The Light of Day

Reporting rule seeks to shine a light on financial relationships between buyers and sellers

The Centers for Medicare & Medicaid Services at press time was reviewing comments to its proposed rule regarding disclosure of payments made by medical products manufacturers to physicians and teaching hospitals. The rule was created as part of the Physician Payment Sunshine Act, which is intended to increase public awareness of financial relationships between drug and device manufacturers and certain healthcare providers. The Sunshine Act is part of the 2010 Patient Protection and Affordable Care Act.

“When people are faced with the difficult task of choosing the right doctor, they need all the information they can gather,” said Peter Budetti, M.D., CMS deputy administrator for program integrity, when the proposed rule was published Dec. 19, 2011. “If your doctor is taking money from manufacturers of prescription drugs, suppliers of wheelchairs or other devices, you deserve to know about it. Disclosure of these relationships will discourage the inappropriate influence on clinical decision-making that sometimes occurs while still allowing legitimate partnerships.”

What it is
The proposed rule would require manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program to report to CMS payments or other transfers of value they make to physicians and teaching hospitals. It would also require manufacturers and group purchasing organizations to disclose to CMS physician ownership or investment interests.

Left unmentioned in the latter provision were physician-owned distributors, that is, companies – primarily in the orthopedics market – that pay physician-investor/owners a percentage of the sale price of the products they use. It was the PODs that generated much bad press over the past several years, and which some observers blame for promulgation of the Sunshine rule. There is a chance that the omission of physician-owned distributors was an oversight or clerical error, and that it will be corrected when the final rule is published later this year, according to those with whom the Journal of Healthcare Contracting spoke.

CMS is proposing that manufacturers and GPOs submit a partial-year report on payments on Mar. 31, 2013. Once the data has been submitted, CMS will aggregate manufacturers’ submissions at the individual physician and teaching hospital level, provide them with a 45-day period to confidentially review and, if necessary, correct the data, and make the data publicly available by Sep. 30, 2013. Manufacturers would be required to report to CMS the amount and nature of payments and other transfers of value in an electronic format on the 90th day of each calendar year thereafter.

Collaboration is OK…to a point
The proposed rule acknowledges that collaboration among physicians, teaching hospitals and manufacturers “may contribute to the design and delivery of life-saving drugs and devices.” What’s more, the feds acknowledge that “financial ties alone do not signify an inappropriate relationship.

“However, while some collaboration is beneficial to the continued innovation and improvement of our health care system, payments from manufacturers to physicians and teaching hospitals can also introduce conflicts of interests that may influence research, education, and clinical decision-making in ways that compromise clinical integrity and patient care, and may lead to increased health care costs,” the proposed rule states.

“[T]ransparency can shed light on the nature and extent of relationships, and may dissuade inappropriate conflicts of interest from developing.”
Manufacturers of devices (including medical supplies) that require premarket approval by or notification to the Food and Drug Administration would be subject to the reporting requirements. That is to say, payments by manufacturers of Class I and some Class II devices would be excluded. “We believe this limitation may be appropriate for applicable manufacturers, because manufacturers that solely produce these exempt products have not been shown to have extensive relationships with covered recipients,” said CMS. “Additionally, we believe this limitation might be appropriate because these financial relationships (to the extent they exist) are less likely to influence patient care.”

The types of payment covered in the proposed rule are broad. They include consulting fees, gifts, entertainment, food, and ownership or investment interest.

Distributors too?
While squarely pointed at manufacturers, the Sunshine law may affect distributors as well, according to observers.

It’s possible, for example, that manufacturers will require their distributors to file reports with the manufacturer of any payments those distributors may make to providers, says Mitchell Kramer, senior partner of the law firm Kramer & Kramer LLP, with offices in suburban Philadelphia and Ann Arbor, Mich. He is also legal counsel for IMDA, the association for specialty medical distributors. “I’ve already seen such requests being made,” he says.

There are a couple of reasons why manufacturers might do this, says Kramer. First, distributors may be seen as an arm of the manufacturer. If that’s the case, manufacturers want to make sure they are in compliance with the law. Second, manufacturers may want to make sure they are in compliance with the law’s demand that payments requested by or designated on behalf of a physician or teaching hospital be reported. The rule was constructed in such a way as to prohibit doctors and teaching hospitals from instructing manufacturers to direct payments intended for them to other entities, including, theoretically, distributors.

Though the proposed rule doesn’t specifically address the issue of private labeling, it’s likely that distributors of private-label products would be considered manufacturers under the rule, adds Kramer. In fact, the proposed rule does say that “certain companies which are under ‘common ownership’ with an entity that produces, prepares, propagates, compounds, or converts a covered drug, device, biological, or medical supply are also subject to the reporting requirements under this provision, even though they themselves may not be involved in the ‘manufacturing’ process.”

The issue may be academic, at least for most distributors, because many private label products are either Class 1 or Class II devices, which would be exempt from the reporting requirement.

Providers react
Neither the American Hospital Association nor the Association for Healthcare Resource & Materials Management commented on the proposed rule. But Premier did submit comments to CMS Acting Administrator Marilyn Tavenner.

In his letter to Tavenner, Premier Senior Vice President of Public Affairs Blair Childs acknowledged that physician/industry relationships “are an important part of patient care and can aid in the development of better drugs and devices.” Still, Childs maintained that greater transparency in these relationships is needed. “Patients and healthcare consumers require sufficient and meaningful information to determine the existence and possible impact of potential conflicts of interest that may influence the decision making of the very healthcare providers on which these patients and consumers rely.”

Physician groups, meanwhile, expressed conditional support to the proposed rule. “We absolutely believe in transparency to patients of the healthcare system in which they are treated,” says Glen Stream, M.D., MBI, Rockwood Clinic, Spokane, Wash., and president of the American Academy of Family Physicians.

“Patients deserve to know that the treatment recommendations being made by their personal physician are not unduly influenced by commercial interests or individual financial or proprietary interests.

“Our concern is, as so often [is the case] with written regulations, the law of unintended consequences. An interaction that is innocent, understandable and potentially positive gets painted with the same negative brush as those in press reports of rare but egregious forms of conflict of interest. The vast majority of practicing physicians hold their professional ethics in high regard.

“There is synergy between industry and those practicing medicine, which has produced a lot of the advances we enjoy,” continues Stream. “We don’t want to stifle that innovation. Device manufacturers need the input of physicians in evaluating their products; we have to be careful it doesn’t cross that ethical line.

“And having a conflict of interest isn’t always a completely avoidable issue. It’s an issue about sunshine, about transparency. If there’s a potential conflict, it should be disclosed and addressed, especially if it affects the patient’s choice of options or what is being recommended to them.

What about context?
AdvaMed, the Washington, D.C.-based association representing approximately 400 medical device and diagnostics manufacturers, has long supported legislation calling for manufacturers to report transfers of value to physicians, says Christopher White, executive vice president, general counsel and secretary.

“We believe that appropriate disclosure makes sense when the context is explained and the basis of the relationships [between manufacturers and physicians] are made clear and known to the public.”

That said, AdvaMed believes CMS left unaddressed some important topics in its proposed rule, the most important of which is context. “There should be some context associated with payments, so patients understand why a particular physician was engaged to provide a particular service,” says White. “Just providing the physician’s name and dollar amount is of very limited value, and it could be detrimental to innovation. Perhaps the manufacturer retains a physician for consulting services; it’s important to note that those consulting services led to a new invention or enhancement of a technology.”

AdvaMed will also seek clarification on that portion of the rule that calls for manufacturers to track and report payments made on behalf of physicians and teaching hospitals, says White. The parameters of industry tracking and reporting obligations in this area are unclear, he says.

“And it’s also unclear who represents the teaching hospital,” he continues. Is it the corporate entity, an officer, materials management? “So we seek further clarity.”

At press time, AdvaMed was also planning to study CMS’s cost estimates for implementing the rule. In its proposed rule, the agency wrote, “The burden associated with these requirements is the time and effort spent by applicable manufacturers and applicable GPOs collecting the data, compiling reports to send to CMS, as well as the processes for registering and submitting the data, and any corrections, if necessary, to CMS.” The agency estimated that on average, smaller manufacturers would have to dedicate 50 percent of a full-time equivalent employee, whereas larger companies would have to dedicate between 5 and 15 FTEs to the process.

“We need to develop a better understanding of the implementation cost beyond the estimates set out in the proposed CMS regulations,” says White. “The topic deserves further analysis.

Trouble over a prescription pad
“It strikes me that drawing some bright line between harmless promotion and unethical influence peddling is one of those exercises that always sets off the government-haters,” notes Ted Almon, president and CEO of Claflin Co. “Inevitably the law will over-reach, and some poor slob will end up in trouble over a prescription pad or a logo pen.

“Obviously there has been some out-of-bounds behavior by the drug and device companies that crossed the ethical line, and that should be proscribed. But business lunches, promotional items, sports tickets, and other related stuff creates business and jobs for others in the economy with minimal interference of legitimate commerce.

“I am not an anti-government type, but this is where they always get themselves into trouble.”

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