Complying with Federal and State “Sunshine Laws”: How Manufacturers Can Avoid Getting Burned
By Ann E. Lewis and David I. Sclar, , New York, New York
New “sunshine provisions” in the Patient Protection and Affordable Health Care Act (“PPACA”) add federal obligations to an array of requirements under state laws that regulate drug and device manufacturers’ marketing to healthcare providers. This article presents an overview of the scope of federal and state sunshine laws and related industry guidance.
Sunshine Laws and Industry Guidance. Beginning on March 31, 2013, and by the ninetieth day of each calendar year thereafter, the PPACA’s sunshine provisions require pharmaceutical, medical device, biological, and medical supply manufacturers operating in the United States to report to the Secretary of the United States Department of Health and Human Services (the “Secretary”) the payments or transfers of value that they made to covered recipients during the previous calendar year. The scope of reportable payments is broad and includes consulting fees, compensation for non-consulting services, honoraria, gifts, entertainment, food, travel, education, research, charitable contributions, royalties or licenses, current or prospective ownership or investment interests, dire ct compensation for serving as faculty or as a speaker for a medical education program, and grants. A number of items are excluded from the reporting obligation, including, but not limited to: (i) payments under $10, unless the aggregate amount paid to a covered recipient exceeds $100 per year; (ii) product samples and educational materials for the benefit of patients; (iii) loan of a covered device for a trial period under 90 days; (iv) in-kind items provided for use in charity care; (v) items or services provided under a warranty; (vi) discounts (including rebates); and (vii) expert witness fees. In spite of the above exclusion of product samples for patients, section 6004 of the PPACA requires prescription drug manufacturers and authorized distributors of record to submit to the Secretary, by April 1 of each year beginning with 2012, annual reports containing aggregated information regarding the identity and quantity of drug samples requested and distributed.
Independent of the PPACA’s new federal disclosure requirements, laws in several states – such as California , Connecticut , the District of Columbia , Maine , Massachusetts , Minnesota , Nevada , Vermont , and West Virginia – regulate drug or drug and medical device manufacturers’ marketing behavior and/or disclosure of expenditures. Some of these state sunshine laws impose a legal obligation on companies to adhere to voluntary industry codes of behavior – the PhRMA Code and the AdvaMed Code of Ethics – which are applicable to pharmaceutical and medical device companies’ interactions with healthcare providers. Some state sunshine laws also refer to April 2003 guidance from the United States Department of Health and Human Services Office of Inspector General (the “OIG Compliance Program Guidance for Pharmaceutical Manufacturers”), which details the elements of an effective compliance program for pharmaceutical manufacturers.
The PPACA’s sunshine provisions will preempt state law provisions that require reporting the same type of information required to reported under the PPACA. However, PPACA preemption does not apply to state laws that require reporting: (i) by entities or persons other than manufacturers; (ii) to entities other than physicians and teaching hospitals; or (iii) to federal, state, and local agencies for public health surveillance purposes. States may require additional disclosures that are specifically excluded from the PPACA, but they may not require disclosure of payments under $10 that do not exceed $100 in a calendar year. The PPACA contains no behavioral requirements and thus leaves untouched the behavioral regulations of state sunshine laws.
Scope of State Sunshine Laws. The primary areas addressed by state sunshine laws are: i) 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; ii) the provision of gifts, meals, and entertainment to healthcare professionals ; and iii) spending on promotion and advertising.
State sunshine laws typically include either or both of the following: 1) behavioral prohibitions (such as bans and spending limits on gifts, entertainment, and/or meals) and 2) disclosure requirements (including information on aggregate promotional spending, as well as the nature, value, and purpose of specific gifts). Equally important are the laws’ specific exclusions from one or the other, or both, of these requirements. Typical exclusions include: fair market value payments such as compensation for consulting services, provision of educational items such as reprints of peer-reviewed articles, spending on clinical trials and bona fide research, certain de minimis expenditures, education or training on the use of medical devices, loaned medical devices, free drug samples for patient use, payments or free outpatient drugs provided through “patient assistance programs,” royalties or licensing fees, in-kind items for charity care, regional or national advertising that is unrelated to the state, rebates and discounts, donations to third-party continuing medical education conference sponsors, fellowships provided to institutions for their residents, and, in a recent trend, coffee and other light refreshments provided at conferences.
Case Study: Provision of a Meal to a Minnesota Healthcare Professional in His or Her Office. The following case study illustrates the application of sunshine laws in practice.
A pharmaceutical manufacturer wishes to send a sales and marketing agent to provide an informational presentation regarding one of its drug products to a licensed physician in his or her office in Minnesota. The presentation would be accompanied by a meal worth $15 to the physician. Can the manufacturer provide this meal? Must the manufacturer disclose information about the meal in accordance with Minnesota law or the PPACA?
As a preliminary matter, the pharmaceutical manufacturer should consult the PhRMA Code for direction on appropriate conduct. The PhRMA Code allows for the provision of “occasional” meals as a “business courtesy” to healthcare professionals in their offices and in conjunction with informational presentations made by field sales representatives “so long as the presentations provide scientific or educational value and the meals (a) are modest as judged by local standards; (b) are not part of an entertainment or recreational event; and (c) are provided in a manner conducive to informational communication.” The PhRMA Code allows for the provision of the meal in this case.
Second, the manufacturer will need to consider any behavioral restrictions in state law. In Minnesota, a manufacturer may provide meals to a licensed physician so long as the combined value of all gifts including meals that the manufacturer provides to that physician in a calendar year does not exceed $50. In this case, the manufacturer may provide the meal but will need to record the cost of the meal and all other gifts it provides to this physician to ensure that their total value does not exceed $50 during the calendar year. As a practical matter, manufacturers may choose to impose policies that do not permit the provision of any meals to Minnesota prescribers because of the difficulty in tracking small expenditures and enforcing the $50 limit.
Finally, the manufacturer must consider disclosure requirements under state and federal law. Minnesota law does not require disclosure of this meal. The PPACA is not yet effective but if the manufacturer provides a meal that costs more than $10, such as this meal, after January 1, 2012, the manufacturer must disclose by March 31, 2013, a description of the form and nature of the “payment or transfer of value” as an in-kind item and as food, the date and value of the meal, the name, business address, specialty, and National Provider Identifier of the physician recipient, the pharmaceutical product discussed during the meal, and any other information that the Secretary may require in future regulations.
Compliance with Sunshine Laws. The challenge for manufacturers is that state laws and the PPACA’s sunshine provisions have different coverage, requirements, deadlines, allocations of expenses, formats for reporting, fees, penalties, and policies regarding the confidentiality of disclosed data. Manufacturers’ marketing to prescribers often implicates multiple state laws, each with its own requirements.
Manufacturers’ penalties for violating the 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, which penalties may include attorneys’ fees and costs of investigation and enforcement.
To avoid such penalties, manufacturers should consider taking proactive steps to comply with applicable sunshine laws. For example, manufacturers should:
- Understand the requirements of state sunshine laws and the PPACA’s sunshine provisions and monitor any related regulations or guidance. State departments of health, attorneys general, and boards of pharmacy often issue guidance or FAQs that interpret statutory law and help guide manufacturer behavior. In this regard, state sunshine laws continue to evolve, and state legislatures may pass new laws, as well.
- Develop and keep current internal policies requiring company employees to comply with applicable sunshine laws. Track company spending on educational items, meals, and advertising to the broad range of 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.
Conclusion. The passage of the PPACA does not simplify or limit the responsibilities that state sunshine laws place on manufacturers. Manufacturers will need to maintain or further develop compliance programs that address applicable state laws and related industry guidance as well as the sunshine provisions of the PPACA.
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