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Volume XI, Number 295

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CMS’s Proposed “Sunshine” Regulations: Implications for Research

On Dec. 19, 2011, the Centers for Medicare & Medicaid Services (CMS) released a Proposed Rule to implement § 6002 of the Patient Protection and Affordable Care Act (PPACA), commonly referred to as the Physician Payment Sunshine Act (Sunshine Act). The Sunshine Act was included in PPACA to enhance disclosure and transparency of financial arrangements among physicians, teaching hospitals, and manufacturers of federally reimbursable drugs and biologicals and covered medical devices and medical supplies, and thereby reduce the risk of inappropriate financial incentives interfering with medical judgment and patient care. The Proposed Rule details requirements for processing and reporting payments by pharmaceutical, device, biological and medical supply “applicable manufacturers”1 to physicians and teaching hospitals that are “covered recipients.”2 The Proposed Rule also sets forth requirements for reporting ownership and investment interests held by physicians and their immediate family members in applicable manufacturers and group purchasing organizations (GPOs),3 as well as information on payments or other transfers of value to such physician owners or investors. CMS will publish reported payment and ownership information on a public website.  

While the Sunshine Act requires applicable manufacturers to commence data collection for such reports on Jan. 1, 2012, the Proposed Rule provides that manufacturers will not be required to begin collecting the information until after a final rule is published. CMS is considering requiring manufacturers and GPOs to begin collecting data 90 days after publication of the final rule. Physician and teaching hospital review and correction of data provided by manufacturers and GPOs will be required after CMS aggregates the submissions and provides them to the manufacturers, GPOs, covered recipients and physician owners and investors for review.

Following are FAQs highlighting significant aspects and implications of the Proposed Rule for entities engaged in research:

What research activities may be subject to the reporting requirement?

With the exception of certain payments and in-kind support specifically exempted under the Sunshine Act, any form of payment, including cash or in-kind items or services, as well as stock, stock options, ownership interests, dividends or other returns on investment provided by an applicable manufacturer to a covered recipient are reportable. Therefore, remuneration provided to covered recipients associated with the following categories of research activities is reportable:

>      Drug, device and biological development and clinical investigations;

>      Development and research activities associated with medical technologies that are not classified by the FDA as a drug, device, or biologic;

>      Product development consulting services; and

>      Post-market research to elicit information related to marketing, provider preferences, and/or cost effectiveness.

What specific payments or transfers of value must be reported?

Any remuneration provided by an applicable manufacturer to a physician or teaching hospital “covered recipient” to support research activities is reportable. Examples of payments typically provided by applicable manufacturers in connection with the conduct of research include payments for the following:

>      services of physicians or other health professionals in conducting the research;

>      supplies;

>      equipment or devices;

>      institutional overhead;

>      travel and associated expenses;

>      review, approval and oversight by Institutional Review Boards;

>      royalty payments for covered recipient’s intellectual property; and

>      license fees.

Non-cash research support provided to covered recipients also must be reported, including the value of loaned equipment, study drug products, services provided by the manufacturer’s employees (e.g., scientists, engineers, IT personnel) to assist with portions of the research study, and maintenance services for devices required to conduct the research. 

Certain transfers of value by applicable manufacturers to covered recipients in the research context are excluded from the reporting obligation. For example, the Proposed Rule exempts from its reporting requirement: transfers of value of less than $10 unless the aggregate payment to the covered recipient in a given year exceeds $100; the loan of a device Certain transfers of value provided by applicable manufacturers to covered recipients in the research context are for less than 90 days for evaluation; and items or services provided under contractual warranty, including device replacement, if the terms of the warranty are set forth in the purchase or lease agreement for the covered device. In addition, the Proposed Rule exempts reporting of a transfer of value to a covered entity if the manufacturer is unaware of the identity of the covered recipient.

How are payments or transfers of value associated with research relationships likely to be categorized in applicable manufacturers’ reports?

The Sunshine Act lists 15 categories applicable manufacturers must use to describe the nature of reported payments or transfers of value. While there is a “research” category, some research-associated payments or transfers of value are likely to be reported as “consulting fees,” “royalty or license fees,” “current or prospective ownership or investment interest,” or “travel” and “food.”

The Proposed Rule defines “research” as bona fide research activities that are subject to a research protocol and a written agreement between the manufacturer and the covered recipient conducting the research. The Proposed Rule clarifies that payments made on behalf of an applicable manufacturer to a covered recipient through a third party, such as a contract research organization or a site management organization, are reportable.

When reporting under the “research” category, the Proposed Rule requires manufacturers to designate whether the payments or transfers of value were made directly or indirectly to the covered recipient. An indirect payment occurs, for example, when industry supported research is conducted at a clinic or hospital that does not qualify as a “teaching hospital” under the Act, and the non-covered clinic or hospital compensates a “physician covered recipient” as the principal investigator. A “direct” research payment occurs when a research payment or transfer of value is provided directly to a “physician covered recipient” or a “teaching hospital covered recipient.” Research payments provided to teaching hospitals and then disbursed to a physician covered recipient must be reported both as payments to the teaching hospital and as payments to the physician.

When will research payment reports be published on the public website?

Under the Proposed Rule, manufacturers reporting under the research category may request a delay of publication on the public website on the premise that public disclosure of confidential information regarding bonafide research on development of new drugs, devices, biologicals and medical supplies4 could damage manufacturers’ competitive and proprietary interests. Applicable manufacturers must indicate on their reports whether they request a delay of publication on the public website. If the delay is granted, the report would be made available to the public on the earlier of (1) the date of the FDA’s  approval or clearance of the covered drug, device, biological or medical supply; or (2) four calendar years after the date such payment or other transfer of value was made. CMS also has proposed that information subject to delayed publication will not be subject to disclosure under the Freedom of Information Act or other similar federal and state laws until after the date that the information is made available on the public website.

Observations and Implications

The Proposed Rule raises a number of unanswered questions for the research industry, including the following:

>      Will the payment reporting requirements, and the consequent potential for negative reaction from the public, deter physicians and teaching hospitals from performing research?

>      Will information included in the payment reports achieve the transparency goals of the Sunshine Act? Because the reports cover only the amounts transferred by the applicable manufacturer, the desired transparency may be difficult to achieve. For example, a device manufacturer may provide $100 in payment for a physician’s research services in a case where the physician researcher puts $110 worth of his time into research, and also loses income on account of time spent on the research instead of his practice -but the report will include only the $100 payment from the manufacturer.

>      How can teaching hospitals engaged in research assure that research budgets and milestone payments outlined in their research contracts with industry sponsors are consistent with the manufacturer’s data reports on the public website?

>      To what extent will the Sunshine Act’s reporting requirements preempt the confusing patchwork of existing state “aggregate spend laws,” and how will the Final Rule requirements interact with other research-specific requirements governing the collection and reporting of similar information (e.g., financial disclosures required by FDA research regulations, ICMJE disclosures, and NIH conflict of interest final rule provisions)?

>      Will delay of publication on the public website of research payment reports threaten the integrity of research activities due to the fact that products may be put on the market before compromising financial conflicts of interest are identified?

Entities and individuals involved in research will need to carefully consider these issues, and many others, as the Proposed Rule is finalized and then implemented.Entities and individuals involved in research will need to carefully consider these issues, and many others, as the Proposed Rule is finalized and then implemented. 

Additional Coverage

Drinker Biddle has also released an overview of the Proposed Rule. To view that publication, visit http://www.drinkerbiddle.com/files/ftpupload/pdf/ CMSsReleasesProposed.pdf.

To view a copy of the Proposed Rule, visit http://www.federalregister.gov/ articles/2011/12/19/2011-32244/transparency-reports-and-reporting-of-physician­ownership-or-investment-interests-medicare-medicaid.

The Proposed Rule, published Dec. 19, 2011, has significant implications for the medical research industry, which are outlined above. CMS commentary throughout the Proposed Rule indicates that the agency is considering alternative proposals for multiple items in connection with the Federal Sunshine Law. As a result, there may be significant changes between the Proposed Rule and any final rule. The deadline for submission of comments is Feb. 17, 2012, at 5 p.m. EST. 


1 The Proposed Rule clarifies the definition of an “applicable manufacturer” as an entity that is either: (1) engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biolog­ical, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States; or (2) under common ownership with such entity and that provides assistance or support to such entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession, or commonwealth of the United States.  76 Fed. Reg. 243 at 78744 (December 19, 2011). 

2 “Physician covered recipients” include doctors of medicine and osteopathy, dentists, podiatrists, optometrists and licensed chiropractors who are not employees of an applicable manufacturer.  The Proposed Rule defines “teaching hospital” as a hospital that received payments under the IPPS Indirect Medical Education (IME), direct Graduate Medical Education (GME), or psychiatric hospitals, IME programs during the most recent year for which such information is available. 

3 The Proposed Rule clarifies the definition of an “applicable GPO” as an entity that: (1) operates in the United States, or in a territory, possession or commonwealth of the United States; and (2) purchases, arranges for or negotiates the purchase of a covered drug, device, biological, or medical supply for a group of individuals or entities, and not solely for use by the entity itself. “Applicable GPOs” therefore include both traditional GPOs that negotiate contracts for their members, and physician-owned distributors (PODs) of covered drugs, devices, biologi­cals, and medical supplies. 

4 CMS seeks comments on whether delayed publications should apply only to payments to covered recipients for clinical investigations of new drugs, devices, biologicals or medical supplies, or whether delayed publication also should apply to payments to covered recipients in connection with research on new applications of existing products.

© 2021 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume II, Number 52
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