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CMS Announces Final Regulations Under “Sunshine Act”

February 5, 2013

On February 1, 2013, the Centers for Medicare & Medicaid Services (CMS) issued the long awaited final regulations implementing Section 6002 of the Affordable Care Act (ACA), commonly known as the “Sunshine Act.”

Section 6002 of the ACA requires "applicable manufacturers" of drugs, devices, biological or medical supplies covered under the Medicare, Medicaid or Children’s Health Insurance Program (CHIP), to report annually to the Secretary of the Department of Health and Human Services, certain payments or other “transfers of value” made to physicians and teaching hospitals and certain ownership and investment interests held in the manufacturer by physicians.

The final regulations clarify the types of entities subject to Section 6002, what constitutes a payment or transfer of value and how the reports are to be made. Manufacturers must begin to collect the required data on August 1, 2013 and report the data to CMS by March 1, 2014.

Applicable Manufacturer. Section 6002 applies to “applicable manufacturers,” defined as an entity that is engaged in the “production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply for sale or distribution in the United States, or in a territory, possession or commonwealth of the United States,” or is under common ownership with such an entity. CMS excludes from the definition of “applicable manufacturer” certain types of entities, including hospitals, laboratories and pharmacies, that manufacture otherwise covered products solely for their own use or the use of their patients. A covered product is a drug, device, biological or medical supply that (1) is covered by the Medicare, Medicaid or the CHIP programs, and (2) requires (a) in the case of a drug or biological, a prescription to be dispensed, or (b) in the case of a device or medical supply, premarket approval or notification to the Food and Drug Administration. In the regulations, CMS discusses when distributors, repackagers or relabelers, wholesalers, and companies that manufacture raw materials or product components are subject to the law and when companies will be considered under common ownership. The regulations further clarify that an "applicable manufacturer" based outside the United States but which has operations in the United States is subject to the reporting requirements.

Covered Recipient. Section 6002 requires the report of payments or “transfers of value” to “covered recipients.” A "covered recipient" is a physician or a teaching hospital. Physician includes licensed doctors of medicine and osteopathy, dentists, podiatrists, optometrists and chiropractors but does not include mid-level practitioners, such as physician assistants, nurse practitioners or midwives. Section 6002 also excludes physicians who are bona fide employees of the "applicable manufacturer." Manufacturers will be required to report the physician’s name, business address, specialty, NPI, and the State and State professional license number in at least one State where the physician practices. The manufacturer must use the NPI listed on the National Plan & Provider Enumeration System website. A teaching hospital is an institution that received graduate medical education payments during the most recent fiscal year. CMS will publish a list of hospital "covered recipients" on the CMS website once per year.

Payment or “Transfer of Value.” Section 6002 covers various types of payment or other remuneration made by an “applicable manufacturer” to a “covered recipient.” In the final regulations, CMS clarifies the types of payment or transfers that must be reported and how “applicable manufacturers" should address indirect payments or payments through third parties. Payments include, without limitation, cash or cash equivalents, in-kind items or services, stock, stock ownership, dividends or other returns on investment, consulting fees, royalty or license payments, charitable contributions, gifts, certain payments related to research, and reimbursement of certain expenses. CMS declined to establish a specific method of valuation for the payment and indicated only that it interprets value as the “discernible economic value” on the open market in the United States. In addition, “applicable manufacturers” must report ownership or investment interests in the manufacturer held by physicians or immediate family members of physician. The final regulations clarify that the following information regarding the “covered recipient” must be included in the report to CMS: name, business address, specialty, NPI, date of payment, context of the payment, the related drug, device, biological or medical supply, and the form and nature of payment. Payments or transfers of value must be reported even if the remuneration is not specifically related to a covered product.

Reporting. “Applicable manufacturers” are required to file annual reports with CMS and maintain those reports for at least five years from the date of payment or “transfer of value.” Failure to file the required reports will subject the “applicable manufacturer” to civil monetary penalties. Section 6002 requires CMS to provide “covered recipients” with at least 45 days to review and dispute the information that was submitted by “applicable manufacturers” and an additional 15 days to resolve any disputes.

If you have questions, please contact the author of this alert, Kathrin Kudner, at 734-214-7697 or kkudner@dykema.com


As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2013 Dykema Gossett PLLC.

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2018 Dykema Gossett PLLC.