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Home / Online Exclusive: CMS Issues Final Physician Payment Sunshine Rule
CMS Issues Final Physician Payment Sunshine Rule

Are contract manufacturers now on the hook?



After a delay of more than a year, the Centers for Medicare & Medicaid Services (CMS) released its final rule for the Physician Payments Sunshine Act. This has been nearly four years in the making. The legislation originally was introduced by Sen. Chuck Grassley (R-Iowa) and then-Sen. Herb Kohl (D-Wis.) in 2009.

When Grassley originally proposed the legislation, his office claimed that its investigative and oversight work had exposed “numerous questionable financial relationships” between drug companies and doctors. For example, the lawmaker cited an example where the chairman of psychiatry at Stanford University received a federal grant to study a drug, while partially owning as much as $6 million in stock in a company that was seeking federal approval of that drug. After exposure, the federal government removed the physician from the grant.

“Disclosure brings about accountability, and accountability will strengthen the credibility of medical research, the marketing of ideas and, ultimately, the practice of medicine,” Grassley said following release of the final rule. “The lack of transparency regarding payments made by the pharmaceutical and medical device community to physicians has created a culture that this law should begin to change substantially. The reform represented by the Grassley-Kohl Sunshine Law is in patients’ best interests. I will stay vigilant about how this law is implemented, especially after the delays seen already. The goal is straightforward, and CMS needs to make certain the reporting and disclosure are complete and clear.”

While the medical device industry—through its advocacy groups such as the Advanced Medical Technology Association and the Medical Device Manufacturers Association—has been supportive of the need for transparency, it also has urged caution in how the law was implemented so as not to have a chilling effect on the unique relationship that medical device companies have with physicians in their key roles as technology advisers and product developers. Because while most practicing physicians don’t come up with new drug compounds, many doctors’ hands-on knowledge about use and efficacy of medical technology leads to important technological changes. That direct contact is part of the evolutionary and iterative nature of device development, and a key pathway to innovation could be lost if the road becomes overly burdensome.

As part of the Affordable Care Act, the rule calls for manufacturers of devices, drugs, biologics and medical supplies that are reimbursed by Medicare, Medicaid or the Children’s Health Insurance Program to disclose to CMS payments made to doctors and teaching hospitals. That means all cash and in-kind gifts given to doctors for research, speaking fees, meals and travel are required to be disclosed. In addition, physicians’ investments in companies also must be reported. CMS solicited public comment in December 2011. The agency received 373 comments in response. The final rule breaks down the accepted definition of a manufacturer (more on that below), reporting timelines, fines, etc. If companies knowingly fail to comply, they could face fines from $150,000-$1 million.

Data collection will begin Aug. 1, and manufacturers must report their data from August through December by March 31, 2014. CMS is developing an online system to ease the reporting process. The agency plans to publish the physician payment data on a public website by Sept. 30, 2014.

CMS predicts the cost of implementation in first year to be about $270 million and $180 million each year after that. Despite the hefty price tag, the agency claims there will be significant non-monetary benefits of the new law, including more information for consumer decision-making when choosing doctors and treatment plans, and the intended deterrence of improper financial relationships that increase healthcare costs. The agency’s message is that if it’s easier to identify conflicts of interest that potentially raise the cost of healthcare and stop them, the total cost of care will go down.

“You should know when your doctor has a financial relationship with the companies that manufacture or supply the medicines or medical devices you may need,” said Peter Budetti, M.D., deputy administrator for Program Integrity at CMS. “Disclosure of these relationships allows patients to have more informed discussions with their doctors.

Companies required to report information under the rule will be able to review and correct reported data before it is released to the public, which had been a concern to the American Medical Association (AMA). There will be a 45-day review period for providers to review data before it goes live.

What About Contract Manufacturers?
The final rule also may have implications for medical device contract manufacturers. In drafting the law, it is clear that CMS intended to leave no stone unturned. The law provides a definition of an “applicable manufacturer” as:

“ … an entity that is operating in the United States and that falls within one of the following categories: 1.) An entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply, but not if such covered drug, device, biological or medical supply is solely for use by or within the entity itself or by the entity's own patients. This definition does not include distributors or wholesalers (including, but not limited to, re-packagers, re-labelers, and kit assemblers) that do not hold title to any covered drug, device, biological or medical supply. 2.) An entity under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological or medical supply.”

So, companies that repackage, manufacture components only, assemble kits, etc., are not included in the CMS definition of an applicable manufacturer. However, there is a gray area concerning the role of a “contracted entity.”

According to the rule: “For the contracted entity conducting the actual manufacturing, we believe that these entities fit into the definition of applicable manufacturer, since they are actually manufacturing a covered product and clearly are ‘engaged in the production, preparation, propagation, compounding, or conversion’ of a product. Therefore, we (CMS) are finalizing that entities that manufacture any covered product are applicable manufacturers, even if the manufacturer does not hold the FDA approval, licensure, or clearance. While we recognize that such entities do not necessarily market the product, we believe it is clear that they do manufacture it. However, we also understand that these manufacturers’ business model may not be focused on covered products. Therefore, if an applicable manufacturer does not manufacture a covered drug, device, biological, or medical supply except pursuant to a written agreement to manufacture the covered product for another entity, does not hold the FDA approval, licensure or clearance for the product, and is not involved in the sale, marketing or distribution of the product, then the manufacturer is only required to report payments or other transfers of value related to the covered product.”

Calls to CMS to provide clarification on this point were not returned. However, speaking on background, a Washington, D.C.-based regulatory attorney told Medical Product Outsourcing that CMS clearly wants to make sure that “nothing is missed or goes unreported,” but that “clearly there’s ambiguity” in what a contracted entity must report. She said contract manufacturers that produce an entire product—more than just one component or assemble parts of a kit—for a client, even though they don’t own the technology or market it, could be on the hook to report.

“It may be that more clarity will come as the law is implemented,” she added, but noted that contract manufacturers that think this might apply to them should follow up with CMS.

Physician Reaction?
“Physicians’ relationships with the pharmaceutical industry should be transparent and focused on benefits to patients,” Jeremy Lazarus, M.D., president of the AMA said in a press release. “Our feedback during this rulemaking process was aimed at ensuring the new registry will provide a meaningful picture of physician-industry interactions and give physicians an easy way to correct any inaccuracies. As the rule is implemented, we will work to make sure physicians have up-to-date information about the new reporting process.”

“There are going to be a lot of academics and physicians out there who are going to say it’s not worth $500 to end up on this website,” said David Rothman, professor of social medicine at Columbia University, told Dow Jones Newswire. “It’s possible that the very publicity given to the relationship is going to discourage the relationship.”

The AMA’s continued vigilance and Rothman’s concern may be justified, at least according to one recent survey.

In its third-annual poll of doctors’ knowledge about the Sunshine Act, MMIS Inc. (a Portsmouth, N.H.-based company that develops secure communication technology solutions) found that physicians actually are less informed than they were a year ago. The survey revealed that of the more than 1,000 physician respondents, more than half admitted they didn’t know that the law requires pharmaceutical and medical device companies to report on expenditures annually, and that such information would be available in a publicly searchable database. Roughly 63 percent were “deeply concerned” that a record of these payments will be available in a publicly searchable database.

In addition, 21 percent of physicians responding to the survey would sever their relationship with a manufacturer who reported inaccurate information about payments or transfers of value if disclosed to the public, and 43 percent indicated it would affect their ongoing relationship with industry. The survey also included written physician comments and concerns ranging from a loss of privacy to a lack of awareness on the part of the general public as to the context of physician/industry relationships.

This lack of understanding increasingly is problematic as the law’s implementation date draws closer, MMIS officials noted. This year’s survey results reflect a 5 percent increase in unfamiliarity with the law’s provisions by doctors in all types of care locations, from teaching hospitals to private practices.

“There are approximately 3,000 manufacturers of drugs and devices providing valuable education and resources to physicians that enhance patient care. Increasing transparency of the relationship between industry and our healthcare providers will undoubtedly encourage scrutiny by the public, physician peers and their institutions,” said CEO of MMIS, Michaeline Daboul. “Government, industry and physician organizations will need to increase communication in this new age of transparency, share data prior to public dissemination and provide a process for physicians and institutions to resolve disputes regarding incorrect or inaccurate information.”

According to the survey, 54 percent of physicians who had industry relationships received samples, 57 percent received food or beverages in the workplace, 48 percent participated in a medical industry sponsored program, 11 percent participated in speaker bureau programs, 10 percent participated in advisory board programs and, most surprisingly, 2 percent still accept free event tickets or gifts.
The Regulatory Law Group PLLC conducted the study for MMIS between Jan. 17-18, using Irvine, Calif.-based Healthcare Data Solutions’ database of physicians.

More information, including access to the final rule, can be found on the CMS website.