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Let the Collection and Reporting Begin: CMS Publishes Final Sunshine Act Regulations

Written by Tom Crane, Brian Dunphy, and Karen Lovitch

The long-awaited final rule (the Final Rule) implementing the Physician Payments Sunshine Act (Sunshine Act) has arrived at the Federal Register.  It amends key definitions and adds new terms; retains broad reporting provisions but includes new limitations; exempts certain continuing medical education (CME) payments from disclosure; and includes additional reporting guidance.

The Sunshine Act requires applicable manufacturers of drugs, devices, biologics, or medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program (Manufacturers) to collect and report payments and other transfers of value to physicians and teaching hospitals.  These requirements apply if a Manufacturer sells or distributes at least one covered drug, device, biologic, or medical supply (Covered Product).  The Sunshine Act also requires Manufacturers and Group Purchasing Organizations (GPOs) to disclose ownership or investment interests held by physicians or their immediate family members.

Most importantly, the Final Rule requires Manufacturers and GPOs to begin collecting the required data on August 1, 2013 and to report the remaining calendar year 2013 data to the Centers for Medicare & Medicaid Services (CMS) by March 31, 2014.

The delay in publication of the Final Rule is well-documented.  CMS published the Proposed Rule in December 2011 and left many questions unanswered, as explained in our analysis of the Proposed Rule previously published in BNA’s Health Care Fraud Report.  It therefore comes as no surprise that CMS received more than 300 comments on the Proposed Rule.  While awaiting publication of the Final Rule, Manufacturers and GPOs remained in the dark about many operational and implementation details and thus could not fully implement processes to comply with the Sunshine Act’s data collection and reporting requirements.

The Final Rule provides Manufacturers and GPOs with long-awaited guidance in many areas and differs from the Proposed Rule in several key respects, some of which are discussed below.  Mintz Levin is preparing a chart that summarizes the differences between the Proposed Rule and the Final Rule, and we will post it as soon as it is ready.

Definitions – Changes and Additions

Among other things, the definitions determine to which entities and which products the Sunshine Act’s disclosure obligations apply.  The Final Rule includes important changes to the proposed definitions as well as several new terms.

  • The definition of “applicable manufacturer” expressly excludes distributors or wholesalers that do not hold title to Covered Products.  In addition, CMS clarified in the Final Rule that entities such as hospitals, hospital-based pharmacies, and laboratories that manufacture a Covered Product solely for internal use or for use by their patients also do not qualify as Manufacturers.
  • The Final Rule adds the defined term “operating in the United States,” which helps to establish whether an entity qualifies as a Manufacturer.
  • The Proposed Rule established that an entity under “common ownership” with a Manufacturer is also a Manufacturer, and the Final Rule sets the ownership threshold at five percent direct or indirect ownership of two entities by the same individual, individuals, entity, or entities. As discussed below, CMS placed limits on reporting requirements for entities under common ownership.
  • The definition of “applicable group purchasing organization” includes entities that “operate in the United States” and purchase, arrange for, or negotiate the purchase of Covered Products for a group of individuals and entities, but (rather than “and,” as stated in the Proposed Rule) “not for use by the entity itself.”  By making few changes, CMS retained a definition that includes physician-owned distributors (PODs).
  • Whether a product is a “covered drug, device, biological, or medical supply” hinges partly on whether payments are “available” from Medicare, Medicaid, or the CHIP.  To account for the wide variety of reimbursement structures used by these government health care programs, CMS clarified that payment is “available” through a fee schedule or formulary, or as part of a bundled payment.
  • Covered recipients” include physicians and teaching hospitals.  In the Final Rule, CMS stated that it will publish a list of teaching hospitals 90 days before data collection begins.  CMS also explained that “physicians” must be authorized to practice and have a current license.
  • The Final Rule adds the term “indirect payments or other transfers of value,” which means payments or other transfers of value made by a Manufacturer (or GPO) to a covered recipient (or a physician owner or investor) through a third party, where the Manufacturer (or GPO) “requires, instructs, directs, or otherwise causes the third party” to provide the payment or transfer of value to a covered recipient (or a physician owner or investor).  Indirect payments need not be reported if a Manufacturer is unaware of the covered recipient’s identity.  According to CMS, the term “know” has the same meaning as in the False Claims Act, which includes actual knowledge of information, deliberate ignorance, or reckless disregard.
  • The new phrase “payment or transfer of value” is defined, consistent with the Sunshine Act, to mean a transfer of anything of value.  In contrast to long-standing interpretations of the Office of Inspector General for the Department of Health and Human Services in other contexts, CMS stated that a product has “value” for the purposes of the Final Rule if it has “discernible economic value on the open market.”
  • The new term “related to a covered drug, device, biological, or medical supply” means that a payment or other transfer of value is made in reference to or in connection with one or more Covered Products.  This phrase is used in the Final Rule’s new reporting limitations in 42 C.F.R. § 403.904(b).

Reporting of Payments or Transfers of Value

CMS significantly revised the general disclosure rule for Manufacturers.  Manufacturers must disclose direct and indirect payments or other transfers of value to covered recipients, including payments to a third party “at the request of or designated by the applicable manufacturer on behalf of a covered recipient.”  The Final Rule also defines several limits on reporting.  First, Manufacturers for whom gross revenue from Covered Products constituted less than 10 percent of total (gross) revenue during the fiscal year preceding the reporting year must only report payments related to Covered Products.  Second, Manufacturers that qualify as Manufacturers through common ownership must only report payments or transfers of value related to a Covered Product for which they provided “assistance or support” to the Manufacturer engaged in the production of the Covered Product.  Third, Manufacturers with separate operating divisions that do not manufacture any Covered Products must only report payments to covered recipients related to the activities of these separate divisions if those payments or other transfers of value are related to a Covered Product.

Reporting Exceptions

The Sunshine Act includes fourteen exceptions from disclosure.  We anticipate that the following exceptions will be used frequently:

  • Payments of less than $10 need not be reported unless payments to a covered recipient exceed $100 annually.  The $10 threshold will increase every year according to the consumer price index.  CMS clarified that Manufacturers do not have to track incidental items worth less than $10 (e.g., pens and note pads) provided at large-scale conferences.  Similarly, although not a defined exception, Manufacturers do not have to track or report food or drinks, such as buffet meals or coffee, made generally available at a conference or large-scale event.
  • Educational materials and items (CMS added “items” in the Final Rule) intended for use by or with patients are not subject to the reporting requirements.
  • Discounts and rebates are excluded from reporting, which is notable because discounts and rebates create something of value flowing from a Manufacturer to a covered recipient.  The Final Rule surprisingly does not specify that credits and charge-backs should be considered as discounts.
  • Samples intended for patient use, including coupons and vouchers that patients can use to obtain samples, are exempt from the Sunshine Act’s requirements.  The Final Rule makes clear that the term “samples” includes devices and medical supplies.

The Final Rule also establishes an exemption for certain payments related to speaking at accredited or certified CME programs because, according to CMS, such programs include safeguards “designed to reduce industry influence.”  

 Required Information, Including the “Form” and “Nature” of Payments

The Final Rule specifies the contents of annual reports, including the information that Manufacturers must report for each payment or transfer of value (including payments to covered recipients through third parties).  The Final Rule provides that Manufacturers under common ownership may submit a consolidated report.  It also defines the procedures for submission of reports and a 45-day period for covered recipients to review and dispute data.  Among other things, Manufacturers must report the “form” of payment, the “nature” of payment, and the name of up to five related Covered Products (or report “none”) for each payment or transfer of value.  CMS provided additional guidance in the Final Rule’s Preamble related to the form and nature of payment categories that Manufacturers will find useful.  Some highlights related to “form” and “nature” include:

  • Form of payment - Manufacturers must report the “form” that “best describes” the payment or transfer of value: cash; in-kind items or services; stock, stock option, or any other ownership interest; dividend, profit, or return on investment. 
  • Nature of payment - Manufacturers must categorize the “nature” of each payment or transfer of value to a covered recipient – or any separable part of that payment – under one of the seventeen categories defined in the Final Rule that “best describes” the payment or transfer of value (e.g., consulting,  research, charitable contributions, food and beverages, and travel).  CMS added new categories related to CME programs and “space rental or facility fees” for teaching hospitals only, and also eliminated the catchall category “Other.”

The four different “nature” categories related to education listed below are likely to lead to confusion when payments related to education are reported:

  • compensation for speaking at an event other than a CME program;
  • compensation for serving as faculty or as a speaker at an unaccredited and non-certified CME program (a new category);
  • compensation for serving as faculty or as a speaker at an accredited or certified CME program (a new category); and
  • education, unrelated to speaking.

The Final Rule includes special rules for reporting payments for research and food and beverages, and it provides for delayed publication of payments made under product research or development agreements and clinical investigations.

Reports of Physician Ownership

Manufacturers and GPOs must submit an annual report to CMS regarding all ownership and investment interests held by physicians or immediate family members of physicians during the preceding year.  CMS explained that it defined an ownership or investment interest in a Manufacturer or GPO in a similar manner as defined in the physician self-referral regulation (referred to as the “Stark Law”).  Manufacturers and GPOs do not have to report indirect ownership or investment interests held by physicians or immediate family members of physicians about which they do not know.  While GPOs generally are not required to report payments to covered recipients, GPOs do need to report direct and indirect payments or transfers of value to physicians with an ownership or investment interest.


The penalties for failing to comply with the Sunshine Act can be severe.  Manufacturers or GPOs who fail to “timely, accurately, or completely” report the required information can be subject to a civil monetary penalty (CMP) ranging from $1,000 to $10,000 for each payment or transfer of value, or ownership or investment interest, not reported (up to $150,000) and from  $10,000 to $100,000 for each “knowing” failure to report (up to $1,000,000).  The CMPs are aggregated separately, and a Manufacturer or GPO could be subject to a maximum penalty of $1,150,000.  In addition, CMS clarified that, for errors corrected during the review and correction period, Manufacturers will not be “subject to penalties for failure to report in instances when the original submission was made in good faith.”

CMS explained that the mere reporting of payments should not lead to the conclusion that the parties involved were engaged in wrongdoing.  However, CMS emphasized that compliance with the Sunshine Act’s reporting requirements does not exempt Manufacturers, GPOs, covered recipients, and others from potential liability under the Anti-Kickback Statute or the False Claims Act.


Like the Proposed Rule, the Final Rule acknowledged that preemption of state law took effect on January 1, 2012.  Manufacturers should continue to carefully assess the extent to which the Sunshine Act preempts state laws, such as those in effect in Massachusetts.


Mintz Levin is continuing to review the Final Rule, and we will publish additional educational materials in the coming weeks.  Please check back regularly for updates and additional information.

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Karen S. Lovitch

Chair, Health Law Practice & Co-Chair, Health Care Enforcement Defense Practice

Karen advises industry clients on regulatory, transactional, operational, and enforcement matters. She has deep experience handling FCA investigations and qui tam litigation for laboratories and diagnostics companies.

Brian P. Dunphy

Member / Co-Chair, Health Care Enforcement Defense Practice

Brian P. Dunphy is a member of the Health Care Enforcement & Investigations Group at Mintz. He defends clients facing government investigations and whistleblower complaints regarding alleged violations of the federal False Claims Act. Brian also handles commercial health care litigation.