CMS Issues Final Physician Payment Sunshine Rule

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 U.S. Sen. Chuck Grassley (R-Iowa) and then-U.S. 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 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 follows), 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 the 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 models 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 Orthopedic Design & Technology 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,” 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 MMIS CEO 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’ information bank of physicians.

Legislation to Scrap Device Tax Re-Introduced in House and Senate
Just because the 2.3 percent medical device tax went into effect on Jan. 1 doesn’t mean a cadre of lawmakers have decided to stop efforts to repeal this piece of the Affordable Care Act (ACA).

In early January, a number of legislatorss on both sides of the political aisle recounted their concerns about leaving the tax in place.

One of the loudest voices for repeal continues to be U.S. Rep. Erik Paulsen (R-Minn.). On Feb. 6., Paulsen, along with U.S. Rep. Ron Kind (D-Wis.) re-introduced a bill—the Protect Medical Innovation Act—in the U.S. House of Representatives to repeal the tax. Similar legislation passed the House last summer by a bipartisan vote of 270 to 146, but never was considered by the U.S. Senate. On Feb. 7, a bipartisan group of senators introduced a bill identical to the House version the previous day. U.S. Sen. Amy Klobuchar (D-Minn.) wrote the bill with Sen. Orrin Hatch (R-Utah). As of press time, the legislation had 28 co-sponsors and Paulsen’s House bill had 203 co-sponsors. Both versions have more Democratic support than last year. In the Senate version, however, some lawmakers from key medical device states are noticeably absent. Senators from Massachusetts and California have yet to sign on. Democratic Senator Elizabeth Warren (Mass.) supports repeal but only if there’s a “pay-for” option that finds a way to make up the billions in shortfall to the ACA that the repeal would cause.

Now that a new Congress is in place, it’s back to square one. Even if such a measure were to squeak by in the Senate this time around, it unlikely wouldn’t do so with a veto-proof majority. President Obama told Minnesota Public Radio during an interview last year that he would send any law repealing the device tax back to Capitol Hill, arguing that more patients covered under the Affordable Care Act would mean additional sales for the medical device industry.

But the industry and like-minded lawmakers continue to try.

“The momentum from the last Congress is carrying over with a broader array of champions working to defeat this terrible tax,” said Steve Ubl, president and CEO of the Advanced Medical Technology Association. “On both sides of the aisle, members of Congress know the device tax hurts our economy, kills jobs and slows the march of medical progress needed to fight disease and reduce long-term health costs. The medical technology industry is united in its commitment to repeal this tax and appreciates the leadership shown in Congress to continue the effort.”

In late February, Ubl told a group of reporters during an AdvaMed press conference after being asked about the veto threat, that “given the way Washington works lately,” the tax repeal very well could be bundled with other legislation. So, depending upon the give and take in the halls of Congress, repeal may not just be a hopeless effort depending on the kind of deal making that’s done and what the White House wants.

Rep. Fred Upton (R-Mich.), a co-sponsor of the House bill, pointed to layoffs at Stryker Corp., which is based in his home state, as an example of how the tax already has been harmful to the economy.

“Only a month since its implementation and we have already witnessed the devastating impact that this harmful new tax is having on manufacturing jobs and innovation here in Michigan and around the country,” Upton said. “These are dollars that could be better spent on creating local jobs and making critical investments in life-saving technologies. The president has promised to do whatever it takes to move our economy forward and protect struggling middle class families. Repealing the device tax would be a good step in that direction.”

Paulsen wants to make sure that industry, the public and his fellow lawmakers for whom this isn’t an issue remember that the tax affects all companies, and this isn’t an issue of big companies complaining about smaller margins and shrinking executive bonuses.

“It’s not just the larger companies like Medtronic or Boston Scientific—there are 400 of these small companies, medical technology companies in Minnesota, that will be impacted by the new tax. It’s a $30 billion tax that will hit Minnesota hard,” Paulsen told the Fox News broadcast affiliate in Minneapolis-St. Paul. “This tax is not a tax on profit for companies, this is a tax on their sales, on their revenue, and for medical device companies it takes 10-15 years to achieve profitability, so it is time to push the panic button.”

He also framed the cause for repeal within a larger discussion about corporate tax reform. “The odds are more difficult, no doubt, because it’s already law. This is about keeping good, domestic manufacturing jobs here in the U.S., not shipping them overseas, and that’s a part of the larger tax conversation that needs to happen as well,” Paulsen said. “So this year—late spring, early summer—we need action.”

U.S. Rep. Eric Cantor, House majority leader, (R-Va.) also has thrown his weight behind calls to scrap the tax. During a speech at the conservative American Enterprise Institute on Feb. 5 in Washington, D.C., Cantor told the audience the tax was going to cost American families more and would make “access to quality healthcare and innovation tougher.”