What Otolaryngologists Need to Know About the Physician Payment Sunshine Act

In February 2013, the Centers for Medicare and Medicaid Services (CMS) issued the long-awaited Physician Payment Sunshine Act (PPSA) final rule.

The PPSA, which was passed as part of the Affordable Care Act in 2010, mandates transparency within physician–industry relationships—namely, the disclosure of physician ownership and investments in health care manufacturers and group purchasing organizations (GPOs). Applicable industry manufacturers and GPOs are required to report certain financial relationships with physicians, their immediate family members and teaching hospitals. These reports are required to be submitted electronically to CMS on an annual basis, with the first report due on March 31, 2014. CMS will then post the reported information on a searchable webpage, which will be viewable by the public.

Who Needs to Report?

Physicians are not required to report their relationships with industry. However, “applicable manufacturers” and “applicable group practice organizations” are required to report financial relationships with physicians and their family members and teaching hospitals. In general, any entity that operates in the United States that is engaged in the production, preparation, compounding, propagation or conversion of a drug, device, biological or medical supply available under Medicare or Medicaid has a reporting requirement. Entities under common ownership (direct or indirect ownership of at least 5 percent by the same person or entity) with a manufacturer and providing “necessary or integral” assistance or support to the manufacturer relating to the product are also covered as manufacturers and have a reporting requirement. The GPO reporting requirements apply to any entity that operates in the United States that purchases, arranges for, or negotiates the purchase of a covered drug, device, biologic or medical supply for a group of parties, and not solely for itself.

A covered drug, device, biologic or medical supply is one that requires a prescription to be dispensed or for which the FDA requires premarket approval or notification, and that is eligible for payment by Medicare, Medicaid or the Children’s Health Insurance Program (CHIP).

“Once the data are published and the dispute resolved, information cannot be modified until the following year.”

—Steven M. Harris, Esq.

What Is Reported?

Manufacturers will be required to annually report direct and indirect payments or other transfers of value to physicians (other than the manufacturer’s bona fide employees) and teaching hospitals. Manufacturers will also need to report any payments or transfers that are made to third parties at the request of or on behalf of a physician or teaching hospital.

In addition, manufacturers and GPOs must report all ownership and investment interests held by physicians or immediate family members of physicians. Required information includes investment amounts, the value and terms of each ownership or investment interest, payments to each physician and background information regarding each physician investor or owner.

The proposed rule was criticized by some for establishing onerous reporting requirements, particularly for manufacturers that only make a small number of covered products. CMS revised the requirements so that if a manufacturer receives less than 10 percent of its gross revenue from covered products during the previous year, then the manufacturer is only required to report payments associated with the covered products. In order to meet this exception, the manufacturers will be required to attest that less than 10 percent of their gross revenue came from covered products. Despite public comments that voiced disagreement with the proposed rule, the final rule still requires manufacturers that do not meet the specific exceptions to report all payments or transfers of value, not just those associated with a covered product.

The final rule provides guidelines for manufacturers to determine the values to be reported, and includes the option for manufacturers to provide contextual information about the payment that would be disclosed on the public webpage. The final rule and its commentary also provide clarifications regarding the payments excluded from the reporting requirement. For example, payments made at the request of or designated on behalf of a physician are still reported and attributed to the physician. However, if the physician does not accept payment and does not request that the payment get directed to another individual or entity, then it does not need to be reported. So, otolaryngologists who have historically directed their consulting fees or honoraria to a charity will see the payments attributed to them, under the category of charitable contribution, on the CMS public webpage.

It is important to note that, while physicians and other covered recipients will have the opportunity to review their individual data that the manufacturer electronically submits, if there is a dispute regarding such information the data still may become public if the error is not corrected during the review and correction period. It will be important for otolaryngologists to review their data in order to try to resolve any issues prior to the public disclosure. In order to avoid the disclosure of potentially inaccurate information, otolaryngologists should consider negotiating into future agreements with manufacturers (and request to amend existing agreements) the right to review data prior to the manufacturer’s submission to CMS. Once the data are published and the dispute resolved, information cannot be modified until the following year.

Timeframe for Reporting

Reports must be filed annually by the applicable manufacturer/GPO, with each report reflecting payment, ownership and investment information for the previous calendar year. Given the delay in issuing the final rule, manufacturers and GPOs will have until August 1, 2013 to begin collecting information, and then must report the information to CMS by March 31, 2014, with the initial annual report limited to the period from August 1, 2013 through December 31, 2013.

Payment, ownership and investment information for subsequent calendar years will need to be reported by the 90th day of the following calendar year. Manufacturers will have 180 days to begin complying with the data collection and reporting requirements upon a product becoming covered under the regulations.

Penalties and Expenses

The penalties to applicable manufacturers and GPOs for failure to comply with the new regulations can be up to $150,000 per year, and up to $1 million for knowing violations. While CMS stated that it does not have empirical data to estimate the financial benefit of the PPSA, CMS estimates it will cost all manufacturers a total of over $205 million dollars in the first year to establish the infrastructure and staff support necessary to implement the final rule.

Action Steps

The final rule provides clarification and detail lacking in the proposed rule, and CMS has begun posting fact sheets and other information regarding the National Physician Payment Transparency Program (OPEN PAYMENTS). Yet there are still further implementation steps that CMS will need to take, including the mechanism for physicians to register with CMS to receive updates regarding the OPEN PAYMENTS program. In the meantime, otolaryngologists should review their existing relationships with industry to determine if they are engaged with applicable manufacturers and, if so, what will appear publicly. The records maintained by otolaryngologists of all payments or transfers of value will be extremely important. Otolaryngologists should mark their calendars and make sure that they are given the opportunity to review the data submitted to CMS in order to avoid the publication of inaccurate information that can be viewed by patients, colleagues, the media and other departments/agencies of the government.

Steven M. Harris, Esq., is a nationally recognized health care attorney and a member of the law firm McDonald Hopkins, LLC. He may be reached at sharris@mcdonaldhopkins.com.

Reprinted with permission from the American College of Rheumatology.