June 2013 Volume 9 Number 10

CMS Final Rule: Key Revisions to the Physician Payment Sunshine Act

By Christine L. Noller, Noller Health Law, PLLC, Saginaw, Michigan

AuthorThe Centers for Medicare & Medicaid Services (“CMS”) issued its final rule interpreting the Physician Payment Sunshine Provision of the Patient Protection and Affordable Care Act on February 1, 2013.1 The rule finalized the provisions that require manufacturers of drugs, devices, biological and medical supplies covered by Medicare, Medicaid or the Children’s Health Program to report payments or other transfers of value made to physicians and teaching hospitals to CMS. The final rule also requires manufacturers and group purchasing organizations (“GPOs”) to disclose to CMS physician ownership or investments.

The final rule followed a year-long evaluative process in which CMS solicited public comments to its December 19, 2011 proposed rule.2 Many sections of the proposed rule remained unchanged, but a significant number of regulatory provisions were revised or clarified in the final rule. The purpose of this article is to review the revisions that most impact applicable manufacturers and covered recipients.

Definition of Applicable Manufacturer Limited

CMS limited the definition of “applicable manufacturer” in response to numerous commenter concerns. Specifically, the proposed rule included both foreign and domestic manufacturers as an “applicable manufacturer”. In response to comments that the phrase was so broad as to capture entities operating wholly outside of the United States without interaction with U.S. healthcare providers, CMS revised the definition by retaining the statutory phrase “operating in the United States” but went on to define the phrase as having a physical location in the United States or otherwise conducting activities within the United States, or in a territory, possession or commonwealth of the United States.3 Thus, only those entities based outside the United States having operations in the United States are subject to reporting requirements. Additionally, such entities are not permitted to circumvent reporting requirements by making payments indirectly through foreign entities that have no operations in the United States. Those payments will be considered made by the entity operating in the United States as an indirect payment and must be reported, so long as the entity operating in the United States is aware of the identity of the covered recipients.4

Many commenters recommended additional limitations on the scope of the definition of applicable manufacturer relative to hospitals or other entities that produce covered products for sale or for use by their own patients only. Agreeing with those concerns, CMS revised the definition to exclude hospitals, hospital-based pharmacies and laboratories that manufacture a covered product solely for use within the entity itself or by an entity’s own patients.5 CMS further clarified that pharmacies, including compounding pharmacies, are also excluded from the definition of applicable manufacturer if they maintain establishments that comply with all applicable local laws regulating the practice of pharmacy, regularly engage in dispensing prescription drugs or other devices upon prescriptions from licensed professionals in the course of their professional practice and do not produce, prepare, propagate, compound or convert drugs or other devices for sale other than in the regular course of business of dispensing or selling drugs or devices at retail to their individual patients.6

Calculation of Ten Percent Threshold of Covered Products Modified

While the Act does require applicable manufacturers to report all payments of transfers of value to covered recipients rather than only payments related to covered drugs, devices, biologicals and medical supplies, the final rule clarified the agency’s position in section 403.904(b)(1)7 to allow applicable manufacturers with less than 10 percent of their gross revenue coming from covered products to only report payments related to covered products.8 The 10 percent threshold is to be calculated based upon the company’s total gross annual revenue. Applicable manufacturers with less than 10 percent of total gross revenue from covered products during the previous year that have payments or other transfers of value to report must register with CMS and attest that less than 10 percent of total gross revenues are from covered products, along with their attestation of the submitted data.9 This is an important reporting distinction and one that must not be overlooked by those applicable manufacturers not meeting the 10 percent threshold.

Consolidated Reports Allowed for Entities under Common Ownership

Many commenters advocated that CMS should allow entities under common ownership more flexibility to submit consolidated reports. CMS agreed and clarified that applicable manufacturers that are under common ownership with separate entities that are also applicable manufacturers may but are not required to file a consolidated report for all of the entities. However, it should be noted that if multiple applicable manufacturers submit a consolidated report, the report must provide information specified by CMS to identify each applicable manufacturer or entities under common ownership that the report covers. Furthermore, applicable manufacturers submitting consolidated reports must specify on an individual payment line which entity made which discrete payment or other transfer of value.10

Reporting on Food and Beverages Clarified

Numerous commenters questioned the proposed per cost of covered recipient allocation method for food and beverages provided by applicable manufacturers in group practice settings, a common industry practice. CMS acknowledged that the reporting of payments of transfers of value falling under the category of food is complicated. To simplify the process, CMS provided that for meals in group settings (other than buffet meals provided at conferences or other large-scale settings) it would require applicable manufacturers to report the per person cost of the food or beverage for each recipient who actually consumes the meal (including non-participant support staff), rather than the per-covered recipient cost.11

If the per-person cost exceeds the minimum threshold amount ($10), then the applicable manufacturer must report the food and beverage as payment or transfer of value for each covered recipient who actually participated in the group meal by eating or drinking a food or beverage item. However, this method does not require the reporting of meals eaten by support staff for the purposes of this reporting requirement.12

Moreover, applicable manufacturers are also responsible for keeping track of food and beverages provided to covered recipients using the same attribution methods for all meals dropped off at a covered recipient’s office by a sales representative and other meals where attendees are not controlled or selected by the applicable manufacturer.13

CMS did clarify that food and beverages provided at conferences, where it would be difficult to identify who exactly consumed the food and beverage, does not need to be reported. In doing so, it acknowledged the difficulty in establishing which physicians actually consumed food and beverages in buffet meals, or coffee at conferences and other large scale events.14

Indirect Payments for Speakers at CME Programs Allowed

Numerous commenters questioned the reporting requirement on indirect payments for education, particularly accredited or continuing medical education (“CME”) programs. While CMS noted in the final rule that accrediting and certifying bodies create safeguards prohibiting sponsor involvement in educational content, sponsors could still influence selection of faculty by offering suggestions to the accredited or continuing medical education provider.15

As a result, CMS clarified in the final rule that an indirect payment made to a speaker at a continuing education program is not an indirect payment and does not need reporting if specific conditions are met: 1) the program meets the accreditation or certification requirements and standards of the Accreditation Council for Continuing Medical Education (“ACCME”), the American Osteopathic Association (“AOA”), the American Medical Association (“AMA”), the American Academy of Family Physicians (“AAFP”) or the American Dental Association Continuing Education Recognition Program (“ADA CERP”); 2) the applicable manufacturer does not select the covered recipient speaker and does not provide the third party vendor with a distinct identifiable set of individuals to be considered speakers for the program; and 3) the applicable manufacturer does not directly pay the speaker.16

Research Payment Reporting can be Consolidated

In response to numerous comments regarding the method of research payment reporting, CMS adopted a consolidated payment method of reporting whereby a single research payment is reported once and includes the amount paid as well as the name of the principal investigators.17

Specifically, the applicable manufacturer will be required to report for each research-related payment that is ultimately paid to a covered recipient the name of the research institution, other entity or individual receiving payment, the total amount of the payment, name of study, name of related covered drug, device, biological or medical supply, principal investigator(s), context of researcher and ClinicalTrials.gov identifier.18

For pre-clinical research (laboratory and animal research carried on before human studies) applicable manufacturers only need to report the name of the research institution, principal investigator(s) and the total amount of payment.19

The reported total research payment amount must include the aggregated amount of any payments for services identified in the written agreement and/or research protocol. This would entail costs associated with patient care, including diagnostics, exams, laboratory expenses, time spent by healthcare professionals and the provision of study drugs, devices, biologicals, medical supplies or other in-kind items.20

Physician Owners or Investors

The final rule revised the definition of ownership interest to clarify situations where applicable manufacturers and GPOs do not know that a reportable physician ownership or investment interest exists. While CMS cannot require physician owners or investors to report this information, an applicable manufacturer or GPO may inquire about these relationships.21 The regulations provide an exception to the definition of ownership or investment interest if the applicable manufacturer or GPO did not know of such ownership or investment interest.22

Implementation and Reporting Compliance

While the effective date for the regulations was April 9, 2013, applicable manufacturers and applicable GPOs must begin to collect the required data on August 1, 2013 and report the data by March 31, 2014. CMS will begin to release the data publicly by September 30, 2014. In preparation CMS has launched the Official Website for the National Physician Payment Transparency Program: OPEN PAYMENTS (“OPEN PAYMENTS”).23

For applicable manufacturers and applicable GPOs, CMS published on this website a list of all teaching hospitals subject to reporting for the 2013 reporting year as well as separate templates for applicable manufacturers and applicable GPOs to use, including the: 1) research payment data collection template; 2) general data collection template (non-research); and 3) ownership and investment interest data collection template. Beginning in 2014, applicable manufacturers and applicable GPOs will be required to register on a CMS website and will submit data using the templates.


The final rule provides guidance to applicable manufacturers and applicable GPOs as the provisions of the Sunshine Act become effective and preparations for data collection commencing August 1, 2013 and reporting by March 31, 2014 begin. Revisions from the proposed rule, as discussed herein, have been noted and should be incorporated into the reporting and compliance plans of applicable manufacturers and applicable GPOs.


78 Fed. Reg. 9457.


76 Fed. Reg. 78742.


Section 403.902, 78 Fed. Reg. 9522.


78 Fed. Reg. 9461.


Section 403.902, 78 Fed. Reg. 9521.


78 Fed. Reg. 9461.


Section 403.904(b)(1), 78 Fed. Reg. 9522.


78 Fed. Reg. 9462.

978 Fed. Reg. 9463.

Section 403.908(d), 78 Fed. Reg. 9526.

11Section 403.904(h)(1), 78 Fed. Reg. 9524.
1278 Fed. Reg. 9479, paragraph 1.
1378 Fed. Reg. 9479, paragraph 3.
14Section 403.904(h)(2), 78 Fed. Reg. 9524.
1578 Fed. Reg. 9492.
16Section 403.904(g)(1), 78 Fed. Reg. 9524.
1778 Fed. Reg. 9483.
18Section 403.904(f)(1), 78 Fed. Reg. 9524.
19Section 403.904(f)(2), 78 Fed. Reg. 9524.
20Section 403.904(f)(1), 78 Fed. Reg. 9524.
2178 Fed. Reg. 9495.
22403.902-ownership of investment interest-(3)(v),78 Fed. Reg. 9522.

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