Dec 28, 2011
Authors: Ian Spatz | Ariana Ornelas | Wendy L. Krasner
On December 19, 2011, CMS published proposed rules that will define the new requirement that certain manufacturers report their gifts, payments, and other transfers of value to physicians and teaching hospitals. These rules will impact not only manufacturers but also the physicians and teaching hospitals that will have the opportunity to regularly review the reports on their gifts and payments prior to the reports' public posting.
CMS published a Notice of Proposed Rulemaking (“NPRM”) to implement Section 6002 of the Affordable Care Act (“ACA”), requiring applicable manufacturers of drugs, devices, biologicals, or medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program (“CHIP”) to make annual reports to the Secretary of Health and Human Services.
Section 6002 of the ACA added Section 1128G to the Social Security Act (the “Act”) to implement the annual reporting requirements. The content of these annual reports includes certain payments or transfers of value provided to physicians and teaching hospitals (referred to as “covered recipients”) made over the course of the preceding calendar year. The NPRM will also require manufacturers and group purchasing organizations (“GPOs”) to disclose to CMS physician ownership or investment interests in those entities. The details of the reporting requirements for ownership or investment interests can be found in the NPRM or at 42 C.F.R. § 403.906 and will not be described below.
CMS will publish the payment information submitted by applicable manufacturers on a public website. The stated goal of the law is to help create transparency of the financial relationships that exist between drug/device manufacturers and certain providers. According to the NPRM, transparency is not meant to just inform the public of these relationships and raise awareness, but also to deter drug and device manufacturers from inappropriately affecting clinical decisions. CMS asserts that these requirements will help consumers and payers make informed, value-based purchasing decisions about providers in their areas based on their relationships with specific manufacturers. Consumers may use the submitted information to make determinations about the influence certain manufacturers exert on their providers’ clinical decision-making.
Key Provisions of the NPRM
How Does a Manufacturer Determine That it Is Required to Report?
Applicable Manufacturers: The NPRM applies to manufacturers regardless of whether they manufacture their product within or outside the U.S. CMS is proposing to define an applicable manufacturer as any entity that is “engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the U.S., or in a territory, possession, or commonwealth of the U.S.” that is available for payment by Medicare, Medicaid, or CHIP. The regulatory definition extends to entities under common ownership with an applicable manufacturer that are involved in manufacturing, marketing, selling, or distributing covered products; the common ownership would apply to a range of corporate arrangements, including, but not limited to, parent companies, subsidiaries and brother/sister corporations.
Covered Drug, Device, Biological, and Medical Supply: CMS is proposing that a “covered drug, device, biological, or medical supply” include all drugs, devices, biologicals, and medical supplies eligible for payment by Medicare, Medicaid, or CHIP, including products paid either separately as part of a fee schedule, or bundled as part of a composite payment system (such as the hospital inpatient prospective payment system). This definition is limited to those drugs and biological products that, by law, require a prescription. With respect to a device or medical supply, this definition is limited to those devices (including medical supplies) that, by law, require premarket approval by or premarket notification to the FDA.
What Are the Reporting Requirements?
What Payments or Transfers of Value Must Be Reported? Under Section 1128G(a)(1) of the Act applicable manufacturers must report annually all payments or transfers of value from applicable manufacturers to “covered recipients.” This includes all payments or other transfers of value given to a “covered recipient,” regardless of whether the covered recipient specifically requested the payment or other transfer of value.
What Is a “Covered Recipient”? A “covered recipient” is defined as: “(1) a physician, other than a physician who is an employee of an applicable manufacturer; or (2) a “teaching hospital.” The law does not define the term “teaching hospital.” For purposes of determining whether a hospital is a “covered recipient” of reportable payments or transfers of value, CMS is proposing to define a “teaching hospital” as any hospital that receives either Medicare direct or indirect medical education payments. CMS further intends to publish a list of hospital covered recipients (that is, those hospitals that receive Medicare direct or indirect medical education payments) on the CMS website once per year.
What Special Considerations Are There for Research Payments? The NPRM implements the statutory requirement to provide special consideration to research payments since disclosure might otherwise discourage collaboration in proprietary research projects. Research payments include payment for all related research activities, including patient testing, supplies, and clinical study administration/implementation. The NPRM outlines a procedure to delay publication of research payments until the earlier of FDA approval of the product that is the subject of the research or four years after the payment date, even though the research payments are to be reported to CMS (though they will not be made public) within the calendar year they are made. To qualify for this delayed reporting, the payment must be made in connection with a clinical investigation or a product research and development agreement to qualify for the reporting exemption.
What Is the Reporting Timeline?
How Do Applicable Entities Review and Correct Information Prior to Publication?
How Will the Financial Relationships Reported Be Made Public?
What Penalties Are Incurred by a Manufacturer That Fails to Comply With the Requirements?
Key Impact on the Drug/Device Industries and Providers
Key Issues CMS Seeks Public Comment On
Collection and Reporting Timeline: CMS seeks public comment on the amount of time applicable manufacturers will need following publication of the Final Rule in order to begin complying with the data collection requirements. CMS is currently considering a preparation period of 90 days. Additionally, CMS still intends for the first reporting cycle to end on March 31, 2013. Interested parties may comment on the extent to which necessary changes to data collection services and reporting systems are possible to implement within this timeframe.
Designing Data Collection: CMS seeks public comment on the specific challenges that parties may face when designing necessary data collection and reporting systems. Stakeholders should consider commenting on what types of infrastructure changes might be necessary, whether related to data aggregation or record-keeping, and how burdensome they may be given the quoted timeframes.
Types of Payments: The NPRM provides some guidance in defining certain types of payments that must be reported (e.g., gifts, charitable contributions, etc.). Industry-wide review of the way these types of payments are defined is necessary in order for manufacturers to properly design procedures to keep track of payments and transfers of value falling under the disclosure rules. Failure to report required payments and transfers of value may result in significant penalties. There is also an opportunity to comment on these definitions where clarification would be useful.
Delay of Publication of Research Payments: CMS seeks comment on its proposal to delay publication of research payments made between manufacturers and covered recipients as a means of protecting manufacturers’ competitive interests. It is unclear whether the publication delay is automatic at the request of the applicable manufacturer once a request has been made (or whether the delay only occurs at the discretion of CMS once it makes a finding of eligibility of the research payment). Interested parties may want to seek clarification of how this will work in the event that CMS determines that the payment is not eligible for delay. What recourse might a manufacturer have prior to publication in this instance? Interested parties may also comment on whether the publication delay is a sufficient safeguard to protect the competitive interests of the parties collaborating in clinical investigations and product development.
Dispute Resolution: Processes of dispute resolution are left to the discretion of manufacturers and providers. This raises concerns about the accuracy of information ultimately published where there are discrepant accounts of payments and investor relations. The information becomes much less useful from the perspective of transparency. CMS is seeking comment on how best to develop a streamlined and automated process for reporting disputes and changes to ensure that the post-submission review and correction process is as efficient as possible.
Teaching Hospitals: It is relatively unclear from the NPRM how payments and transfers of value made to teaching hospitals are conceived of by CMS for purposes of reporting. While the NPRM lists the nature and types of payments made to covered recipients, including teaching hospitals, it does not clarify what entity within a teaching hospital must receive the payment to trigger the reporting requirements. Interested parties should seek further clarification from CMS on how payments to teaching hospitals are reported.
Comments are due February 17, 2012. The NPRM is available here.
Helen R. PfisterPartner
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