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Friday, June 1, 2012


Section 6002 of the Patient Protection and Affordable Care Act (PPACA), pursuant to a provision referred to as the “Sunshine Law”, requires certain manufacturers (“applicable manufacturers”) of drugs, devices, biologicals, or medical devices covered under Medicare, Medicaid or the Children’s Health Insurance Program (“CHIP”) to report annually certain payments or other transfers of value to physicians and teaching hospitals (referred to in the statute as “covered recipients”) during the course of the preceding calendar year. Applicable manufacturers must report the required payment and other transfer of value information to the Center for Medicare and Medicaid Services (CMS) to an electronic format by March 31, 2013, and on the 90th day of each calendar year thereafter. Applicable Manufacturers are subject to civil monetary penalties for failing to comply with the reporting requirements. CMS is required by the statute to publish the reported data on a public website. The data must be downloadable, searchable and easily aggregated. In addition, CMS must submit annual reports to Congress and each State summarizing the data reported.

The statute requires the following information to be reported with respect to the preceding calendar year:

  1. 1(i) The name of the covered recipient.
  2. 2(ii) The business address of the covered recipient, and in the case of a covered recipient who is a physician, the specialty and National Provider Indentifier (NPI) of the covered recipient.
  3. 3(iii) The amount of the payment or other transfer of value.
  4. 4(iv) The dates on which the payment or other transfer of value was provided to the covered recipient.
  5. 5(v) A description of the form of the payment or other transfer of value, such as:

(I) cash or cash equivalent;

(II) in-kind items or services;

(III) stock, a stock option, or any other ownership interest, dividend, profit, or other return on investment; or

(IV) any other form of payment or other transfer of value (as defined by the Secretary). Other transfer of value, such as –

(1) consulting fees;

(2) compensation for services other than consulting;

(3) honoraria;

(4) gift;

(5) entertainment;

(6) food;

(7) travel (including the specified destinations);

(8) education

(9) research;

(10) charitable contribution;

(11) royalty or license;

(12) current or prospective ownership interest;

(13) direct compensation for serving as faculty or as a speaker for a medical education program;

(14) grant; or

(15) any other nature of the payment or other transfer of value (as defined by the Secretary).


If the payment or other transfer of value is related to marketing, education, or research specific to a covered drug, device, biological or medical supply, the applicable manufacturer must identify the name of the covered drug, device, biological or medical device.

The Sunshine Act provides some exceptions to the reporting requirement:

  • (i) A transfer of anything of value which is less than $10.00, unless the aggregate amount transferred during the calendar year exceeds $100.00.
  • (ii) Product samples that are not intended to be sold and are intended for patient use;
  • (iii) Educational materials that directly benefit patients or are intended for patient use.
  • (iv) The loan of a covered device for a short-term trial period, not to exceed 90 days, to permit evaluation of the covered device by the covered recipient.
  • (v) Items or services provided under a contractual warranty, including the replacement of a covered device, where the terms of the warranty are set forth in the purchase or lease agreement.
  • (vi) A transfer of anything of value to a covered recipient who is a patient and who is not acting in the professional capacity of a covered recipient.
  • (vii) Discounts (including rebates)
  • (viii) In-kind items used for the provision of charity care.
  • (ix) A dividend or other profit distribution in a publicly traded security and mutual fund.
  • (x) In the case of an applicable manufacturer who offers a self-insured plan, payments for the provision of health care to employees under the plan.
  • (xi) In the case of a covered recipient who is a licensed non-medical professional, a transfer of anything of value to the covered recipient if the transfer is in payment solely for the non-medical professional services of such licensed non-medical professional.
  • (xii) In the case of a covered recipient who is a physician, a transfer of anything of value to the covered recipient if the transfer is payment solely for the services of the covered recipient with respect to a civil or criminal action or an administrative proceeding.


Effects on Physicians and Teaching Hospitals

The reporting requirements apply to applicable manufacturers that make reportable payments or other transfers of value. However, physicians and teaching hospitals will have an opportunity to review and correct the data submitted by applicable manufacturers. CMS estimates that it will take an average one hour for physicians or their office staffs to review the information. CMS estimates that it would take a hospital representative varying time ranging from 3 hours for a small teaching hospital to 60 hours for teaching hospitals that have lengthy disputes. There is no requirement for a physician or teaching hospital to review the data submitted by manufacturers but physicians and teaching hospitals may want to review the data to ensure that the manufacturer is not reporting erroneous data.


45 Day Review Period

CMS is proposing a 45 day review period during which applicable manufacturers and covered recipients can review the data before it is made public. Physicians should alert the applicable manufacturer if the physician believes that the data that the applicable manufacturer intends to submit to CMS for publication is erroneous. If there is a disagreement between the covered recipient and the applicable manufacturer concerning the accuracy of the data, and the disagreement cannot be resolved, CMS will not act as a “referee” to determine which party is correct. CMS proposes that in such situation, CMS will identify that the data has been contradicted, and CMS will include both the original submission from the applicable manufacturer, and the modified information provided by the covered recipient, in the publicly available website.


Payments Made Beginning January 1, 2012

The Sunshine Law requires applicable manufacturers to start collecting information that will be required to be reported beginning with payments or other transfers of value made on January 1, 2012. However, CMS has yet to issue Final Regulations that will implement the Sunshine Law, and, at this time, it is not known when CMS will be issuing the Final Rule. CMS has stated, accordingly, that it will not require applicable manufacturers to begin collecting the required information until after the publication of the Final Rule. Notwithstanding, CMS has stated that applicable manufacturers may begin to collect data voluntarily.

Can Disclosure of Payments by Manufacturers Lead to Physician Audits?

Among the Federal fraud and abuse laws that apply to physicians are the False Claims Act, the Anti-kickback Statute and the Physician Self-Referral Law (“Stark Law”). It is crucial for physicians to understand these laws not only because compliance with the law is the right thing to do, but also because violating them could result in serious penalties including fines, exclusion from Federal health care programs, loss of medical license, and in some cases criminal penalties.


False Claim Act 

31 U.S. C §§ 3729-3733)

The civil FCA makes it illegal to submit claims for payment to Medicare or Medicaid that the individual knows or should know are false or fraudulent. Filing false claims may result in fines of up to three times the program’s loss plus $11,000 per claim filed. Under the FCA no specific intent to defraud is required. The FCA defines “knowing” to include not only actual knowledge but also includes instances in which the person acted in deliberate ignorance or reckless disregard of the truth or falsity of the information. There is also a criminal FCA (18 U.S.C.§287). Criminal penalties include imprisonment and criminal fines. Examples of types of claims that may be subject to FCA penalties include:

  • “upcoding” or using billing codes that reflect a more severe illness than actually existed or a more expensive treatment than was actually provided;
  • Billing for a service that was not actually rendered;
  • Billing for services that were not medically necessary;
  • Billing for services that were performed by an improperly supervised or unqualified employee.


Anti-Kickback Statute

(42 U.S.C. § 1320-a 7b (b))

The AKS is a criminal statute that, in general, prohibits the knowing and willful payment of “remuneration” to induce or reward patient referrals or the generation of business involving any item or service payable by the Federal healthcare programs (e.g. drugs, supplies, or health care services for Medicare or Medicaid patients). Remuneration includes anything of value and can take many forms besides cash. In some industries, it is acceptable to reward those who refer customers or clients to the business. However, in the Federal health care programs, paying for referrals is a crime. Payment for referral of health care services also violates State law.


The government believes that some physicians may be an attractive target for kickback schemes because they can be a source of referrals for fellow physicians or other health care providers and suppliers. Physicians decide what drugs their patient’s use, which specialists they see, and what healthcare services and supplies they receive. Some companies or businesses want the physician’s patients’ businesses, and may attempt to induce they physician with pay or other types of remuneration.


Physician Self-Referral Law or “Stark” Law

(42 U.S.C. § 1395nn)

The “Stark” Law prohibits physicians from referring patients to receive certain types of “designated health services” payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both ownership/investment interests and compensation agreements. For example, if a physician invests in an imaging center, the Stark Law requires the resulting financial relationship to fit within an exception, or the physician may not refer patients to the facility, and the entity may not bill for the referred imaging service. New York State also has a physician self-referral law that covers certain designated health services (Title II-D Public Health Law).

The Stark Law is a strict liability statute, which means proof of specific intent to violate the law is not required. The Stark Law prohibits the submission, or causing the submission, of claims in violation of the law’s restrictions on referrals. Penalties for physicians who violate the Stark Law include fines as well as exclusion from participation in Federal healthcare programs.


Physicians Should be Proactive

Obviously, information disclosed under the Sunshine Law will not necessarily implicate fraud and abuse issues, and, in most cases, will not lead to government investigations. Some healthcare experts believe, however, that physicians who receive large payments from pharmaceutical, device or medical supply manufacturers – either from one manufacturer, or in the aggregate – compared to other physicians, are the most likely to trigger scrutiny for potential fraud and abuse violations. Medical group practices may be proactive and require physician members of the group to disclose payments received from industry including pharmaceutical, device and medical supply manufacturers. The medical practice should ensure that the payments do not run afoul of the fraud and abuse laws.





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