In another example of the increased scrutiny being placed upon medical device manufacturers at the federal level and the push toward greater transparency with respect to relationships involving

physicians and other healthcare providers, the independent and influential Medicare Payment Advisory Commission (MedPAC) convened in early November to discuss and vote on recommendations for a federal physician financial disclosure law. The recommendations will be formalized and communicated to lawmakers in MedPAC’s March 2009 report to Congress. MedPAC is an independent federal body that was established in 1997 to analyze access to care, quality of care, and other issues affecting Medicare and its beneficiaries.

There are a number of critical elements in the commission’s recommendations that will make orthopedic manufacturers sit up and take notice.

MedPAC overwhelmingly supports the creation of a national database to collect information about payments between drug and device manufacturers and physicians. Under the approved recommendation, manufacturers would be required to report payments, gifts, food, entertainment, travel, honoraria, funding for research, education and conferences, consulting fees, investment interests and royalties exceeding an annual threshold of $100. Manufacturers would be required to report the value, type and date of each payment; the name, specialty, Medicare billing number, and
address of each recipient; and the name of the payment-related drug or device. The Medicare billing number would only be available to researchers and not to the general public.

Notably, manufacturers would not be required to report discounts or rebates. Product samples provided for patient use would have to be reported, but access to the data would be restricted.

Manufacturers also would be required to report payments to physicians and “other entities.” Though
MedPAC did not specify what entities would be included in this category, prior proposals by commission staff have suggested that payments to physician organizations, patient advocacy groups
and continuing medical education companies should be disclosed.

The commission agreed that a federal disclosure law should preempt state laws “that collect data on the same types of payments and recipients.” This, however, could be interpreted as permitting states to enact laws that require reporting of different types of data.

For payments related to clinical trials, MedPAC recommended that reporting requirements would begin when a trial is registered on the National Institutes of Health’s Web site, clinicaltrials.gov. Other payments related to new product development would have to be disclosed at the earlier of 1) two years after the date of the payment or 2) the date of FDA approval of the investigated drug or device.

In addition, MedPAC recommended that the data reported—excluding Medicare billing numbers—be made available to the public through a searchable Web site.

Finally, the commission agreed that patient samples exceeding the $100 threshold should be reported. This information would not be publicly available, but rather would be accessible only to researchers through data use agreements. In approving this recommendation, MedPAC determined that the terms “researcher” and “data use agreements” should be broadly construed.

How Practical Is It?

Several MedPAC commissioners raised concerns regarding the general practicality of the proposed recommendations. Large physician practices, difficulties with billing and ID numbers, and a plethora of other issues make this plan both administratively complex and costly. MedPAC could not estimate the plan’s potential cost due to such complexities. The group did note, however, that these standards would apply preemptively and, therefore, potentially could reduce compliance costs for manufacturers. The commissioners also noted the need to be cautious so as not to hinder positive financial
relationships.

Ultimately, the overwhelming support for the recommendations seemed to indicate an early, though admittedly imperfect, attempt to begin a national data collection process that would shed light on problematic financial relationships.

Obviously, the purpose behind these disclosure and reporting recommendations is to encourage a greater level of transparency with respect to relationships involving manufacturers and providers and to discourage those types of interactions that might be problematic and/or possibly have the effect of
compromising patient care.

The recommendations are significant in that they come on the heels of several wide-ranging developments in the medical device arena, including, for example, the announcement of the
deferred prosecution agreements (DPAs) in late 2007; the subsequent subpoenas issued to other orthopedic device companies by the same federal office that commenced the investigations
culminating in the DPAs; a settlement entered into with Medtronic; the announcement of a probe of Stryker by the US government; the focus by Congress on grants to third-party nonprofit medical organizations and ties to physicians; the proposed federal “Sunshine” legislation; the release of a
revised PhRMA Code (and the efforts by AdvaMed to revise its corresponding code); and the enactment of a broad Massachusetts law that is expressly applicable to medical device companies.

All this, coupled with an incoming Democratic administration (the first time in years that Democrats have had control of the presidency and both houses of Congress), provides a strong signal to manufacturers—orthopedic device companies in particular—that 2009 promises to be a year of unprecedented scrutiny of manufacturers’ relationships with physicians and other providers.

More Than Physicians

One of the more significant aspects of MedPAC’s recommendations that should be of particular note to orthopedic companies is the proposal for mandatory disclosure of payments to recipients other than physicians, including patient advocacy groups and physician membership organizations. In calling for such payments to be publicly disclosed, MedPAC staff cited voluntary initiatives by several manufacturers to report contributions to patient advocacy groups and physician organizations on their Web sites. The inclusive approach advocated by MedPAC staff is more stringent than that proposed
by the Physician Payments Sunshine Act of 2007, which would only require disclosure of payments to
physicians or affiliated entities.

Numerous items have been explored in previous columns, such as the aggressive enforcement environment that both pharmaceutical and medical device manufacturers increasingly find themselves in and the steps that such companies need to take to reduce their risks of exposure from a legal perspective. The release of the MedPAC recommendations further illustrates the importance of transparency in the context of financial relationships between companies and providers, as it likely will not be long before a federal law is in place that will address disclosures and reporting concerning
these types of interactions.

Accordingly, companies would be well-advised to ensure that they have robust internal tracking systems to monitor and catalog all financial relationships with physicians and other providers. Furthermore, and perhaps most importantly, care needs to be taken that every one of these relationships has been carefully vetted and is consistent with applicable laws as well as the proscriptions outlined by the government in the DPAs. The inevitable congressional action in this
area virtually guarantees that these types of relationships will be examined, at least to some degree, by the government, including congressional oversight committees. 

Mark Langdon is an attorney with the Washington, DC office of the law firm Sidley Austin LLP. He is a nationally recognized expert on healthcare compliance issues, with a particular focus on fraud and abuse and reimbursement matters. Mark primarily represents device and pharmaceutical companies, hospitals and physicians. He can be reached at (202) 736-8162 or [email protected].