The Centers for Medicare and Medicaid Services (CMS) released their proposed rule for the Physician Payment Sunshine provision of the Affordable Care Act (see “CMS Releases Proposed Physician Sunshine Act Regulations“, where you can also download the proposed rule). Because CMS was late issuing this rule, the drug industry will NOT have to begin data collection on Jan. 1, 2012, as “required” by the Sunshine provision, and will not need to begin data collection until final regulations are issued. Final regulations come AFTER comments on the proposed rule are accepted through Feb. 17, 2012.

That means that only PART of the 2012 payments may be submitted on Mar. 31, 2013 and available for public scrutiny by Sep. 30, 2013.

It’s possible, however, that CMS may be further delayed if the comments received are plentiful and difficult to respond to before the agency issues the final rule.

Of course, pharma companies by now should be ready to begin data collection by January 1, 2012. Which means that they could theoretically submit a full year’s (2012) worth of data regardless of the timing of the final rule. CMS said “we recognize that some manufacturers and GPOs may begin to collect certain data voluntarily.” How many companies, however, will do this when they can claim they were waiting for CMS? It’s just another test of willingness of the industry to be pro-actively transparent and open.

Also, CMS is seeking comments “on the amount of time applicable manufacturers and applicable GPOs will need following publication of the final rule in order to begin complying with the data collection requirements.” I anticipate that many comments might cite CMS’s estimate of 90 days to be too little and request more time. Thus, we may not see any 2012 data at all!

CMS’s Tardiness in Issuing Sunshine Act Rule May Mean We’ll See No 2012 Data!
“Finally,” says CMS, we also seek input on specific challenges that applicable manufacturers and applicable GPOs may face when setting up the necessary data collection and reporting systems.”

This is the Achilles’ Heel that may mean that we will not see any 2012 data at all! If drug and device companies cite significant challenges that CMS’s final rule must mitigate, that could delay issuance of the final rule or significantly limit how the information is reported. The industry may claim, for example, that it is “challenged” to breakdown payments into specific categories and ask that payments be lumped into larger, more encompassing categories. This would make it more difficult to analyze the data to see exactly what physicians are being paid to do, especially research versus marketing assistance.

Here are some other tidbits from CMS’s proposed rule:

Foreign Drug Companies Must Also Report Payments
CMS proposes that any drug or device company that sells or markets products in the U.S. are subject to the rule regardless of where their corporate headquarters are located. Thus, says CMS, “Under this definition, manufacturers of a covered drug, device, biological, or medical supply are deemed to be an ‘applicable manufacturer’ if their products are sold or distributed in the United States (U.S.), regardless of where the covered drug, device, biological, or medical supply is actually produced or where the entity is actually located or incorporated… The opportunity for undue influence or inappropriate relationships caused by payments or transfers of value to covered recipients is the same for manufacturers of drugs, devices, biologicals, or medical supplies sold or distributed in the United States regardless of where the product is actually manufactured, and we, therefore, propose to
treat them the same.”

“Common Ownership” Loophole Closed
CMS wants to be sure that a wholly or even partially owned subsidiary of a drug or device company set up to dole out payments to physicians cannot escape the regulation. Such companies under “common ownership” — as when “the same individual, individuals, entity, or entities, directly or indirectly, own any portion of two or more entities” — “are also subject to the reporting requirements under this provision, even though they themselves may not be involved in the “manufacturing” process.”
CMS is seeking comments regarding its definition of “common ownership” to see if changes are necessary.

OTC Drug Manufacturers Excluded
CMS’s proposed rule excludes manufacturers/marketers of drugs and biologicals that are considered “over-the-counter” (OTC) from being covered by the regulations. “We believe that this exclusion may be appropriate for manufacturers that manufacture only these products (and not also products which fall within the proposed definition of ‘covered drug, device, biological, or medical supply’), since physicians and teaching hospitals have less influence over patients’ choice of OTC products.”

Perhaps physicians have less influence over patients’ choice of OTC products, but they surely play a role in Rx-to-OTC conversions. They sit on FDA advisory boards, for example, which determine if an Rx drug can be sold OTC.

Identifying “Covered Physicians”
There is some confusion on how to uniquely identify physicians. There are more than one “unique identifier” for physicians. The law refers to a National Provider Identifier (NPI) number, which is required under HIPAA.

CMS states “We seek comments on what other unique identifiers could be used, including whether these unique identifiers are readily obtainable by applicable manufacturers.”

CMS is also closing a loophole I noticed in data already being reported by some drug companies; ie, certain payments are reported to be made to institutions or organizations rather than to individual physicians. CMS proposes that “payments or other transfers of value provided through a group or
practice should be reported individually under the name(s) of the physician covered recipient(s).”

Categories of Information to be Reported
This is probably the most important issue that needs clarification. CMS provides details of how data such as names, addresses, medical specialty, date of payment, etc. are to be reported.

Name of Drug: The Sunshine Law requires that manufacturers to report the name of
the covered drug, device, biological, or medical supply associated with that payment, if the
payment is related to “marketing, education, or research” of a particular covered drug, device,
biological, or medical supply.

“In cases when a payment or other transfer of value is reasonably associated with a specific drug, device, biological, or medical supply, the name of the specific product must be reported,” says CMS. “For example, if a sales representative takes a physician to dinner to explain the benefits of the applicable manufacturer’s new product, the name of the product must be included since it was associated with the dinner.”

The Multiple Drug Conundrum
If the payment relates to multiple drugs, only one drug needs to be named. CMS, however, does not mention how the named drug should be chosen.

As an alternative, however, CMS is considering “allowing applicable manufacturers to report multiple covered drugs, devices, biologicals, or medical supplies as related to a single payment or other transfer of value. Allowing the reporting of multiple covered drugs, devices, biologicals and medical supplies may be easier for applicable manufacturers since many financial relationships are not specific to one product only, but would make aggregating payments by product difficult. We seek comment on this approach.”

I’m betting the drug industry would prefer the one-drug naming approach where they have the option to name the drug of choice. This could make it difficult to link specific payments to specific drugs or assign payments to specific drugs to “even out” the distribution, Say, for example, that a sales rep is responsible for promoting 2 drugs at a dinner meeting, but is given a physician payment budget that apportions 80% to just drug A. The total budget could be reported under drug B, thus diverting attention away from drug A. I think you get what I mean!

Nature of Payment – Nondisclosure of Assumptions Make an Ass Out You and Me!
This is important. The Sunshine Act lists the following categories of payment:

  • Consulting fees. 
  • Compensation for services other than consulting. 
  • Honoraria. 
  • Gift. 
  • Entertainment. 
  • Food. 
  • Travel (including the specified destinations). 
  • 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
  • Grant. 
  • Any other nature of the payment or other transfer of value (as defined by the

CMS suggests that manufacturers explain the reasoning behind how they categorize payments (in a mandatory “assumptions document”) since there may be significant differences among manufacturers on this issue. However, CMS will NOT make these”assumption documents” public because “they may contain information applicable manufacturers would consider

That’s a pretty big “transparency loophole,” IMHO. Although CMS will monitor the assumptions, there is no way for the public to monitor CMS! The drug industry can be free to define these categories as it sees fit and not run into trouble unless different companies use wildly different assumptions and raise red flags at CMS. Also, the politically-appointed HHS Secretary may overrule the CMS as she did with the FDA!

Also, the CMS is seeking comments on whether or not the “assumption document” submission should be mandatory or voluntary! I can only guess what industry’s comments will be about that!

One Category for ALL Speakers’ Fees
CMS does, however, specify how manufacturers should interpret “Direct compensation for serving as faculty or as a speaker for a medical education program.” CMS proposes that this category be “interpreted broadly to encompass all instances in which applicable manufacturers pay physicians to serve as speakers, and not just those situations involving ‘medical education programs.'”

Under that rule, accredited CME programs would be lumped in with all other speaking activities, such as satellite symposia.

“We are considering, and welcome comments on, whether to limit this category to CME-accredited speaking engagements and report other speaking engagements in another category, such as compensation for services other than consulting, or additional category.”

I anticipate a lot of comments on this issue will be submitted.

There are many more proposed rules in the CMS document, which runs to 121 pages! I have gotten only as far as page 34 in this summary. I hope to publish a more complete summary with comments from experts in an upcoming issue of Pharma Marketing News (subscription required).

I invite you to submit comments to this post.