With the long awaited Sunshine Act final regulations in hand, members of the life sciences industry continue to sift through the 285 page regulatory tome to parse out the regulatory reporting requirements that resulted from Centers for Medicare & Medicaid Services’ (CMS) consideration of over 373 comments from medical professionals and organizations, industry members and organizations, consumers, and others. While we do not attempt to summarize the entirety of the final regulations here, we highlight a few key changes to definitions and modifications to reporting requirements.
The first step for many in the life sciences industry is an evaluation of whether their company has an obligation to comply with the Sunshine Act. In making this determination, the company must determine if their operations fall within the definition of an “applicable manufacturer” of a “covered drug, device, biological, or medical supply” which is operating in the United States. The final regulations provide clarification and details regarding these two key definitions.
Here, we highlight a few noteworthy clarifications included in the preamble regarding the scope of who is included and excluded within the definition of “applicable manufacturer.” The regulatory definition of applicable manufacturer includes distributors and wholesalers that take title to a covered drug, device, biological or medical supply. As a result, these entities are subject to the reporting requirements. While distributors that do not take title to covered products do not fall within the definition of applicable manufacturer and are not subject to reporting. It is important to note that distributors that qualify as “applicable manufacturers” have an independent obligation to submit reports pursuant to the Sunshine Act.
The final regulations confirm the “all in” concept that requires a company that falls within the definition of an applicable manufacturer to report all payments or transfers of value to covered recipients regardless of whether the payments are related to covered products. Yet, the final regulations provide that if an applicable manufacturer has less than 10% of its total (gross) revenue from covered drugs, devices, biologicals or medical supplies during the previous fiscal year, then the applicable manufacturer may report payments or other transfers of value related only to its covered products.
Further, if an applicable manufacturer has separate operating divisions that do not produce covered products (the example provided is an animal health division), the final regulations state that such divisions will only be required to report payments or other transfers of value related to the company’s covered products.
“Covered Drug, Device, Biological or Medical Supply”
The definition of “covered drug, device, biological or medical supply” includes two parts: (1) a drug, device biological or medical supply for which payment is available under Medicare, Medicaid, or CHIP, either separately or a bundled payment), and, if a drug or biological, requires a prescription, or, if a device, requires premarket approval or premarket notification to the FDA. To fall qualify as a “covered drug, device, biological or medical supply,” the product must satisfy both parts of this definition.
“Indirect Payments or Other Transfers of Value”
In response to comments seeking clarification on which indirect payments or transfers of value are subject to the exclusion and which must be reported, CMS confirms that some indirect payments will be subject to reporting. Specifically, the statutory exclusion of indirect payments turns upon the whether or not the applicable manufacturer is aware of the covered recipient of such payment. If the applicable manufacturer is aware of the identify of the covered recipient, then the payment or transfer of value must be reported. In the preamble to the final regulations, CMS notes that excluding from the reporting requirements all payments made through a third party would create a significant loophole by allowing manufacturers to funnel payments through a third party and not report them; such a loophole would significantly undermine the intent of the reporting requirements. (pg. 28)
CMS further clarifies that if a covered recipient requests that an applicable manufacturer make a payment to a third party, and the third party then provides the payment to the covered recipient, the applicable manufacturer has an obligation to report such indirect payment or transfer of value against the covered recipient. This example of a reportable indirect payment differs from the situation where an applicable manufacturer provides a payment to a third party, and the third party provides a payment to a covered recipient without the applicable manufacturer’s knowledge or direction, which would fall within the indirect payment exclusion. For example, if an applicable manufacturer makes a payment to a consulting firm and, unbeknownst to and without direction from the applicable manufacturer, the consulting firm employs and pays a physician to work on the project, the applicable manufacturer would have no obligation to report such indirect payment from a third party to a covered recipient.