Pharmaspective

Sunshine Act: Indirect Payments: Reportable or Excluded?

By Sarah Canberg

All too often, a payment from an applicable manufacturer does not go directly to a physician or teaching hospital. Instead, the applicable manufacturer indirectly provides a payment to a covered recipient by making a payment to a third party that then transmits the payment to the covered recipient that actually performed the services (e.g., a pass through payment). Alternatively, a covered recipient may request that the applicable manufacturer provide the payment to a third party “at the request of” or “on behalf of” a covered recipient rather than the covered recipient receiving the payment.  The actual recipient of the payment is often a charitable entity. The final Sunshine Act regulations acknowledge these payment streams and, as a general requirement, mandate the reporting of these payments to physicians and teaching hospitals as well as payments to non-covered entities or individuals “at the request of “ or “on behalf of” a physician or teaching hospital. Yet, there are notable nuances and exceptions to the rule.

Indirect Payments: What Are They? When Are They Reportable?

In an effort to clarify when an indirect payment is subject to reporting, the final regulations include a definition of “indirect payments or other transfers of value”:

payments or other transfers of value made by an applicable manufacturer…to a covered recipient…through a third party, where the applicable manufacturer…requires, instructs, directs, or otherwise causes the third party to provide the payment or transfer of value, in whole or in part, to a covered recipient(s)….

The preamble includes an example of an applicable manufacturer providing an unrestricted donation to a physician professional organization for use at the organization’s discretion.  In turn, the organization uses the funds to provide a grant to physicians.  Since the applicable manufacturer did not require, instruct, direct, or otherwise cause the recipient of its donation, the organization, to use the funds for grants to physicians, this does not fall within the regulatory definition of “indirect payment or other transfer of value” and, as such, is not reportable as either a direct or indirect payment to a covered recipient.  On the other hand, if the applicable manufacturer provides a donation to the organization with an earmark for the payment to be used to provide grants to physicians, this would constitute an indirect payment reportable against the ultimate covered recipient.  This is so even if the manufacturer did not specify or suggest which physicians would receive the grants.

Payments “At the Request Of” and “On Behalf Of”: Follow the Money

It is not unusual for a physician or teaching hospital to request that an applicable manufacturer to provide a payment to a third party rather than directly to the covered recipient.  An example would be the request that the payment be provided to the physician’s practice or an affiliated entity rather than directly to the physician.  In circumstances such as this, the covered recipient is directing the path of the payment, not the applicable manufacturer.  The final regulations require that such payments must be reported in the name of the covered recipient.  The name of the entity that received the payment or, if an individual, the word “individual” would also be included in another field on the disclosure report.

A physician or teaching hospital may also direct an applicable manufacturer to provide a payment to a charitable entity as a donation on behalf of the covered recipient.  Similar to the above scenario where the payment is directed to a third party “at the request of” a covered recipient, when a covered recipient directs a payment be made to a third party, such as a charity, “on behalf of” the covered recipient, such payment must be reported in the name of the covered recipient; the disclosure must also include the name of the charity that received the payment at the direction of the covered recipient.

Indirect Payments: Exclusion Provision

Although the Sunshine Act and regulations provide an exclusion of indirect payments to third parties, this is applicable in very limited circumstances.   In order for an indirect payment to be excluded from reporting, the payment must (1) qualify as an indirect payment or transfer of value, and (2) the applicable manufacturer must be unaware of the identity of the physician or teaching hospital receiving the payment during the reporting year or by the end of the second quarter of the following report year. 

For an applicable manufacturer to be “unaware” of the identity of the physician or teaching hospital receiving the indirect payment, the applicable manufacturer must not have actual knowledge or act in deliberate ignorance or in reckless disregard of the truth or falsity of the information.

The preamble specifically provides that for this exclusion only, when an applicable manufacturer makes a payment to a third party with the intent of keeping the identity of the covered recipient anonymous, the applicable manufacturer will not be acting in deliberate ignorance or reckless disregard of the identity of the covered recipient and will be deemed “unaware” of the identity of the covered recipient.  The specific example provided is the engagement of a market research firm to conduct a double-blinded market research study.  The payment to the firm, part of which may ultimately go to physicians for participation in the research, would qualify as an indirect payment excluded from reporting because the physicians are intended to be anonymous in their participation.

Where a payment is made to a third party, and the third party is directed to make payments to an identifiable group of covered recipients, such as the top billing cardiologists in a certain city, the applicable manufacture would be deemed “aware” of the covered recipients and required to report against such covered recipients assuming that the covered recipients can be identified during the reporting year or through the second quarter (June 30th) of the subsequent year following the transfer of the payment to the covered recipient by the third party.  The applicable manufacturer must report such indirect payments in the calendar year that the third party provided payment to a covered recipient and the applicable manufacturer became aware of the identity of the covered recipient. For example, the applicable manufacturer makes a payment to a third party on August 31, 2013, but the third party provides the payment to a covered recipient on December 31, 2013.  Further, the applicable manufacturer does not become aware of the identity of the covered recipient until early in calendar year 2014.  In this circumstance, the payment would be reported for calendar year 2014. We view this example of reportable indirect payments as the most troublesome and potentially difficult for applicable manufacturers to track.  In this scenario, the applicable manufacturer must track the payment being provided by the third party, identify the covered recipient, and report payments provided by the third party to a covered recipient in the subsequent calendar year.

 

For additional information on the Sunshine Act and to view a copy of the final regulations as released by CMS on February 1, 2013, please see visit the Federal Register website. 

 

Don't forget to check out our other posts regarding the Sunshine Act Final Regulations:

The Who and the What of the Sunshine Act Regulations and Sunshine Act: Reporting Food, CME, and Research...Oh My!

U.S. Supreme Court Upholds Affordable Care Act

This morning, the United States Supreme Court upheld the Patient Protection and Affordable Care Act (“ACA”) in its entirety.  In a 5-4 ruling, the Court held that the most controversial portion of the ACA, the individual mandate, was constitutional as being within Congress’s power under the Taxing Clause.  Chief Justice Roberts wrote the majority opinion, joined by Justices Ginsburg, Breyer, Sotomayor, and Kagan.  Justices Scalia, Kennedy, Thomas, and Alito dissented.  The Court’s decision means that all portions of ACA, including the Physician Payments Sunshine Act (section 6002) and the Prescription Drug Samples Transparency Act (section 6004) remain in effect.

 

After months of waiting for the Court’s ruling, the Court arrived at what most would consider a surprising decision, for three main reasons.  First, the individual mandate was upheld.  Many “experts” had predicted that the mandate would be struck down by the conservative members of the Court.  Second, Chief Justice Roberts, appointed by President George W. Bush and considered a solid conservative vote, broke ranks with the other conservative justices and instead joined with the more liberal justices to uphold the mandate.  Third, it was expected that the individual mandate would either be struck down or upheld on the basis of the Commerce Clause.  However, the five-member majority ruled that the individual mandate was constitutional under the Taxing Clause.  On that point, the majority, with the exception of Chief Justice Roberts, would have held that the Commerce Clause authorized the individual mandate.  Chief Justice Roberts was of the view that the individual mandate could not be sustained under the Commerce Clause, a point with which the dissenting justices agreed.  Ultimately, the Commerce Clause issue became moot because five justices held that the individual mandate could be upheld under the Taxing Clause. 

 

In addition to its ruling on the individual mandate, the Court held, as a threshold matter, that it had jurisdiction to consider the case and that the Anti-Injunction Act did not bar the suit.  With respect to ACA’s Medicaid expansion, the Court determined that it was unconstitutional in that it threatened the States with the loss of their Medicaid funding if they did not comply with the expansion.  The Court remedied that violation, however, by ruling that the Secretary of the Department of Health and Human Services cannot enforce that penalty provision of ACA.

 

In concluding the majority opinion, Chief Justice Roberts stated that “[t]he Framers created a Federal Government of limited powers, and assigned to this Court the duty of enforcing those limits.  The Court does so today.  But the Court does not express any opinion on the wisdom of the Affordable Care Act.  Under the Constitution, that judgment is reserved to the people.”  In the days to come, we can expect to see “the people” continuing their heated and passionate debate over the wisdom of ACA, as well as the wisdom of the Court’s opinion.  Despite that debate, the Court’s ruling is clear, as is its impact on the life sciences industry:  ACA remains in full force and effect, and companies must comply with all portions of it, including the Physician Payments Sunshine Act and the Prescription Drug Samples Transparency Act and their implementing regulations.

 

Click here for text of the full ruling.

 

By Brian P. Sharkey

Counsel

Porzio, Bromberg and Newman, P.C.

 

 

A Holiday Present from CMS: Proposed Regulations Implementing Sunshine

More than 2 months after the October 1, 2011 deadline, the Centers for Medicare and Medicaid Services (CMS) has finally released the proposed rule that would implement the “Transparency Reports and Reporting of Physician Ownership or Investment Interests” section of the Patient Protection and Affordable Care Act (often referred to as the “Sunshine Act”).   The proposed rule would require manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program to report  payments or other transfers of value made to physicians and teaching hospitals.  It would also require manufacturers and group purchasing organizations (GPOs) to disclose physician ownership or investment interests.  Although the proposed rule is not scheduled to be published in the Federal Register until Monday, CMS issued a notice of proposed rulemaking yesterday and actually made available the unpublished rule.

So, what are the implications on timing for data collection and reporting?  In a lengthy preamble accompanying the draft rule, CMS is proposing that manufacturers and GPOs would not be required  to begin collecting data for federal disclosure on January 1, 2012, but that they will be able to wait until the final regulations are issued sometime in 2012.  As a result, manufacturers and GPOs would submit a disclosure report for only part of 2012 on March 31, 2013.  CMS will then aggregate these submissions and provide physicians and teaching hospitals 45 days to review the information before it is made publicly available by September 30, 2013.  Applicable manufacturers and other interested parties will have until 5 pm Eastern Standard Time on February 17, 2012, to submit their comments on the proposed rule electronically; by regular, express or overnight mail; or by hand or courier. 

Many in industry have been working frantically to meet the January 1, 2012 deadline to begin data collection, and perhaps some companies will forge ahead as planned and begin collecting, and perhaps voluntarily reporting their spend as of January 1.   For others, the proposed delay  may be a welcome reprieve and an opportunity to prepare for compliance, now with the added benefit of the proposed rule.  Either way, Happy Holidays!