Complexities of Compliance with State and Federal Sunshine Acts

Challenges to healthcare reform continue a little more than a year after the Patient Protection and Affordable Care Act (PPACA) became law and was “reconciled” by the Health Care and Education Reconciliation Act of 2010 (HCERA).

Unfortunately for the life-sciences industry, the passage of PPACA’s Physician Payments Sunshine Act provisions did not standardize, curtail or rationalize pre-existing state-specific aggregate spend-reporting obligations. Companies now will be required to maintain and possibly build out compliance infrastructure to meet all state-specific laws as well as federal Physician Payments Sunshine Act provisions.

Many life-sciences companies already are busy preparing to comply with federal Sunshine Act reporting provisions by the March 31, 2013, deadline. In subsequent years, annual reporting will be due March 31 as well.

PPACA’s Sunshine provisions require all pharmaceutical, medical device, biotechnology and medical supply manufacturers in the United States to report to the secretary of the U.S. Department of Health and Human Services (HHS) the payments or transfers of value made to beneficiaries during the prior calendar year. Life-sciences companies will be challenged to broadly implement the processes and systems used to capture, store and report this business data. Even small to midsize companies with limited means and infrastructure will be charged with building out and testing processes, procedures and systems used to capture and query sufficient compliance data and reports.

Included in PPACA’s Sunshine Act reporting requirements are:

• Charitable giving;

• Consulting fees;

• All compensation for non-consulting services;

• Education;

• Entertainment;

• Food;

• Gifts;

• Grants;

• Honoraria;

• Investment interests;

• License fee revenue;

• Research;

• Royalty revenue;

• Speaker/faculty fees for educationalprograms; and

• Travel.

Excluded from PPACA’s Sunshine Act reporting obligations are:

• Payments under $10, unless the aggregate amount paid to a covered recipient exceeds $100 per year;

• Product samples and educationalmaterials for the benefit of patients;

• Loan of a covered device for a trialperiod under 90 days;

• In-kind items provided for use incharity care;

• Items or services provided under awarranty;

• Discounts (including rebates); and

• Expert witness fees.

Despite exclusion of the product samples listed above for patients, section 6004 of PPACA requires prescription drug manufacturers and authorized distributors of record to submit to HHS by April 1 of each year beginning with 2012, reports containing aggregated information regarding the identity and quantity of drug samples requestedand distributed.

In addition to PPACA, several states also impose disclosure requirements and reporting obligations upon regulated drug and medical device manufacturers. More states are likely to enact similar legislation, thereby requiring constant monitoring in this area. Some state Sunshine laws impose voluntary obligations on life sciences manufacturers’ behavior including the PhRMA Code and AdvaMed Code of Ethics, whichboth are applicable to pharmaceutical manufacturer and medical device company interactions with healthcare providers. Certain state laws also refer to the HHS Office of Inspector General (OIG), OIG Compliance Program Guidance for Pharmaceutical Manufacturers, April 2003.

PPACA may preempt state law, yet not apply to those reporting provisions:

• By entities or persons other than manufacturers; 

• To entities other than physicians and teaching hospitals;

• Of spend/transfers of value that either is not covered or is exempt from federal reporting; and

• To federal, state and local agencies for public health surveillance purposes.

States may require additional disclosures. Conversely, PPACA may not contain or preempt any behavioral prohibitions in state laws. The primary areas addressed by state Sunshine laws are:

• The adoption, training, auditing, investigation and enforcement of a compliance program and code of conduct in accordance with the OIG Compliance Program Guidance for Pharmaceutical Manufacturers and the PhRMA Code or AdvaMed Code of Ethics;

• The provision of gifts, meals and entertainment to healthcare professionals; and

• Spending on promotion and advertising.

State Sunshine laws often contain either or both:

• Marketing representative detailing prohibitions including bans and spending limits on gifts, entertainment and/or meals; and

• Disclosure requirements including information on aggregate promotional spending, as well as the nature, value and purpose of specific gifts.

Most state laws also include specific exclusions from one or the other, or both, of these requirements, including:

• Fair-market value payments such as compensation forconsulting services;

• Provision of educational items such as reprints of peer-reviewed articles;

• Spending on clinical trials and bona fide research, certain nominal expenditures, education or training on the use of medical devices;

• Loaned medical devices;

• Free drug samples for patient use;

• Subsidies provided through patient assistance programs;

• Royalties or licensing fees;

• Items for charity care;

• Advertising that is unrelated to in-state rebates and discounts;

• Donations to third-party continuing medical educationconference sponsors; and

• Refreshments provided at conferences.

State laws and PPACA’s Sunshine provisions have different coverage requirements, deadlines, expense allocations, reporting formats, fee structures, penalties and policies regarding the confidentiality of disclosed data; thus, complicatingpharmaceutical and medical device marketing to prescribers.

Civil penalties for violating the PPACA range from $1,000-$10,000—up to $150,000 per annual submission—for failure to report each payment or transfer of value, ownership, or investment interest “in a timely manner in accordance with rules or regulations”; and from $10,000-$100,000—up to $1 million per annual submission—or each “knowing failure to report.” States also may impose monetary penalties for violations including cost-shifting clauses that call for payment of investigation, enforcement and attorneys’ fees.

To avoid these penalties and costs, manufacturers should consider proactive steps to comply with all applicable Sunshine laws. For example, manufacturers should:

• Study and comprehend the requirements of state andfederal spend-reporting provisions and monitor any relatedregulations or guidance from state health departments, Medicaid agencies, attorneys general, and boards of pharmacy for relevant sub-regulatory guidance on statutory requirements;

• Draft and maintain internal operating procedures andpolicies requiring all effected company employees to complywith all relevant law;

• Document company spending on educational items, mealsand advertising to the healthcare providers targeted;

• Annually review all processes and systems to ensure optimalcompliance with evolving regulatory guidance and law; and

• Quarterly review compliance with reporting processes andSOPs as part of internal audit (e.g., Sarbanes Oxley) controls.

Life-sciences manufacturers should allocate sufficient time and resources to develop and frequently update policies, procedures, systems and training to address the statutory requirements of both state and federal Sunshine acts. All companies also should exercise due diligence to evolving state requirements, which will pose compliance risks and operational challenges.

Many industry observers believe statutory prohibitions have put an end to the days of detailing healthcare providers with “swag.” Instead, product marketing strategies should focus on patient and provider education of relative product value to lessen the reliance on traditional methods of influencing provider prescribing patterns instead of outcomes studies and comparative effectiveness research.

One solution is the implementation of an aggregate spend system to achieve overall compliance. An enterprise solution can impact areas of critical operational importance such as:

• Accurate customer masters;

• Spend-capture and accurate and timely categorizationof all remuneration to physicians and hospitals or healthcareproviders;

• Robust reporting tools involving normalized, standardizedand centralized data;

• Adequacy of audit trail;

• Training representatives and internal staff on SOPs, policiesand procedures;

• Centralized command, control and ownership of complianceprocesses with power to affect the necessary infrastructureenhancements and organizational alignments to meetrequirements; and

• Compliance leadership that is IT proficient, adept at managing operational complexity and well-versed in audit and compliance processes.

Although compliance risk is common to life-sciences manufacturers, there is a great deal of complexity and little standardization. The risk of regulatory enforcement remains and many companies recognize the need for investment and monitoring to prevent sanctions. A proactive approach to risk management will identify and organize resources for optimal efficiency.

In Figure 1, the traditional stovepipe model of department-centric compliance is illustrated in which departments are in silos.

Best Practice in risk management through intelligent-design principles optimally aligns department missions, staffs, priorities and data gathering and reporting systems to attain enterprise-wide priorities. Figure 2 illustrates how intelligent design transforms the stove pipe model into a more integrated enterprise-wide compliance approach containing fewer gaps and process defects.

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Investments in staff, training, and enhancements to compliance infrastructure are expensive and can be difficult to implement. However, considering the steep penalties associated with enforcement, relying upon existing infrastructure and staff may not be the most cost-effective solution to managing what is increasingly a complicated, heterogeneous and multi-jurisdictional compliance requirement.

Derek Evans is information management practice leader for Alliance Life Sciences, a management and technology consultancy based in Bridgewater, N.J. He has more than 20 years of experience in the life-sciences industry. In that time, he has gained expertise in Data Warehouse, Business Intelligence, Master Data Management (MDM) and Customer Relationship Management (CRM) solutions. Evans also has experience with Sales and Marketing systems and business processes including Sales Reporting, Customer Analytics and applications such as Territory Management, Sample Management and Incentive Compensation. He comes from Daiichi-Sankyo and Cegedim Dendrite, and joined Alliance in 2010 to further expand its capabilities in the Information Management space. He is a graduate of MacQuarie University in Australia with a B.S. in Computer Science.

Rob Fellman is senior consultant for government pricing. He is a licensed attorney with more than 16 years of transactional, reimbursement, regulatory compliance and business development experience within the healthcare industry. Prior to joining Alliance, Fellman held the role of director of Client Contracting & Proposal Management at a major pharmacy benefit manager where his responsibilities included the administration and management of all payer contracting for captive specialty pharmacies.