Physician Payment Sunshine: Compliance Will Be Extensive and Potentially Expensive

Eighteen months after the Patient Protection and Affordable Care Act (PPACA) became law on March 23, 2010, and was “reconciled” by the Health Care and Education Reconciliation Act (HCERA) of 2010 on March 30, 2010, the implementation challenges associated with health care reform continue. 

Unfortunately for the life sciences industry, the passage of PPACA’s Physician Payments Sunshine Act provisions did not standardize, curtail, or rationalize pre‐existing state‐specific aggregate spend reporting obligations. 

According to a recent update from Alliance Life Sciences Consulting Group, “companies will therefore need to possibly enhance compliance infrastructure to meet all state‐specific requirements as well as federal Sunshine Act provisions. 

Many companies are already busy making preparations to comply with the effective date for the federal Sunshine Acts reporting provisions ‐ March 31, 2013, by ensuring that source systems are able to capture the appropriate data starting January 1st, 2012. 

The Sunshine Act also includes provisions to allow recipients to review spend expenditure forty‐five days prior to September 30, 2013, when the data will be formally posted The same process is expected to continue in for successive years. 

The Sunshine Act’s provisions ask that all pharmaceutical, medical device, biotechnology, and medical supply manufacturers doing business in the U.S. report to the Secretary of the Department of Health and Human Services (DHHS) the payments or transfers of value that were made to covered recipients and teaching hospitals during the prior calendar year. These requirements are broad in scope. 

The challenge for life sciences manufacturers, according to Alliance Life Sciences, will be in the implementation of necessary business processes and systems to capture, store, and report such enterprise data. 

For small to mid‐size companies with limited operational wherewithal and infrastructure, the challenge is in implementing and testing processes, procedures, and systems to capture and query such data so as to produce sufficiently granular reports for compliance. 

Included in the Sunshine Act reporting are: 

• Charitable giving
• Consulting fees
• Compensation for non‐consulting services
• Education
• Entertainment
• Food
• Gifts
• Grants
• Honoraria
• Investment interests
• License fee revenue
• Research
• Royalty revenue
• Speaker/faculty fees for educational programs
• Travel 

Excluded from PPACA’s reporting obligations are: 

• Payments under $10, unless the aggregate amount paid to a covered recipient exceeds $100 per year
• Product samples and educational materials for the benefit of patients
• Loan of a covered device for a trial period under 90 days
• In‐kind items provided for use in charity care
• Items or services provided under a warranty
• Discounts (including rebates)
• Expert witness fees 

Independent of PPACA’s disclosure requirements, a manufacturer must be observant of state laws, as well. The primary areas addressed by state Sunshine laws are: 

• The adoption, training, auditing, investigation, and enforcement of a compliance program and code of conduct in accordance with the OIG Compliance Program Guidance for Pharmaceutical Manufacturers and the PhRMA Code or AdvaMed Code of Ethics
• The provision of gifts, meals, and entertainment to healthcare professionals
• Spending on promotion and advertising 

The challenge for manufacturers is that state laws and the Sunshine Act’s provisions have different coverage requirements, deadlines, expense allocations, reporting formats, fee structures, penalties, and policies regarding the confidentiality of disclosed data. Pharmaceutical and medical device marketing to prescribers often therefore implicates multiple laws, each with its own requirements. 

Manufacturers’ penalties for violating PPACA include civil money penalties ranging from $1,000‐$10,000 (up to $150,000 per annual submission) for failure to report each payment or transfer of value or ownership or investment interest “in a timely manner in accordance with rules or regulations” and ranging from $10,000‐$100,000 (up to $1 million per annual submission) for each “knowing failure to report.” 

State laws may also impose monetary penalties for violations of their prohibitions and requirements. State laws may also include cost‐shifting provisions that provide for the payment of attorneys’ fees and costs of investigation and enforcement. 

To avoid such penalties and costs, Alliance Life Sciences recommended that manufacturers consider taking proactive steps to comply with all applicable Sunshine laws. For example, manufacturers should: 

• Study and comprehend the requirements of state and Federal spend reporting provisions and monitor any related regulations or guidance as state health departments, Medicaid agencies, attorneys general, and boards of pharmacy may issue relevant subregulatory guidance on statutory requirements
• Draft and maintain internal operating procedures and policies requiring all affected company employees to comply with all relevant law
• Document company spending on educational items, meals, and advertising to the broad range of covered healthcare providers targeted by these laws in order to comply with prohibitions, spending limits, and disclosure requirements
• Develop timelines for reporting obligations by applicable jurisdiction and task competent compliance staff with execution
• Annually review all processes and systems to ensure optimal compliance with evolving regulatory guidance and law
• Quarterly review compliance with reporting processes and SOPs as part of internal audit (e.g. SOX) controls. 

Life science manufacturers and distributors will wish to allocate sufficient time and resources to develop and frequently update policies, procedures, systems, and training to address the statutory requirements of both state and federal Sunshine Acts. 

Further, all will wish to exercise ongoing due diligence in regard to evolving requirements on a state‐by‐state basis. As there is no shortage of enforcement zeal among state and federal officials, inconsistent state and federal compliance requirements will continue to pose risks and operational challenges. 

Alliance Life Sciences noted that, the data generated by the implementation of aggregate spend enterprise solutions can also provide opportunities to improve overall compliance and realize additional efficiencies through the adoption of newer technologies, which enable better real time data‐driven analytics and decision making. 

An enterprise solution can impact areas of critical operational importance such as: 

• Accurate and up‐to‐date customer masters
• Spend capture and accurate and timely categorization of all remuneration to physicians and hospitals or healthcare providers
• Enforced compliance with business processes
• Training representatives and internal staff on SOPs, policies and procedures
• Discipline and its imposition for scofflaws and rogue employees
• Robust reporting tools involving normalized, standardized and centralized data Adequacy of audit trail
• Centralized command and control and ownership of compliance processes with power to effectuate necessary infrastructure enhancements and organizational alignments to meet requirements
• Compliance leadership that is IT proficient, adept at managing operational complexity and well‐versed in audit and compliance processes  

There is no doubt that such investments in staff, training, and enhancements to compliance infrastructure are not likely to be inexpensive or particularly easy to implement. However, given regulatory enforcement risks and the extensive penalties, the far greater expense in terms of adverse consequences and exposure may be relying upon existing infrastructure and staff to manage what is an increasingly complicated, heterogeneous, and multi‐jurisdictional compliance requirement.