Impact of CMS' Proposed Sunshine Reporting Rule

Compliance with the much-anticipated implementation of the "Sunshine Act" will impact specialty pharmacies nationwide. Our experts take a closer look at the potential changes and how they will affect the industry now and in the future.

On December 14, 2011, the Centers for Medicare & Medicaid Services (CMS) released the long-awaited and muchanticipated Proposed Rule for implementing the “Sunshine Act” physician payment reporting requirements.¹ Although the Sunshine Act places no direct reporting requirements on specialty pharmacies, the impact of these new reporting requirements will be felt.

The recently released Proposed Rule, published more than 2 months after the statutory deadline, provides additional clarity regarding the reporting obligations for most drug and device manufacturers contained in Section 6002 of the Affordable Care Act (ACA). Generally, the ACA will require most drug and device manufacturers to file annual disclosure reports detailing their financial relationships with physicians and teaching hospitals.

Of particular note, the Proposed Rule delays the deadline for compliance with the new reporting requirements due to CMS’ delay in issuing the Proposed Rule. CMS has confirmed that data collection by applicable manufacturers will not be required until at least 90 days after the Final Rule is issued (which is not expected to be until March 2012 at the earliest). CMS also seeks comments in the Proposed Rule on whether a 90-day delay will be sufficient, and on the “specific challenges” that applicable manufacturers may face in establishing data collection and reporting systems. As such, it is possible that CMS could delay implementation all the way into 2013.

For specialty pharmacies, relationships with both physicians and manufacturers could change as greater transparency is introduced into the system. As a result of the new Sunshine Act reporting provisions, many financial transactions that occur between pharmaceutical manufacturers and physicians will become public. This, in turn, may damper how those entities interact, which could present an opportunity for a willing and capable specialty pharmacy provider to provide some of these services.

While the Proposed Rule leaves several major issues unaddressed, including the format of manufacturer submissions available for public viewing, it provides answers to many long-anticipated questions. First, while the Sunshine Act applies only to applicable manufacturers of drugs, devices, biologicals, or medical supplies that are covered under Medicare, Medicaid, or the Children’s Health Insurance Program, CMS also proposes that if a manufacturer meets the definition of a manufacturer provided in the rule for at least 1 covered product, then “all payments or transfers of value made by an applicable manufacturer to a covered recipient must be reported...regardless of whether the particular payment or other transfer of value is associated with a covered product” (our emphasis). Under this broad definition, it is possible, for example, that a manufacturer who produces a single piece of medical equipment among many over-the-counter or generic products would be required to report all other payments it makes to physicians.

While an entity may be deemed a manufacturer for very practical, commonsense reasons (the entity is engaged in “production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution”), an entity may also be considered a manufacturer and subject to the Sunshine Act reporting requirements if it is “under common ownership” with a traditional manufacturer. CMS is considering 2 definitions for when an entity is an “applicable manufacturer” due to “common ownership.” The first proposed definition would be “when the same individual, individuals, entity, or entities, directly or indirectly, own any portion of 2 or more entities.” The alternative definition would “limit the common ownership definition to circumstances where the same individual, individuals, entity, or entities own 5 percent or more of total ownership in 2 or more entities.” Which definition the agency ultimately settles on could have profound implications on just how many entities are considered applicable manufacturers.

Two more details in the Proposed Rule merit discussion here—the definition of a “covered drug” and the definition of “covered recipients.” First, the rule would interpret “covered drug, device, biological, or medical supply” somewhat more narrowly than the statutory definition. CMS proposes to limit the definition of drugs and biologicals to those that require a prescription, and thus exclude over-the-counter products.

Second, the Sunshine Act defines “covered recipients” as physicians and teaching hospitals. The Proposed Rule importantly clarifies that the definition of “physician” will be limited to “doctors of medicine and osteopathy, dentists, podiatrists, optometrists and licensed chiropractors.” During earlier discussions with CMS, several consumer advocacy organizations had advocated for pharmacists to be included in the definition of a physician. Important for specialty pharmacies, any transfers or payments received from applicable manufacturers are not subject to the Sunshine Acts reporting requirements. Specialty pharmacies are encouraged to work with their customers, partners, and vendors to ensure compliance with this new rule.

SPT

References:

1. Medicare, Medicaid, Children’s Health Insurance Programs; Transparency Reports and Reporting of Physician Ownership or Investment Interests; Proposed Rule.

Federal Register 76:243 (December 19, 2011).

About the Author

Ross Margulies, JD, MPH, is a health policy specialist at Foley Hoag LLP with expertise in federal and state health law and policy issues.Jayson Slotnik, JD, MPH, focuses on health regulatory issues. Mr. Slotnick is a member of the Specialty Pharmacy Times editorial board.