One important provision of the Patient Protection and Affordable Care Act ("PPACA") requires certain manufacturers of drug and medical devices to disclose information about payments and other transfers of value to physicians and teaching hospitals, as well as disclosure about certain ownership and investment interests. This law, the Transparency Reports and Reporting of Physician Ownership or Investment Act, is commonly referred to as the "Sunshine Act." Disclosures under the Sunshine Act are intended to increase transparency between drug manufacturers and providers as well as provide the public with additional information about these disclosures. The regulations implementing the Sunshine Act, first released in proposed form in December 2011, were subject to numerous comments from interested parties. After a delay of more than a year, on February 8, 2013, the Centers for Medicare and Medicaid Services ("CMS") released the final regulations implementing the Sunshine Act.

The Sunshine Act Applies to Certain Manufacturers of Drug and Medical Devices

These final regulations include significant financial disclosure obligations for drug and medical device manufacturers and their affiliates. The Sunshine Act requires that manufacturers and their affiliates providing drugs and other products covered under federal health programs, including Medicare and Medicaid ("Covered Products"),report payments or other transfers of value to physicians (including dentists, podiatrists, optometrists and chiropractors) and teaching hospitals ("Covered Providers"). It also requires certain manufacturers and group purchasing organizations to disclose ownership and investment interests. Affected manufacturers and entities must begin collecting relevant data on August 1, 2013 and must report the data back to CMS no later than March 31, 2014.

The Sunshine Act applies to manufacturers that operate in the United States and includes any entity that has engaged in the production, preparation, propagation, compounding or conversion of a Covered Product (except where the product is solely for use by or within the entity itself or by the entity's own patients). Any entity that is under common ownership with an applicable manufacturer is also subject to the Sunshine Act if it provides assistance or support to such manufacturer, including the production, preparation, propagation, compounding, conversion, marketing, promotion, sale or distribution of a covered drug, device, biological or medical supply.

Certain Manufacturers Are Excluded From Reporting Obligations

Entities that are under common ownership that provide assistance with respect to the marketing, promotion, sale or distribution of the Covered Product need only report payments to covered recipients that are related to the Covered Products. Additionally, applicable manufacturers who made less than 10% of total gross revenue from Covered Products during the previous fiscal year only have to report payments to covered recipients that are related to the Covered Products. CMS also agreed to allow applicable manufacturers a 180-day grace period following a product becoming "covered" - e.g., receiving FDA approval - to begin complying with the data collection and reporting requirements of the Sunshine Act.

Required Disclosures Must be Categorized, Including Research-Related Payments

Manufacturers must report payment or transfer of value, which includes cash or equivalent, in-kind items or services, stock, stock options or ownership interest or dividend, and profit or other return on investment. The disclosure must be specifically categorized into one of several categories, including but not limited to, consulting fees, compensation for services such as serving as faculty or a speaker at non-Continuing Medical Education ("CME") events, honoraria, gifts, entertainment, food and beverage, and travel and lodging. The final regulations do include some exclusions, such as compensation related to certain CME events, or when a manufacturer provides buffet meals, snacks, soft drinks or coffee that is made generally available to all participants at a large-scale event, such as a conference. Research payments must also be reported, and the final regulations expand the scope of the disclosures and include more detailed reporting of all research related payments provided to Covered Providers (such as teaching hospitals). If manufacturers fail to file their required disclosures, civil penalties of up to $100,000 per disclosure, or an aggregate annual total of $1,150,000 may be imposed.

The Disclosures Must Include Specific Identifying Information and Covered Providers Have the Right to Appeal the Disclosure Made

Applicable manufacturers must register with CMS within 90 days after the calendar year for which they are reporting. As mentioned above, the first report must be filed by March 31, 2014. The reports required by the Sunshine Act must contain identifying information such as the name, address, and specialty, including the National Provider Identifier (if applicable). It must also include the Covered Provider's state license, which today, is typically not known to manufacturers. Once the information is reported to CMS, manufacturers and Covered Providers have 45 days to review the disclosure, prior to the materials being made public by CMS. If the Covered Provider disagrees with the disclosure made, he or she may appeal, which is sent to the manufacturer for resolution.

Immediate Action Needed to Prepare for Disclosures

CMS estimates the total cost of Sunshine Act compliance to be approximately $269 million for the first year and $180 million per year thereafter. Some industry experts expect the cost to be much higher, as manufacturers, affiliates and Covered Providers begin the process of identifying the products which will be subject to the disclosure rules and implementing a process to capture, categorize and track the data that must be collected and disclosed. As the information will ultimately be posted to a CMS published database, manufacturers and their affiliates should begin communicating the new Sunshine Act requirements to any health care providers (including hospitals and physicians)to whom any payments or other transfers of value are made, including the specific disclosure to be reported to CMS. While Covered Providers have the right to appeal disclosures, it may be wiser for manufacturers and their affiliates to communicate the proposed disclosures prior to the payment or transfer of value to avoid any disputes with Covered Providers.

As the enforcement period approaches, additional guidance from CMS regarding data collection and reporting procedures is expected. Manufacturers and Covered Providers should remain alert for additional specifics to ensure compliance with the Sunshine Act.