The New Sunshine Act Regulations for Physicians

The long-awaited “Sunshine Act” regulations for physicians are out.  Included in Section 6002 of the Affordable Care Act, the Sunshine Act has been a part of federal law since March 23, 2010. It took three years for CMS to formulate a final 285-page rule, effective 60 days from publication in the Federal Register, currently set for publication February 8, 2013.

This final rule will require applicable manufacturers of drugs, devices, biologicals, or medical supplies covered by Medicare, Medicaid, or the Children's Health Insurance Program (CHIP) to report annually to the HHS secretary certain payments or transfers of value provided to physicians or teaching hospitals ("covered recipients").

Although “transparency” is the stated purpose, the title implies something more. “Sunlight (not simple transparency) is the “best disinfectant.” The phrase was made famous by U.S. Supreme Court Justice Louis Brandeis in a 1913 Harper's Weekly article, "What Publicity Can Do." Congress intended to put an end to a rotten practice, not merely make it more transparent.

“Disclosure brings about accountability, and accountability will strengthen the credibility of medical research, the marketing of ideas and, ultimately, the practice of medicine,” Sen. Chuck Grassley (R-Iowa), who co-authored the legislation, said in a statement. “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.”

This “culture” has to do with the way pharmaceutical and device manufacturers went about their business, which was detailed earlier this year in Practice Notes:

• Stark Law and Gifts Sent to Your Medical Practice

• Stark Law and Pharmaceutical Company Kickbacks

• Stark Law, the AKS, and AMA Ethical Opinions on Drugs and Devices

• When It is Legally Acceptable to Accept Gifts at Your Medical Practice

Agency rules have the same force as statutes, but because federal agencies do not hold hearings; the public is permitted to comment on the first draft. An agency will respond to public comments in the final rule (explaining why the comments, if any, were either included or rejected.) This public participation adds a considerable amount of length to the 285-page final Sunshine Act rule. Distilled to its bare bones:

1. Starting Aug. 1, 2013, drug and device companies will be required to gather data about payments, gifts, and other transfers of value given to physicians and teaching hospitals, including shares or ownership in a company. 

2. Manufacturers and group purchasing organizations will be responsible to report the data including physician ownership and investment interests to CMS by March 31, 2014. 

3. Payments to a “covered recipient” means: 1.) a physician, other than a physician who is an employee of an applicable manufacturer; or 2.) a teaching hospital.

4. Payment includes: consulting fees, compensation for services other than consulting, honoraria, gifts, entertainment, food, travel (including the specified destinations), education, research, charitable contribution, royalty or license, current or prospective ownership or investment interest, direct compensation for serving as faculty or as a speaker for a medical education program, grants, any other nature of the payment, or other transfer of value.

5. There is a de minimis provision of $10 per gift, or annual aggregate of $100 which do not need to be reported.

6. Discounts and rebates need not be reported.

7. Product samples are excluded from reporting.

8. Penalties for failure to report are $1,000 to $10,000 per payment which is not reported with an annual limit of $150,000, unless the payment is “knowingly” omitted, in which case the penalty shall be at least $10,000 with an annual limit of $1,000,000.

The over-all effect of the Sunshine Act on physician practices is simple. Under Stark Law a physician may not refer patients for designated health services (DHSs) including prescription drugs and devices, where the physician or a close family member has an ownership, or financial relationship. Under the Anti-Kickback Statute, a physician may not prescribe drugs or devices if the physician has been paid in cash or in kind, if one purpose of the payment was to influence referrals.

The Sunshine Act will make it much more difficult to conceal such payments by an industry which has had a storied history of such payments.