On January 1, 2012, Will You Know Where Your Payments Are Going?

On January 1, 2012, manufacturers of drugs, biologics, devices and medical supplies covered under Medicare, Medicaid and the Children’s Health Insurance Program must begin tracking payments and other transfers of value made to physicians and teaching hospitals in order to comply with federal requirements known as the federal payment sunshine law (“Sunshine Law”).1

Compliance Challenge

Manufacturers currently face a challenge in ensuring timely compliance with the Sunshine Law. Although many manufacturers have been preparing for the implementation of the law, the law contains a number of ambiguities that must be resolved in order for manufacturers to establish the policies, procedures and tracking systems necessary for compliance. Ambiguities include:

  • Which manufacturer has the reporting obligation when manufacturers share responsibility with respect to the manufacture or promotion of a single drug, biologic, or device? For example, which company or companies report transfers of value in a co-promote arrangement?
  • How are teaching hospitals defined and identified? For example, how will a manufacturer know if a hospital has a teaching component? What about payments to a university that has a teaching hospital? Are payments to teaching hospital employees reportable?
  • When are transfers of value made to third parties other than physicians and teaching hospitals reportable? For example, does a manufacturer need to track payments made to a third party such as a research institution or contract research organization that has its own arrangement with a physician investigator or track financial support provided to an educational institution for a scholarship when the educational institution selects the physician recipient?
  • How broad is the scope of the transfers of value exempt from reporting? For example, when are medical devices provided at no cost exempt from reporting as product samples or educational items?
  • What is a manufacturer of a “medical supply” subject to the law? Does “medical supply” encompass more than FDA-regulated medical devices?

The Sunshine Law also creates operational challenges for companies seeking to implement policies, procedures and tracking systems to ensure compliance. Operational challenges include:

  • How does a manufacturer ensure that all transfers of value are identified and tracked?
  • How does a manufacturer ensure that transfers of value are captured with all the information necessary to ensure complete reporting?
  • How does a manufacturer reconcile different obligations under state and federal laws, including different requirements for the characterization and reporting of payments?

The Centers for Medicare & Medicaid Services (“CMS”) is required to establish procedures for reporting under the law by October 1, 2011, and the agency has indicated its intent to issue implementing regulations. Even if the regulations are issued by October 1, 2011, however, manufacturers will only have three months to adjust policies, procedures and tracking systems to the clarified requirements.