Health Reform Mandates Transparency in Industry/Provider Relationship

National health care reform legislation adopted in March 2010 contained numerous provisions to promote transparency in the health care delivery system. Most significantly, ' 6002 of the legislation included provisions that comprised the Physician Payments Sunshine Act previously introduced as a separate bill (Sunshine Law). Patient Protection and Affordable Care Act, Pub.L.No. 111-148, 124 Stat. 119, amended by the Health Care and Education Reconciliation Act of 2010, Pub.L.No. 111-152, ' 6002. The Sunshine Law mandates public disclosure of payments and gifts by pharmaceutical, device, medical supply, and biotechnology companies to physicians and teaching hospitals for a wide array of purposes, including consulting, speaking engagements, advisory board service, travel, food, and clinical research. Part of a national movement to use disclosure to advance quality and compliance in health care delivery, the Sunshine Law has significant implications for health care providers and the public as well as industry.

Move Toward Disclosure

The Sunshine Law follows in the wake of state laws that mandate disclosure of the financial relationship of industry and physicians; four states and the District of Columbia currently require pharmaceutical and device manufacturers to report payments and gifts to physicians. Recently, congressional investigations have also focused on transparency in the financial relationships between industry and medicine. Investigations at several major academic medical centers found that prominent researchers had failed to disclose their industry ties to their own universities, leaving the institutions subject to regulatory penalties. Jacob Goldstein, “Grassley Says Emory Psychiatrist Didn't Report $500,000 in Payments,” Wall Street Journal Health Blog, Oct. 3, 2008; Jacob Goldstein, “University of Cincinnati Psychiatrist Under More Scrutiny over Funding,” Wall Street Journal Health Blog, April 21, 2008.

Additionally, federal prosecutors have increasingly pursued disclosure as an enforcement remedy. For example, in 2007, five of the largest manufacturers of orthopedic replacement devices in the United States agreed to disclose payments to physicians on their Web sites as part of corporate integrity and deferred prosecution agreements entered into with the federal government. DOJ Press Release, “Five Companies in Hip and Knee Replacement Industry Avoid Prosecution by Agreeing to Compliance Rules and Monitoring” (U.S. Atty. D.N.J. Sept. 27, 2007), available at http://www.justice.gov/usao/nj/press/files/pdffiles/hips0927.rel.pdf (last visited Jan. 7, 2011).

Under the Sunshine Law, by March 31, 2013, and on the 90th day of each calendar year thereafter, manufacturers of medical products must submit to the Secretary of the U.S. Department of Health and Human Services (HHS) information about payments made to physicians and teaching hospitals throughout the preceding year. HHS is charged with disclosing the information reported on a public Web site that is easily aggregated by manufacturer, and by physician and hospital recipient, on or before Sept. 30, 2013, and on June 30 of each year thereafter.

In advance of the enforcement date, industry disclosure of payments to physicians has begun to unfold. For example, numerous pharmaceutical companies already disclose payments to physicians on publicly accessible Web sites. Charles Ornstein et al., “Dollars for Docs Payments Approach $300 Million,” ProPublica (Dec. 22, 2010), available at http://www.propublica.org/article/dollars-for-docs-payments- approach-300-million (last visited Dec. 29, 2010). Additionally, academic medical centers and universities, such as The Cleveland Clinic and Harvard Medical School, have adopted policies that require disclosure and limit remuneration that physicians can receive. Spurred by the disclosures already underway, Senators Chuck Grassley (R-IA) and Herb Kohl (D-WI), the sponsors of the Physician Payments Sunshine Act, have urged HHS to move forward with implementation of the Sunshine Law, expressing concern that ongoing disclosure by academic institutions and industry calls for a uniform, national database of information presented in a common format. Shawn Rhea, “Grassley, Kohl Urge Quick Action on Sunshine Act.” Modern Healthcare, (Nov. 11, 2010), available at http://www.modernhealthcare.com/article/20101111/NEWS/311119966&template=print (last visited Dec. 27, 2010).

Required Public Reporting

Pursuant to the Sunshine Law, any U.S. manufacturer of a drug, device, biological product, or medical supply for which payment is available under Medicare, Medicaid, or the Children's Health Insurance Program (applicable manufacturer), must report to HHS any payment or transfer of value made to a physician or teaching hospital, including detailed information about the nature and value of remuneration provided.

Specifically, an applicable manufacturer must report: 1) the name of the physician or teaching hospital to which the payment or transfer of value was made; 2) the business address of the physician or teaching hospital, and, if the recipient is a physician, the physician's specialty and National Provider Identifier; 3) the amount and date(s) of the payment or transfer; 4) a description of the form of the payment or transfer (i.e., cash, in-kind items or services, stock, stock options or any other ownership interest, dividend, profit, or return on investment); 5) a description of the nature of the payment or transfer (i.e., consulting fee, honoraria, gift, entertainment, food, travel (including the specified destination), 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, or grant); and 6) if the payment or transfer is related to marketing, education, or research specific to a drug, device, biological, or medical supply, the name of the product. Additionally, HHS has the authority to require reporting of any other information regarding covered payments or transfers of value.

Exceptions to Disclosure

Notably, not all payments or transfers of value to physicians or teaching hospitals by an applicable manufacturer must be reported to HHS. The payments and transfers excluded from mandatory reporting include, but are not limited to: 1) a transfer of anything of value less than $10, unless the aggregated amount transferred by the applicable manufacturer to the physician or teaching hospital exceeds $100 annually (adjusted each year for inflation after 2012); 2) product samples intended for patient use; 3) patient educational materials that directly benefit patients; 4) the loan of a device for a trial period not to exceed 90 days for the purpose of evaluating the device; 5) items or services provided under a contractual warranty, where the terms of the warranty are set forth in the purchase or lease agreement; and 6) discounts, including rebates.

In a provision that seeks to balance disclosure with the interests of applicable manufacturers in proprietary, confidential information, the Sunshine Law provides that remuneration for product development and research with respect to a potential new medical technology, drug, device, biological, or medical supply, shall not be disclosed by HHS to the public until the Food and Drug Administration approves the product, or four calendar years after the date such payment or transfer is made, whichever is earlier.

Disclosure of Investments

In addition to mandatory reporting by applicable manufacturers of payments or transfers to a physician or teaching hospital, the Sunshine Law requires an applicable manufacturer or group purchasing organization (GPO) which purchases, arranges for, or negotiates the purchase of medical products covered under the Sunshine Law, to report certain physician ownership or investment interests.

Specifically, applicable manufacturers and GPOs must report any ownership or investment interest, other than an ownership or investment interest in a publicly traded security or mutual fund, held by a physician or an immediate family member, in the applicable manufacturer or GPO during the preceding year. Such disclosure must include: 1) the dollar amount invested by each physician holding an ownership or investment interest; 2) the value and terms of each such investment interest; and 3) any payment or transfer of value provided to the physician holding an ownership or investment interest.

Preemption of State Laws

Throughout public debate about the Sunshine Law, federal preemption of state laws was a contentious issue. As adopted, the Sunshine Law preempts legislation and regulations by state and local governments that mandate disclosure of the same information that must be reported under the Sunshine Law, minimizing the burden on industry of reporting the same information to different government entities. However, the law allows state and local entities to require disclosure of information not covered by the Sunshine Law, such as drug and device samples, discounts, and patient educational materials. As a way to encourage state oversight of payments disclosed, the Sunshine Law requires HHS to provide each state with an annual report regarding payments to physicians and teaching hospitals in the respective state.

Implications

The Sunshine Law requires drug and device manufacturers to report the data, and to monitor compliance. Just as significant, health care providers, including physicians, academic medical centers, and other facilities, must prepare for the public scrutiny likely to follow implementation of the law.

Among other goals, the Sunshine Law seeks to promote enhanced enforcement of federal and state fraud and abuse laws. In addition to other prohibitions, those laws bar the provision or receipt of remuneration of any kind to an individual or entity in exchange for the referral of goods or services that are funded by the United States Government or a state health care program (e.g., Medicare or Medicaid). 42 U.S.C. ' 1320a-7b(b).

While enforcement efforts in drug and device promotion have focused on manufacturers, yielding large civil monetary penalties, public attention following disclosure of payments to physicians has centered on the potential conflicts of interest posed to physicians with regard to treatment, research, and medical scholarship. For example, following a congressional investigation, Senator Grassley maintained that three Harvard Medical School physicians who helped pioneer the use of psychiatric drugs for children had failed to report over $3.2 million of payments by pharmaceutical companies received while conducting federally funded research on the efficacy of treatments for certain conditions. Rob Waters, “Harvard Doctors Failed to Disclose Fees, Senator Says.” Bloomberg News, June 8, 2008.

A Dec. 20, 2010, Wall Street Journal article, relying on publicly disclosed payments to orthopedic surgeons as well as analysis of Medicare claims data, linked payments to spinal surgeons with the number of spinal fusion procedures conducted, noting that five surgeons at a hospital with the third highest rate of spinal fusion procedures in the nation had received more than $7 million from a manufacturer of devices used in the procedures. John Carreyrou and Tom McGinty, “Secrets of the System; Top Spine Surgeons Reap Royalties Medicare Bounty,” Wall Street Journal, p. A1 (Dec. 20, 2010).

Also drawing upon public disclosure of payments to orthopedic surgeons, another article found that nearly half the surgeons who made anywhere from $1 million to $8.8 million dollars from companies that manufacture orthopedic devices had failed to disclose the payments as authors of medical journal articles related to the devices, in violation of the journals' conflict of interest policies. Susan Chimonas, Zachary Frosch and David Rothman, “From Disclosure to Transparency; The Use of Company Payment Data,” (Sept. 14, 2010), available at http://www.archinternmed.com (last visited Feb. 15, 2011).

Finally, among other goals, the Sunshine Law is designed to enable patients to learn about their physicians' potential conflicts of interest. Under the law, the information on the public Web site must be readily searchable by physician. Hence, in addition to the attention of the press and prosecutors, the Sunshine Law will make it possible for members of the public, as patients and consumers, to review industry payments to physicians as they weigh treatment recommendations.

Tracy E. Miller is a senior member of the health care group at Cadwalader, Wickersham & Taft. Jared L. Facher, an associate at the firm, assisted with the preparation of this article, which also appeared in the New York Law Journal, an ALM sister publication of this newsletter.

National health care reform legislation adopted in March 2010 contained numerous provisions to promote transparency in the health care delivery system. Most significantly, ' 6002 of the legislation included provisions that comprised the Physician Payments Sunshine Act previously introduced as a separate bill (Sunshine Law). Patient Protection and Affordable Care Act, Pub.L.No. 111-148, 124 Stat. 119, amended by the Health Care and Education Reconciliation Act of 2010, Pub.L.No. 111-152, ' 6002. The Sunshine Law mandates public disclosure of payments and gifts by pharmaceutical, device, medical supply, and biotechnology companies to physicians and teaching hospitals for a wide array of purposes, including consulting, speaking engagements, advisory board service, travel, food, and clinical research. Part of a national movement to use disclosure to advance quality and compliance in health care delivery, the Sunshine Law has significant implications for health care providers and the public as well as industry.

Move Toward Disclosure

The Sunshine Law follows in the wake of state laws that mandate disclosure of the financial relationship of industry and physicians; four states and the District of Columbia currently require pharmaceutical and device manufacturers to report payments and gifts to physicians. Recently, congressional investigations have also focused on transparency in the financial relationships between industry and medicine. Investigations at several major academic medical centers found that prominent researchers had failed to disclose their industry ties to their own universities, leaving the institutions subject to regulatory penalties. Jacob Goldstein, “Grassley Says Emory Psychiatrist Didn't Report $500,000 in Payments,” Wall Street Journal Health Blog, Oct. 3, 2008; Jacob Goldstein, “University of Cincinnati Psychiatrist Under More Scrutiny over Funding,” Wall Street Journal Health Blog, April 21, 2008.

Additionally, federal prosecutors have increasingly pursued disclosure as an enforcement remedy. For example, in 2007, five of the largest manufacturers of orthopedic replacement devices in the United States agreed to disclose payments to physicians on their Web sites as part of corporate integrity and deferred prosecution agreements entered into with the federal government. DOJ Press Release, “Five Companies in Hip and Knee Replacement Industry Avoid Prosecution by Agreeing to Compliance Rules and Monitoring” (U.S. Atty. D.N.J. Sept. 27, 2007), available at http://www.justice.gov/usao/nj/press/files/pdffiles/hips0927.rel.pdf (last visited Jan. 7, 2011).

Under the Sunshine Law, by March 31, 2013, and on the 90th day of each calendar year thereafter, manufacturers of medical products must submit to the Secretary of the U.S. Department of Health and Human Services (HHS) information about payments made to physicians and teaching hospitals throughout the preceding year. HHS is charged with disclosing the information reported on a public Web site that is easily aggregated by manufacturer, and by physician and hospital recipient, on or before Sept. 30, 2013, and on June 30 of each year thereafter.

In advance of the enforcement date, industry disclosure of payments to physicians has begun to unfold. For example, numerous pharmaceutical companies already disclose payments to physicians on publicly accessible Web sites. Charles Ornstein et al., “Dollars for Docs Payments Approach $300 Million,” ProPublica (Dec. 22, 2010), available at http://www.propublica.org/article/dollars-for-docs-payments- approach-300-million (last visited Dec. 29, 2010). Additionally, academic medical centers and universities, such as The Cleveland Clinic and Harvard Medical School, have adopted policies that require disclosure and limit remuneration that physicians can receive. Spurred by the disclosures already underway, Senators Chuck Grassley (R-IA) and Herb Kohl (D-WI), the sponsors of the Physician Payments Sunshine Act, have urged HHS to move forward with implementation of the Sunshine Law, expressing concern that ongoing disclosure by academic institutions and industry calls for a uniform, national database of information presented in a common format. Shawn Rhea, “Grassley, Kohl Urge Quick Action on Sunshine Act.” Modern Healthcare, (Nov. 11, 2010), available at http://www.modernhealthcare.com/article/20101111/NEWS/311119966&template=print (last visited Dec. 27, 2010).

Required Public Reporting

Pursuant to the Sunshine Law, any U.S. manufacturer of a drug, device, biological product, or medical supply for which payment is available under Medicare, Medicaid, or the Children's Health Insurance Program (applicable manufacturer), must report to HHS any payment or transfer of value made to a physician or teaching hospital, including detailed information about the nature and value of remuneration provided.

Specifically, an applicable manufacturer must report: 1) the name of the physician or teaching hospital to which the payment or transfer of value was made; 2) the business address of the physician or teaching hospital, and, if the recipient is a physician, the physician's specialty and National Provider Identifier; 3) the amount and date(s) of the payment or transfer; 4) a description of the form of the payment or transfer (i.e., cash, in-kind items or services, stock, stock options or any other ownership interest, dividend, profit, or return on investment); 5) a description of the nature of the payment or transfer (i.e., consulting fee, honoraria, gift, entertainment, food, travel (including the specified destination), 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, or grant); and 6) if the payment or transfer is related to marketing, education, or research specific to a drug, device, biological, or medical supply, the name of the product. Additionally, HHS has the authority to require reporting of any other information regarding covered payments or transfers of value.

Exceptions to Disclosure

Notably, not all payments or transfers of value to physicians or teaching hospitals by an applicable manufacturer must be reported to HHS. The payments and transfers excluded from mandatory reporting include, but are not limited to: 1) a transfer of anything of value less than $10, unless the aggregated amount transferred by the applicable manufacturer to the physician or teaching hospital exceeds $100 annually (adjusted each year for inflation after 2012); 2) product samples intended for patient use; 3) patient educational materials that directly benefit patients; 4) the loan of a device for a trial period not to exceed 90 days for the purpose of evaluating the device; 5) items or services provided under a contractual warranty, where the terms of the warranty are set forth in the purchase or lease agreement; and 6) discounts, including rebates.

In a provision that seeks to balance disclosure with the interests of applicable manufacturers in proprietary, confidential information, the Sunshine Law provides that remuneration for product development and research with respect to a potential new medical technology, drug, device, biological, or medical supply, shall not be disclosed by HHS to the public until the Food and Drug Administration approves the product, or four calendar years after the date such payment or transfer is made, whichever is earlier.

Disclosure of Investments

In addition to mandatory reporting by applicable manufacturers of payments or transfers to a physician or teaching hospital, the Sunshine Law requires an applicable manufacturer or group purchasing organization (GPO) which purchases, arranges for, or negotiates the purchase of medical products covered under the Sunshine Law, to report certain physician ownership or investment interests.

Specifically, applicable manufacturers and GPOs must report any ownership or investment interest, other than an ownership or investment interest in a publicly traded security or mutual fund, held by a physician or an immediate family member, in the applicable manufacturer or GPO during the preceding year. Such disclosure must include: 1) the dollar amount invested by each physician holding an ownership or investment interest; 2) the value and terms of each such investment interest; and 3) any payment or transfer of value provided to the physician holding an ownership or investment interest.

Preemption of State Laws

Throughout public debate about the Sunshine Law, federal preemption of state laws was a contentious issue. As adopted, the Sunshine Law preempts legislation and regulations by state and local governments that mandate disclosure of the same information that must be reported under the Sunshine Law, minimizing the burden on industry of reporting the same information to different government entities. However, the law allows state and local entities to require disclosure of information not covered by the Sunshine Law, such as drug and device samples, discounts, and patient educational materials. As a way to encourage state oversight of payments disclosed, the Sunshine Law requires HHS to provide each state with an annual report regarding payments to physicians and teaching hospitals in the respective state.

Implications

The Sunshine Law requires drug and device manufacturers to report the data, and to monitor compliance. Just as significant, health care providers, including physicians, academic medical centers, and other facilities, must prepare for the public scrutiny likely to follow implementation of the law.

Among other goals, the Sunshine Law seeks to promote enhanced enforcement of federal and state fraud and abuse laws. In addition to other prohibitions, those laws bar the provision or receipt of remuneration of any kind to an individual or entity in exchange for the referral of goods or services that are funded by the United States Government or a state health care program (e.g., Medicare or Medicaid). 42 U.S.C. ' 1320a-7b(b).

While enforcement efforts in drug and device promotion have focused on manufacturers, yielding large civil monetary penalties, public attention following disclosure of payments to physicians has centered on the potential conflicts of interest posed to physicians with regard to treatment, research, and medical scholarship. For example, following a congressional investigation, Senator Grassley maintained that three Harvard Medical School physicians who helped pioneer the use of psychiatric drugs for children had failed to report over $3.2 million of payments by pharmaceutical companies received while conducting federally funded research on the efficacy of treatments for certain conditions. Rob Waters, “Harvard Doctors Failed to Disclose Fees, Senator Says.” Bloomberg News, June 8, 2008.

A Dec. 20, 2010, Wall Street Journal article, relying on publicly disclosed payments to orthopedic surgeons as well as analysis of Medicare claims data, linked payments to spinal surgeons with the number of spinal fusion procedures conducted, noting that five surgeons at a hospital with the third highest rate of spinal fusion procedures in the nation had received more than $7 million from a manufacturer of devices used in the procedures. John Carreyrou and Tom McGinty, “Secrets of the System; Top Spine Surgeons Reap Royalties Medicare Bounty,” Wall Street Journal, p. A1 (Dec. 20, 2010).

Also drawing upon public disclosure of payments to orthopedic surgeons, another article found that nearly half the surgeons who made anywhere from $1 million to $8.8 million dollars from companies that manufacture orthopedic devices had failed to disclose the payments as authors of medical journal articles related to the devices, in violation of the journals' conflict of interest policies. Susan Chimonas, Zachary Frosch and David Rothman, “From Disclosure to Transparency; The Use of Company Payment Data,” (Sept. 14, 2010), available at http://www.archinternmed.com (last visited Feb. 15, 2011).

Finally, among other goals, the Sunshine Law is designed to enable patients to learn about their physicians' potential conflicts of interest. Under the law, the information on the public Web site must be readily searchable by physician. Hence, in addition to the attention of the press and prosecutors, the Sunshine Law will make it possible for members of the public, as patients and consumers, to review industry payments to physicians as they weigh treatment recommendations.

Tracy E. Miller is a senior member of the health care group at Cadwalader, Wickersham & Taft. Jared L. Facher, an associate at the firm, assisted with the preparation of this article, which also appeared in the New York Law Journal, an ALM sister publication of this newsletter.