On February 8, 2013, the final Physician Payment Sunshine Act (“Sunshine Act”) rule, issued by the Centers for Medicare and Medicaid Services (“CMS”) will be published. The arrival of this final rule has been much anticipated by those in the drug and medical device industry, in particular. The final rule implements section 6002 of the Affordable Care Act and requires applicable manufacturers of drugs, devices, biologicals, or medical supplies to annually report to CMS certain payments or transfers of value provided to most physicians and teaching hospitals ("covered recipients"). In addition, applicable manufacturers and applicable group purchasing organizations (GPOs) are required to annually report certain physician ownership or investment interests. Applicable manufacturers' and applicable GPOs' submitted payment and ownership and investment information will be published by CMS on a public website.

With this final rule come many changes from the proposed Sunshine Act rule published in December 2011. Acting on over 300 comments submitted in response to the proposed rule, with the final rule CMS closed a perceived loophole in the law by adding provisions to make clear that indirect payments or other transfers of value made through third parties are covered. It also clarified that the rule covers only applicable manufacturers and applicable GPOs that are operating in the United States. Among other provisions, the final rule includes limitations on reporting that provide that payments made in lines of business unrelated to a covered drug, device, biological or medical supply are not reportable, as well as an exception from reporting for ownership or investment interests of which an applicable manufacturer or applicable GPO is unaware.

In the text accompanying the final rule, CMS emphasized that compliance with the reporting requirements of the final rule “does not exempt applicable manufacturers, applicable GPOs, covered recipients, physician owners or investors, immediate family members, other entities, and other persons from any potential liability associated with payments or other transfers of value, or ownership or investment interests (for example, potential liability under the Federal Anti-Kickback statute or the False Claims Act).” Thus, in addition to complying with the requirements of the final rule, entities should take stock of other aspects of their financial arrangements to ensure compliance in all arenas.

Specifically, the final rule:

  • finalizes requirements for applicable manufacturers to annually report certain payments or other transfers of value to covered recipients;
  • provides definitions of numerous terms, such as applicable manufacturer, and covered drug, device, biological, and medical supply;
  • clarifies how applicable manufacturers should report and characterize payments or other transfers of value, including rules for research payments, and indirect payments provided to a covered recipient through a third party;
  • finalizes which payments or other transfers of value are excluded from the reporting requirements;
  • finalizes the requirements for applicable manufacturers and applicable GPOs to annually report information about certain ownership or investment interests held by physicians and the immediate family members of physicians in such entities, as well as payments and other transfers of value to such physicians;
  • details what constitutes an ownership or investment interest for purposes of the reporting requirements, and defines for whom they must be reported; 
  • clarifies the content for the ownership or investment interest report; 
  • finalizes the processes and requirements for applicable manufacturers and applicable GPOs to submit their reports to CMS, including the specific data elements required to be included in the reports and the report format;
  • details the processes for the review, dispute, and correction period when applicable manufacturers, applicable GPOs, covered recipients, and physician owners or investors are provided the opportunity to review, dispute, and propose corrections to reported payments or other transfers of value, or ownership or investment interests, attributed to them; 
  • clarifies the information to be included on the publicly available website, as well as the usability of the public website; 
  • includes details on the processes for reporting and publishing payments or other transfers of value which are eligible for delayed publication; 
  • includes details regarding the statutorily authorized civil monetary penalties for failure to report payments or other transfers of value, or physician ownership or investment interests, including clarification of the instances when the penalties will be imposed; 
  • finalizes the details of the annual reports to Congress and the States; and 
  • clarifies the statutory requirements for the pre-emption of State laws.

Some of the final rule’s other key provisions are:

  • an exclusion from reporting for compensation paid to physicians for speaking at continuing education programs that meet certain criteria; 
  • a change to require allocation of food and beverage costs among “those who partook” in the meal, except that the tracking of snacks provided at large conferences or events is not required;
  • an exclusion for reporting “de minimis” payments or other transfers of value (under $10, up to $100 per covered recipient per calendar year for 2013), with CMS to publish the value of the “de minimis” amount each year at least 90 days before the start of the reporting year; 
  • a modification to the proposed exclusions to require payments be reported if an applicable manufacturer becomes aware of the identity of a previously unknown covered recipient by the second quarter of the following reporting year; 
  • a much expanded scope of the reporting requirements for research payments; 
  • the clarification of the samples exclusion to specifically include coupons or vouchers for samples; 
  • an expanded loan exclusion to include devices under development and a 90-day supply of medical supplies for evaluation purposes; 
  • a requirement that all applicable manufacturers and applicable GPOs register with CMS within 90 days of the end of the calendar year, but only if reporting is required;
  • a confidentiality provision for information submitted for delayed publication (for payments under product research, development agreements and clinical investigations), until the information has been made public; and 
  • with respect to penalties, a separate aggregate provision permitting the imposition of both failure to report and knowing failure to report maximum penalties, up to $1,150,000 per year.

Applicable manufacturers and applicable GPOs must begin to collect required data on August 1, 2013 and report to CMS by March 31, 2014. CMS will then publicly post reported data to a website by September 30, 2014. CMS will also submit an annual report to Congress and each state starting on April 1, 2015. CMS estimates that that the total cost of these provisions (much of which will fall on applicable manufacturers and applicable GPOs), will be approximately $269 million in the first year and $180 million annually thereafter. CMS has stated it will provide FAQs and other resources designed to guide industry compliance. While industry opinions differ as to the burden versus the benefit of this final rule, and while questions with respect to compliance remain (such as to how to identify indirect payments and teaching hospitals for reporting purposes), it is now incumbent upon all those covered to take steps to comply.

Entities potentially affected by the rule are encouraged to review these rules carefully with experienced legal counsel, assess their existing financial relationships, and take steps to comply with the requirements imposed by this final rule.

The full text of the final rule is available here: https://www.federalregister.gov/articles/2013/02/08/2013-02572/transparency-reports-and-reporting-of-physician-ownership-or-investment-interests-medicare-medicaid