By September 30, 2014, the Centers for Medicare and Medicaid Services (CMS) will begin publishing data on financial relationships between drug and device manufacturers and health care providers. CMS will report payments to physicians and teaching hospitals, as well as physicians’ ownership interests in drug and device manufacturers or group purchasing organizations (GPOs). The information will be publicly available online and in a searchable format.

This program, which CMS calls the “National Physician Payment Transparency Program” or “Open Payments,” is more commonly known as the Sunshine Act. It is intended to increase transparency in response to public concern about conflicts of interest in patient care and research. Physicians should be aware of the information that will be reported so that they may maintain records in case of disputes, prepare for or avoid any reputational damage, and address compliance risks. There are legal and pragmatic implications.

Information Reported

Payments and ownership interests will be reported for manufacturers that operate in the United States and are engaged in the manufacturing of covered drugs, devices, biologicals or medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (CHIP). Payments and ownership interests will also be reported for entities under common ownership with a covered manufacturer if the entity provides certain assistance to the covered manufacturer regarding the covered drugs, devices, biological or medical supplies. Covered drugs and biologicals are those that require a prescription to be dispensed. Devices (including medical supplies that are devices) are covered if they require premarket approval by or premarket notification to the U.S. Food and Drug Administration (FDA). Entities that manufacture products solely for their own use or their own patients, such as hospitals and hospital-based pharmacies, are not required to report under the Sunshine Act.

Information about financial relationships with manufacturers and GPOs will be published about doctors of medicine, osteopathy, dentistry, dental surgery, podiatry, optometry and chiropractic medicine. Payments to physicians as bona fide employees of the manufacturer will not be reported. In addition, information about medical residents will not be published.

CMS will publish information on payments or other transfers of value to physicians from manufacturers and GPOs. “Transfers of value” will be categorized as follows: consulting fees; compensation for services other than consulting; honoraria; gifts; entertainment; food; travel; education; research; charitable contributions; royalties or licenses; current or prospective ownership or investment interests; direct compensation for serving as faculty or as a speaker in a medical education program; and grants.

Generally, payments and transfers of value will be reported regardless of whether they are for or related to a covered drug, device, biological or medical supply. Thus, payment to a physician for a speaking engagement would be reported, regardless of whether the manufacturer’s covered products are related to the topic of the talk. An exception exists for manufacturers that receive less than 10 percent of their gross income from covered products. These manufacturers are only required to report payments and transfers of value that are related to the covered products.

In addition, certain payments or transfers of value are exempted from reporting requirements. These include, among others: payments under $10 individually and under $100 in the aggregate for the year; product samples that are intended for patient use; educational materials for patients; devices that are loaned for less than 90 days as a trial period; discounts, including rebates; and in-kind items used for charity care.

CMS will also report ownership or investment interests held by physicians or their immediate family members in manufacturers and GPOs. These ownership interests include, but are not limited to: stock (except stock held in a publicly traded security or mutual fund), stock options (except those received as compensation until exercised), partnership shares, limited liability company memberships and loans secured by the entity’s property or revenue.

CMS will publish Sunshine Act information by September 30, 2014. The data will include payments and ownership interests from August 1, 2013, through December 31, 2013.

Increased Prosecution

In fiscal year 2012, the federal government won more than $3 billion in health care fraud judgments and settlements (not including state Medicaid recoveries). The Sunshine Act is expected to increase prosecution of health care fraud and abuse. Three major areas where physicians are likely to see increased prosecution are the Stark Law, anti-kickback statutes and the False Claims Act.

The Stark Law prohibits physicians from referring Medicare beneficiaries to use certain health services at entities in which the physician or the physician’s immediate family members have a financial interest. Covered services (“designated health services”) include, among others, outpatient prescription drugs, durable medical equipment and supplies and clinical laboratory services. By disclosing physicians’ financial relationships with drug and device manufacturers, the Sunshine Act will make it easier to prosecute such referrals. Importantly, the Stark Law is a strict liability statute, so inadvertent referrals may be prosecuted the same as intentional violations.

The federal anti-kickback statute provides criminal penalties for the exchange or offer to exchange anything of value with the intention to induce or reward the referral of Medicare or Medicaid goods or services. Unlike the Stark Law, violation of the federal Anti-Kickback Statute requires that the individual act “knowingly or willfully.” Under the federal Anti-Kickback Statute, both sides of the exchange are liable for penalties. Thus, a physician who accepts compensation from a pharmaceutical company for research or consulting could be liable if the payments were intended to induce the physician to prescribe a particular drug for Medicare or Medicaid patients. Further, several circuits, including the U.S. Court of Appeals for the Third Circuit, have held that the intent requirement is satisfied if one purpose of the transaction was to induce referrals. Public disclosure of transfers of value from manufacturers to physicians, including payments for research or speaking engagements, will likely increase federal prosecution under the Anti-Kickback Statute.

In addition, many states have anti-kickback or similar statutes. State prosecutors may use the information available from CMS to investigate state violations as well.

Finally, False Claims Act prosecutions are likely to increase, both because of the disclosure under the Sunshine Act and because of the new connection between the federal Anti-Kickback Statute and the False Claims Act. The False Claims Act provides both civil and criminal penalties for knowingly presenting — or causing to be presented — a false claim for government payment. For example, a physician could be liable for causing a hospital to submit a false claim for reimbursement. Further, the Patient Protection and Affordable Care Act provides that any claim submitted as a result of an anti-kickback violation automatically violates the False Claims Act as well. Thus, physicians face significantly increased exposure under the False Claims Act.

Action by Physicians

The Sunshine Act does not require any action from physicians. However, CMS will provide 45 days for physicians to review and work with the applicable manufacturers or GPOs to correct information before it is made public. Manufacturers and GPOs have 15 days after this period to submit corrections to CMS. When the dispute is not resolved, CMS will publish the most recent data submitted by the applicable manufacturer or GPO, but the information will be marked as disputed. Physicians are not limited to disputing reports during this 45-day period. They may dispute reports at any time during the year, but changes resulting from disputes resolved outside of the initial review period may not be reflected immediately. CMS will update the current and previous year’s data at least once annually, in addition to the initial data publication.

While not a requirement, CMS encourages physicians to register with the agency in order to receive notifications about the review process. CMS will also provide information to covered health care providers through listservs and online postings. Physicians are also encouraged to maintain records of all payments and transfers of value that they receive from applicable manufacturers and GPOs. Physicians should be diligent here to assure that what is being reported is right. •

Vasilios J. “Bill” Kalogredis is the president and founder of Kalogredis, Sansweet, Dearden and Burke, a health care law firm in Wayne, Pa. He can be reached at 610-687-8314 or at BKalogredis@KSDBHealthlaw.com.