On Friday, February 1, 2013, the Centers for Medicare & Medicaid Services (CMS) released the long-awaited Sunshine Act regulations. The Sunshine Act requires disclosure of payments and value transfers (Payments) from drug and device, biological, or medical supply manufacturers to physicians or teaching hospitals, and disclosure of certain ownership and investment interests in manufacturers and group purchasing organizations (GPOs). Its goal is to implement a national, Internet-based disclosure program for Payments and ownership and investment interests, to promote transparency and decrease the potential for conflicts of interest. The first reports from mandated reporters are due to CMS by March 31, 2014, and must reflect payments made on or after August 1, 2013, through December 31, 2013. Note that registration by mandated reporters is required prior to reporting (within 90 days of the end of the reporting period).

The regulations contain detailed guidance related to who must report and what must be reported, along with guidance on the mechanisms of reporting, including Payment classification and attribution rules. We have listed below in summary fashion some of the key features of the Sunshine Act's payment reporting provisions applicable to manufacturers, together with our suggested responses. To read more about these key features of the new regulations and the responses they engender, please read our detailed summary, which is attached.

Sunshine Act Regulations—Key Features

  • Who Qualifies as an "Applicable Manufacturer"? The definition of applicable manufacturer is very broad, and it includes title-taking distributors. It excludes, however, entities that manufacture product solely for internal use or for use by their patients (such as hospitals) and distributors that do not take title. There are also exclusions for some contract manufacturers and separate operating divisions of applicable manufacturers that do not manufacture covered product. Any entity involved in the manufacture or marketing of (i) a prescription drug or prescription biological, or a device (including a medical supply that is a device) that requires FDA premarket approval or notification, or a medical supply (ii) for which payment is available under Medicare, Medicaid or CHIP, will have to make an initial determination of whether it is a mandated reporter.
  • Identify Payments to Residents and Manufacturer Employees.Payments to physician-residents and bona fide manufacturer employees need not be reported. The traditional Internal Revenue Code test will be used to determine whether someone is a manufacturer employee. To properly filter non-reportable Payments, applicable manufacturers will have to develop processes for making a determination as to when an otherwise covered recipient is a bona fide employee of the manufacturer.
  • What Is "Covered Product"?Together with product reimbursed separately (e.g., under a fee schedule), covered product is defined broadly to also include product reimbursed under bundled payments. Thus, at least in some circumstances, it may be difficult to identify whether particular product will be deemed to be covered. An inquiry into whether or not one is an applicable manufacturer starts first with evaluating whether any product one may be involved in manufacturing or marketing is, in fact, covered.
  • Corporate Relationships Triggering Reporting Obligations.A 5% common interest can transform an entity that provides assistance and support to an applicable manufacturer into an applicable manufacturer with independent reporting obligations. It is not always entirely clear what types of assistance and support will trigger this classification.
  • Tracking Indirect Payments. Indirect manufacturer payments made through a distributor are reportable and thus must be tracked by the originating source (i.e., the applicable manufacturer).
  • Valuation of Payments. Payments are to be reported at their market value (and not adjusted to their value to the particular recipient). Reporters will want to establish a defensible, consistent approach to valuation.
  • Characterizing what is Reportable.Manufacturers must report "payments or other transfers of value" (which is defined simply as "a transfer of anything of value") provided to a covered recipient or provided to another party at the request or designated on behalf of a covered recipient. There is a plethora of guidance relating to how particular types of payments should be classified and reported.
  • Avoiding Disputes with Recipients. There will be no mandatory pre-submission review process by which recipients may contest a report, although ongoing reporting to recipients is recommended. CMS will not adjudicate post-submission disputes. Manufacturers will want to consider how they can best avoid disputes with recipients of reportable Payments.
  • Reported Data Attestations Required. An officer-level attestation as to the accuracy of the data will be required, and records related to the reports must be maintained for five years. Manufacturers will have to adopt policies to support this requirement.
  • Reporting Ownership & Investment Interests. The regulations also provide guidance to manufacturers and GPOs related to reporting ownership and investment interests.

Go here for a detailed summary of key findings.