Proposed Changes to the Sunshine Act Will Be Expensive for Medtech Companies

Proposed revisions to the Physician Payments Sunshine Act from the Centers for Medicare & Medicaid Services could prove expensive for some medical device companies.

By Brian Bohnenkamp

In July 2014, the Centers for Medicare and Medicaid Services (“CMS”) issued proposed revisions to the rules governing the reporting requirements under the federal Physician Payments Sunshine Act (which CMS refers to as the Open Payments requirements).   Two of the proposed changes – if adopted – could have a significant impact on medical device manufacturers’ obligations to track and report to CMS payments and transfers of value they provide to U.S. physicians and teaching hospitals.

Moreover, if adopted, the time permitted to incorporate the changes into systems, processes, and operations could be short (possibly little more than 30 days).  Device manufacturers would be wise to consider now the potential impact CMS’ proposals might have on them, and understand what process and system changes might be needed so that they are prepared to quickly execute on any changes to the reporting requirements that may come later this year.

CMS Proposes to Require the Listing of the Marketed Name for Products Related to a Reported Payment or Transfer of Value

Of primary concern, CMS proposes to require manufacturers to report the marketed name for products related to reported payments and transfers of value.  Under the current requirements, for covered devices related to a payment or other transfer of value (up to five), manufacturers have the flexibility to report either the product’s marketed name, therapeutic area, or product category.   Many device manufacturers currently report a therapeutic area or product category for any covered devices related to their reported payments.  For example, many manufacturers currently report the name of the product category within which the related covered device(s) reasonably fit(s) (e.g., “hip implant”) and not the specific marketed name(s) of the device(s) (e.g., “Implant ABC1”).

CMS’ proposed change would eliminate the current flexibility to report a product category or therapeutic area, and require the reporting of the marketed name for products (covered or not) related to the payment or transfer of value.  Although this proposed change appears minor, it could require substantial and expensive changes to device manufacturers’ tracking and reporting systems and processes.  The change would be especially difficult to manage for companies that manufacture and market a large portfolio of products.  For example, under CMS’ proposal, a manufacturer’s systems and/or processes would need to permit tracking of and distinguishing between interactions related to each particular product (even if the products are part of the same line, e.g., “Hip Implant ABC1,” “Hip Implant ABC2,” “Hip Implant ABC3,” etc).

Moreover, sales representatives and other company personnel would need to be well trained to track their interactions to that degree of specificity.  For example, a sales representative who provides a meal to a physician in association with an informational presentation about the company’s products would need to track which specific products were discussed during the meeting.  Such tracking and reporting would be even more difficult for more general interactions that involve an entire product line and not any particular product within the line; in such cases, which product(s) within the line should be reported as being related to the payment or transfer of value?

Accordingly, the time and resources needed to effectuate a requirement to report the marketed name for products related to payments and transfers of value could be significant for some manufacturers, especially those that would need to distinguish between hundreds (or even thousands) of distinct products.

CMS Proposes to Remove the Exclusion for CME Faculty Compensation

In addition, CMS proposes to remove an exclusion from reporting for compensation provided to a physician for speaking at a continuing medical education program.  The regulations currently exclude such compensation if: (1) the program meets the accreditation requirements and standards for continuing education of one of five organizations listed in the rule; (2) the manufacturer does not select the physician speaker or provide the third party (such as a continuing education vendor) with a distinct, identifiable set of individuals to be considered as speakers for the continuing education program; and (3) the manufacturer does not pay the physician speaker directly.

If this exclusion would be removed, in some cases, medical device manufacturers could be required to report payments provided indirectly to physicians who are CME faculty members.  The agency proposes to delete the exclusion in part because it believes it is redundant with the exclusion for indirect payments where a manufacturer does not know the identity of the physician covered recipient (codified at 42 C.F.R. 403.904(i)(1)).  Interestingly, however, CMS’ accompanying explanation of the redundancy focuses on a manufacturer’s potential influence over who are the faculty members, and not necessarily whether their identities would be known to the manufacturer.  The agency states that in cases where “an applicable manufacturer . . . provides funding to a continuing education provider, but does not either select or pay the covered recipient speaker directly, or provide the continuing education provider with a distinct, identifiable set of covered recipients to be considered as speakers for the continuing education program, CMS will consider those payments to be excluded from reporting under § 403.904(i)(1).”   In many cases, manufacturer support for CME programs satisfies these criteria, but supporting manufacturers also often know the identities of the CME faculty members (as that information is typically provided as part of the funding request).

It is not clear how manufacturers should interpret CMS’ statements accompanying its proposal to remove the CME exclusion.  It is possible the agency presumes that supporting manufacturers do not know the faculty members’ identities; however, that concept is not expressly stated and the statements could be read as reflecting the agency’s belief that such lack of knowledge is not a requirement to reasonably not report such CME compensation.

If CMS would remove the CME compensation exclusion as proposed, manufacturers should carefully analyze the agency’s statements accompanying any finalized changes.  Depending on the agency’s guidance/statements accompanying any such removal – especially if it would be unclear whether the indirect payment exclusion would apply in situations where a manufacturer knows the identities of the physician faculty members – manufacturers may need to reconsider and revise their approaches to the Sunshine requirements with respect to their support of CME programs (and the accompanying documentation).

When Would the Changes Take Effect, If Adopted

CMS is expected to release its final revisions to the reporting requirements – if the agency in fact makes any revisions (it might not make any) – later this year (possibly when it publishes changes to the Medicare physician fee schedule for calendar year 2015, within which the agency’s Sunshine proposals were included, which typically occurs in late November).

If CMS adopts its proposed changes, the agency has indicated that the changes would take effect for data collection beginning January 1, 2015.  The changes would not impact current data collection efforts for the calendar year 2014 reporting period (nor the data reporting requirements that govern reports due to CMS by March 31, 2015, covering calendar year 2014 data).

Next Steps for Device Manufacturers

It is possible that CMS could issue final changes to the Sunshine reporting requirements in late November 2014, and that manufacturers will be expected to begin tracking their interactions with U.S. physicians and teaching hospitals in accordance with the changes by January 1, 2015.  Considering the possibility of a short period to review, interpret, implement, and train on any changes to the reporting requirements, device manufacturers should evaluate now the potential impact that the proposed changes could have on their systems, processes, and protocols, and prepare themselves to be in a position to quickly operationalize any changes that might be made later this year.

79 Fed. Reg. 40,383 (July 11, 2014).

CMS proposes a total of four changes to the reporting regulations.  Two are not discussed in this piece because they would be minor revisions to the requirements that would have minimal practical impact on device manufacturers.  The two proposed changes not discussed include: (1) separating the existing payment form descriptor for “stock, stock options, or any other ownership interest” into three distinct form descriptors: “stock,” “stock options,” and “other ownership interest”; and (2) removing the definition of “covered device” (which is redundant in light of the definition of “covered drug, device, biological, or medical supply,” which already includes covered devices).

Covered devices are devices for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, either separately or as part of a bundled payment, and which are of the type that, by law, require premarket approval by or premarket notification to FDA.  42 C.F.R. 403.902.

42 C.F.R. 403.904(c)(8).  In addition, under the current regulations, for non-covered devices (including devices that are exempt from FDA’s 510(k) premarket notification requirements) related to a payment or transfer of value, manufacturers are only required to indicate “non-covered product.”  42 C.F.R. 403.904(c)(8).  The current regulations do not require any further information to be provided about such non-covered devices.  Under CMS’ proposal, however, manufacturers would be required to report the marketed name for such non-covered devices.

42 C.F.R. 403.904(g).  The five organizations listed in the exclusion include: (1) the Accreditation Council for Continuing Medical Education; (2) the American Academy of Family Physicians; (3) the American Dental Association’s Continuing Education Recognition Program; (4) the American Medical Association; and (5) the American Osteopathic Association.

79 Fed. Reg. 40,384.  Notably, CMS contrasts that situation with those where “an applicable manufacturer conditions its financial sponsorship of a continuing education event on the participation of particular covered recipients, or pays a covered recipient directly for speaking at such an event,” noting that payments to physicians in those scenarios are “subject to disclosure.”

Brian Bohnenkamp

Brian Bohnenkamp is a Senior Associate in King & Spalding’s FDA & Life Sciences Practice Group in Washington, D.C. He regularly assesses a variety of regulatory compliance issues for life sciences manufacturers, including advising companies on federal and state transparency requirements, development and implementation of comprehensive compliance programs, fraud and abuse issues, and advertising and promotion practices. He is a frequent industry speaker on transparency and compliance issues that impact relationships between health care professionals and the life sciences industry.


Josh Sandberg

Josh Sandberg is the President of Ortho Sales Partners and Partner for The De Angelis Group. He also serves as Co-Founder and Editor of OrthoSpineNews.

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