, stock options, or any other ownership interests, dividends, profits, or other returns on investments. The rule outlines a number of exclusions from the reporting requirements, including but not limited to: transfers of value of less than $10 unless the aggregate amount over a year exceeds $100, with an exception to the aggregation requirement for items provided at conferences and large scale events; product samples intended for patients; educational materials that directly benefit patients; discounts or rebates; and in-kind items for charity care. 4 Applicable manufacturers and GPOs must report the name, date, NPI, state license number, specialty and address of the entity or individual receiving the payment. The report must specify the amount of the payment, the nature of the payment (such as consulting fee, food, entertainment, travel, education or research), and the form of payment (such as cash, stock, stock option or in-kind items or services). Once the data is submitted to CMS, the agency aggregates and sorts it by individual covered recipients and provides them with 45 days to review and then 15 days to dispute the report with the manufacturer or GPO. CMS will publish the reports in a publicly searchable database with the individual physicians names and information and whether the report is disputed. Key Changes and Clarifications in the Final Rule 1. What Will Be Reported Physicians in a group practice will not automatically be reported as recipients of meals or items of value. CMS revised the final rule to report transfers of value only to those physicians in a group practice who either requested the payment, benefitted from the item, or partook in the meal. For meals provided to a group practice, the manufacturer must divide the number of actual recipients, including both physicians and support staff, by the total cost of the meal. If the amount exceeds $10 per person, the manufacturer must report the physician recipients. Those physicians in the group practice who did not participate in the event are not reportable. However, physicians must be reported if they attend an event, even if they do not partake of the meal. Attendees of manufacturer-subsidized accredited medical education events will not be reported. Under the final rule, manufacturers are not required to report attendees of accredited or certified education events as long as they provide the financial support to 4 The complete list of exclusions is at 42 C.F.R (i). 2

3 the sponsoring CME or other organization and not the individual attendees. Food and beverages provided at large-scale conferences for which covered manufacturers provide general support are also excluded from reporting. However, manufacturers must report attendees of specific manufacturer-sponsored meals where the participants are clearly identified or identifiable using the indirect payment reporting standard explained below. Thus, a manufacturer would need to report the participants who attend a sit-down, invitation-only, luncheon supported by that company and held during a society conference since the participants would be identified or readily identifiable. By contrast, the manufacturer likely would not need to report the names of people who partake of a manufacturer-sponsored buffet in the exhibit hall during a society conference as the participants would not be easily identified or identifiable. Professional societies will not have to track general grants of funds that may flow to physicians. The final rule clarified the definition of an indirect payment as one that an applicable manufacturer (or applicable group purchasing organization) requires, instructs, or directs or otherwise causes the third party to provide the payment or transfer of value, in whole or in part, to a covered recipient(s) (or a physician owner or investor). 5 Importantly, where the manufacturer provides a general, unrestricted grant to a medical or other professional society for use at its discretion, the physicians who are the eventual recipients of those funds will not be reported. In contrast, if the manufacturer explicitly earmarks funds for awarding grants to physicians, that constitutes an indirect transfer of value and must be reported if the manufacturer becomes aware of the identity of the recipients within two quarters after the end of the payment reporting year. The rule does not specify what measures the manufacturer must undertake to determine the identity of the recipient of funds, acknowledging that manufacturers may interpret this as an affirmative obligation to seek out the identity of eventual recipients. CMS noted that its true intent is to avoid situations where the manufacturer knows or should know or could easily ascertain the recipients of the funds. 6 Direct compensation for speakers at accredited CME events will not be reported if certain conditions are satisfied. CMS created an exemption to the reporting requirements for direct compensation of speakers at accredited or certified continuing education programs. Specifically, if all of the conditions below are satisfied, the manufacturer will not be required to report the transfer of value: (1) the program meets the accreditation or certification requirements of the ACCME, AOA, AMA, AAFP, or ADA CERP; 7 (2) the applicable manufacturer does not directly pay the covered recipient speaker; and 5 42 C.F.R Fed. Reg Accreditation Council for Continuing Medical Education (ACCME); American Osteopathic Association (AOA); American Medical Association (AMA); American Academy of Family Physicians (AAFP); American Dental Association Continuing Education Recognition Program (ADA CERP). 3

4 (3) the applicable manufacturer does not select the covered recipient speaker, nor does it provide the third party vendor with a distinct, identifiable set of individuals to be considered as speakers for the accredited or certified continuing education program. 8 If the above conditions are not satisfied, the speaker compensation (provided directly or indirectly through third parties) must be reported. Finally, it is important to note that other transfers of value such as entertainment, food, and travel provided directly to speakers at accredited events are reportable. Pens and notepads provided at conferences will not be reported. CMS excluded de minimis items of value such as pens and notepads handed out at conferences so long as they are under $ The Reporting Process Physicians will not be able to review manufacturer or GPO reports prior to submission. CMS rejected a proposal to require manufacturers and GPOs to provide physicians and other covered recipients with the opportunity to review reports that identify them prior to submission to the agency. Instead, the agency encouraged manufacturers and GPOs to engage in pre-submission review to minimize the number of disputes, but did not mandate it. However, the final rule added an additional 15-day period to the end of the 45-day review period for dispute resolution between manufacturers and covered recipients identified in reports. For unresolved disputes, CMS will publish the manufacturer s or GPO s report and note that it is disputed. Research payments will be reported separately. CMS had proposed a complicated scheme for separating research payments into direct and indirect payment categories. In the final rule, CMS discarded this approach entirely and instead devised a separate reporting template for research payments to teaching hospitals and physicians. The final rule requires manufacturers to report both the teaching hospital and the principal investigator as recipients of the research funds under a single transaction. These payments will be designated as research and will be separately reported and calculated from other payments attributed to physicians and teaching hospitals. Educational materials must directly benefit patients. CMS limited the exclusion for educational materials to those items that directly benefit patients, including models intended for patient use. Immediate family members names will not be published for ownership/investment reporting. For reportable ownership or investment interests held by an immediate family member of a covered recipient, CMS decided not to publish the relationship and name of 8 42 C.F.R (g)(1). 4

5 the immediate family member holding the ownership or investment interest in the manufacturer. Just the covered recipients name will be published. No opportunity for third party review. CMS finalized the requirement that manufacturers must report payments and other transfers of value provided through or on the behalf of covered recipients to third parties. Third parties will not be able to review or contest the reports and entities will be reported by name on the website. For individual third-party recipients, only the covered recipient who requested the payment will be reported. Timing of Implementation CMS requires manufacturers and GPOs to track payments, ownership interests and transfers of value beginning on August 1, 2013 and to submit the data to CMS on March 31, 2014 for the August through December 2013 reporting period. Physicians and administrators will need to understand the PPSA rules and develop policies and procedures so they are prepared to work with industry partners to provide them the information they need to comply with the law, but also to respond to inaccurate reports. Physicians should retain their own records of items of value received from manufacturers to ensure they are prepared to evaluate and challenge the accuracy of reports that include them. Medical group administrators should facilitate individual physician tracking and calculate estimated transfers of value for individual physicians attending manufacturer or GPO-sponsored practice events. With only a 60-day period for dispute resolution and no independent review, physicians need to respond quickly to improve the chances of resolving discrepancies. Failure to resolve a dispute will lead to publication of a manufacturer s report as is, albeit in some cases with a note that the report is disputed CMS recommends that beginning January 1, 2014, all covered recipients register on the agency s website, OPEN PAYMENTS 9 which will serve as the portal for reporting, reviewing and disputing manufacturer and GPO reports. Registration supposedly will ensure that CMS will notify physicians in a timely manner after the manufacturer submits a report so that the physician will have an opportunity to dispute the report. CMS anticipates that physicians will have the opportunity to review the first year of manufacturer and GPO data sometime in the summer of Unanswered Questions Remain The full impact of the PPSA on physicians and administrators is unknown and many issues are unresolved. We are awaiting agency guidance on a number of questions, including the impact, if any, on non-physician practice administrators relationships with manufacturers. We are also requesting that CMS allow physician proxies to review and dispute manufacturer and GPO reports. Additional questions remain such as when physicians will be able to access 9 Program/index.html 5

6 manufacturer and GPO reports and how CMS defines a large-scale event. Given the number of outstanding questions, CMS expects to post additional information and FAQs on the OPEN PAYMENTS website. Physicians may also obtain additional information and CME credit by participating in the ACCME-sponsored program Are You Ready for the National Physician Payment Transparency Program? accessible via MedScape. Conclusion For physicians with relationships with manufacturers, the PPSA rules will likely be onerous, but the burdens will be more manageable if all affected parties take the time to understand how the reporting process works. Education and self-tracking of financial relationships with the industry may allow physicians to react quickly to inaccurate reports that could otherwise adversely affect their professional reputation and livelihood. There are a number of other issues in the final rule that may affect physicians and practice administrators that are beyond the scope of this memorandum. Please contact Bob Saner at or rsaner@ppsv.com or Johanna Michaels Kreisel at or johanna.kreisel@ppsv.com for additional information. This summary and analysis is provided for informational purposes only and does not constitute and should not be treated as legal advice Powers Pyles Sutter & Verville, PC. All rights reserved. 6