ABA Health eSource
August 2010 PPACA Special Edition

Complying with Federal and State “Sunshine Laws”: How Manufacturers Can Avoid Getting Burned

By Ann E. Lewis and David I. Sclar, Ropes & Gray LLP, New York, New York

AuthorAuthorNew “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. 1 This article presents an overview of the scope of federal and state sunshine laws 2 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 3 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 4 during the previous calendar year. 5 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 6 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. 7 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. 8

Independent of the PPACA’s new federal disclosure requirements, laws in several states – such as California 9 , Connecticut 10 , the District of Columbia 11 , Maine 12 , Massachusetts 13 , Minnesota 14 , Nevada 15 , Vermont 16 , and West Virginia 17 – 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 18 and the AdvaMed Code of Ethics 19 – 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. 20

The PPACA’s sunshine provisions will preempt state law provisions that require reporting the same type of information required to reported under the PPACA. 21 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. 22 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. 23 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 24 ; and iii) spending on promotion and advertising. 25

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). 26 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.” 27 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. 28 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. 29 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. 30

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.” 31 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. 32

To avoid such penalties, manufacturers should consider taking proactive steps to comply with applicable sunshine laws. For example, manufacturers should:

  1. 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.
  2. 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.


1 Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 6002, 124 Stat. 119, 689 (codified as amended at 42 U.S.C. § 1320a-7h) (amending Part A of title XI of the Social Security Act by adding section 1128G) (2010). The Ropes & Gray Health Reform Resource Center, available at http://healthreformresourcecenter.ropesgray.com, contains resources on the PPACA, health reform implementation, and related topics.
2 The requirements in the federal law are often referred to as “sunshine provisions” because similar provisions were initially proposed in the Physician Payments Sunshine Act of 2007, S. 2029, 110th Cong. (2007); because all of these laws purport to shed sunlight on otherwise confidential industry arrangements, this article refers to the laws collectively as “sunshine laws.”
3 The PPACA’s sunshine provisions also cover any entity which is under common ownership with a manufacturer and which provides assistance or support to the manufacturer (e.g., a distributor). PPACA § 6002, § 1128G(e)(9).
4 A “covered recipient” generally includes a physician (as defined in Section 1861(r) of the Social Security Act) or a teaching hospital, although the PPACA does not define the term “teaching hospital.” PPACA § 6002, § 1128G(e)(6), (11).
5 PPACA § 6002, § 1128G(a)(1)(A), (e)(2). The PPACA’s required reporting, according to procedures to be issued by the Secretary by October 1, 2011, includes: the recipient’s name and business address, the specialty and National Provider Identifier of a physician recipient, the date, amount, form, and nature of the payment or transfer of value, the name of any drug, device, biological, or medical supply with respect to which marketing, education, or research is related to the payment or transfer of value, and any other information that the Secretary may require in future regulations. Id. at § 1128G(a)(1)(A)(i)-(viii), (c)(1)(A). By September 30, 2013, and on June 30 of each calendar year thereafter, the Secretary will make public the information submitted, along with related information, but not National Provider Identifiers. Although this does not affect manufacturers’ reporting requirements, the Secretary may not make public information submitted with respect to a product research or development agreement or a clinical investigation until the earlier of approval or clearance by the Food and Drug Administration or four calendar years from the payment date, and this information will be considered confidential until the Secretary makes it public. Id. at § 1128G(c)(1)(C), (E). Section 6002 also requires manufacturers and group purchasing organizations to disclose to the Secretary certain information regarding physicians’ (and their immediate family members’) ownership and investment interests in these entities. See Id. at § 1128G(a)(2).
6 Id. at § 1128G(a)(1)(A)(vi).
7 Id. at § 1128G(e)(10)(B)(i)-(v), (vii)-(viii), (xii).
8 PPACA § 6004. Section 6005 of the PPACA adds transparency requirements for pharmacy benefit managers (“PBMs”), but PBMs are beyond the scope of this article. PPACA § 6005.
9 See Cal. Health & Safety Code § 119400 – 119402, available at http://www.leginfo.ca.gov/cgi-bin/calawquery?codesection=hsc&codebody=119400&hits=20.
10

See Connecticut Public Act No. 10-117 (S.428), §§ 93-94, available at http://www.cga.ct.gov/2010/ACT/Pa/pdf/2010PA-00117-R00SB-00428-PA.pdf.

11 See D.C. Code. Ann. § 48-833.01 - 48-833.09, available at http://www.dccouncil.washington.dc.us/dcofficialcode; D.C. Mun. Reg. tit. 22, §§ B1800 - B1805, B1899, available at http://www.dcregs.org/Gateway/ChapterHome.aspx?ChapterNumber=22-B18.
12 See Me. Rev. Stat. tit. 22, § 2698-A, available at http://www.mainelegislature.org/legis/statutes/22/title22sec2698-A.html; 10-144 Me. Code R. § 2, available at http://www.maine.gov/sos/cec/rules/10/144/144c275-section-2.doc.
13 See 105 CMR 970.000, available at http://www.mass.gov/Eeohhs2/docs/dph/regs/105cmr970.pdf; Massachusetts General Laws Chapter 111N, available here .
14 See Minn. Stat. §§ 151.01, 151.44, 151.47, 151.461, 10A.071, subd. 1(b), available at https://www.revisor.mn.gov/statutes/?id=151 and https://www.revisor.mn.gov/statutes/?id=10A.071; “Minnesota Statutes § 151.461 – Gifts to Practitioners Prohibited: Frequently Asked Questions”, available at http://www.phcybrd.state.mn.us/forms/giftsfaq.pdf.
15 See Nev. Admin. Code 639.616, available here ; Nev. Rev. Stat. 639.570, available at http://www.leg.state.nv.us/NRS/NRS-639.html#NRS639Sec570.
16 See Vt. Stat. Ann. tit. 18 §§ 4631a, 4632, as revised by An act relating to health care financing and universal access to health care in Vermont, No. 128 (S.88), §§ 32-33 (Vt. May 27, 2010), available in relevant part at http://www.atg.state.vt.us/assets/files/Prescription%20Drug%20Provisions.pdf.
17 See W. Va. Code § 16-29H-8, available at http://www.legis.state.wv.us/WVCODE/Code.cfm?chap=16&art=29H#29H; W. Va. Code R. § 210-1, available at http://apps.sos.wv.gov/csrdocs/worddocs/210-01.doc.
18 Pharmaceutical Research and Manufacturers of America (“PhRMA”) Code on Interactions with Healthcare Professionals, available at http://www.phrma.org/files/attachments/PhRMA%20Marketing%20Code%202008.pdf.
19 Advanced Medical Technology Association (“AdvaMed”) Code of Ethics on Interactions with Health Care Professionals, available here .
20 “Compliance Program Guidance for Pharmaceutical Manufacturers,” United States Department of Health and Human Services Office of Inspector General, April 2003, available at http://oig.hhs.gov/fraud/docs/complianceguidance/042803pharmacymfgnonfr.pdf.
21 PPACA § 6002, § 1128G(d)(3)(A).
22 Id. at § 1128G(d)(3)(B).
23 Id. at § 6002, § 1128G(d)(3)(B), (e)(10)(B). Note that because of the structure of these clauses, this preemption provision may be open to other interpretations.
24 States often define healthcare professional broadly to include physicians’ staff, office employees, or agents, persons with prescribing authority other than physicians, and even managed care employees. This is in contrast to the comparatively narrow definition of “physician” in Section 1861(r) of the Social Security Act. See SocialSecurity Act, tit. XVIII, § 1861(r), 42 U.S.C. 1395x(r) (2010), available at http://www.ssa.gov/OP_Home/ssact/title18/1861.htm.
25 States often define promotion and advertising to include a broad range of expenditures that industry would not consider as promotional or marketing related, such as support for medical education.
26 Certain state laws also regulate manufacturers’ use of prescriber-identifiable data, require manufacturers to register clinical trials and disclose trial results data, and/or require pharmaceutical marketers to disclose average wholesale prices of drugs to prescribers. See, e.g., Vt. Stat. Ann. tit. 18 §§ 4631, 4633, available at http://www.leg.state.vt.us/statutes/fullsection.cfm?Title=18&Chapter=091&Section=04631 and http://www.leg.state.vt.us/statutes/fullsection.cfm?Title=18&Chapter=091&Section=04633; Me. Rev. Stat. tit. 22, § 2700-A; 10-144 Me. Code R. § 1, available at http://www.mainelegislature.org/legis/statutes/22/title22sec2700-A.html and http://www.maine.gov/sos/cec/rules/10/144/144c275-section-1.doc.
27 PhRMA Code, Section 2 (“Informational Presentations by Pharmaceutical Company Representatives and Accompanying Meals”).
28 Minnesota Statutes § 151.461, available at https://www.revisor.mn.gov/statutes/?id=151.461; “Minnesota Statutes § 151.461 – Gifts to Practitioners Prohibited: Frequently Asked Questions.” Minnesota law prohibits gifts from pharmaceutical manufacturers to licensed physicians but specifically excludes from the definition of gift, “items with a combined retail value, in any calendar year, of not more than $50.” Minn. Stat § 151.461(2).
29 Minnesota law requires manufacturers to file an annual report with the Minnesota Board of Pharmacy. However, the required contents of that report are limited to those payments, honoraria, reimbursement, and other compensation which are authorized under clauses (3) to (5) of section 151.461 of the Minnesota statutes. Minn. Stat § 151.47(f), available at https://www.revisor.mn.gov/statutes/?id=151.47. The meal in this case study is not covered by any of these clauses.
30 PPACA § 6002, § 1128G(a)(1)(A).
31 Id. at § 1128G(b)(1), (2).
32 See, e.g., D.C. Mun. Reg. tit. 22, § B1804, available at http://www.dcregs.org/Gateway/ChapterHome.aspx?ChapterNumber=22-B18. The District of Columbia rules impose a fine of $1,000, plus costs and attorney’s fees, for each submission of false information, omission of required information, and f ailure to timely file a complete annual report in accordance with District of Columbia laws and regulations. Id. at § 1804.2 -.4. Additionally, when a manufacturer fails to timely file a complete and accurate annual report, the costs expended by the Director of the Department of Health and/or the Attorney General are calculated at the higher of the actual costs (as broadly defined in the regulations) or $1,000 per day for each day that the complete and accurate report was due but not filed. Id. at § 1804.5.

The ABA Health eSource is distributed automatically to members of the ABA Health Law Section . Please feel free to forward it! Non-members may also sign up to receive the ABA Health eSource.