Data Rainbows to Medical Pots of Gold: The Physician Payment Sunshine Act

Posted on 09-24-2012 by
Tags: Real Law

Brought to you by the Real Law Editorial Team

This summer’s U.S. Supreme Court decision to uphold the Patient Protection and Affordable Care Act (PPACA) means that there will be sweeping changes throughout the land of health care. One small corner of the PPACA is the Physician Payment Sunshine Act (Sunshine Act), which has been prompting all kinds of life sciences companies—pharmaceutical, biotech, medical device, and diagnostic manufacturers—to prepare for an unprecedented amount of bright sunshine that is to be shed on their relationships with physicians and teaching hospitals.

Where Do Sunbeams Come From?

The scene was arguably set in 2005. The Department of Justice (DOJ) in New Jersey launched a federal investigation into financial relationships between orthopedic device companies and orthopedic surgeons. Then-U.S. attorney (now N.J. governor) Christopher J. Christie alleged that the companies had paid surgeons to use their products. The alleged inducements included consulting gigs, luxurious travel and meals, gifts, and outright payments. In 2007 the companies settled, consenting to payments and monitoring by DOJ-appointed monitors (which is an interesting story in itself).

The momentum continued with another high-profile case involving Harvard doctors who didn’t disclose at least $1.6 million in consulting fees related to antipsychotic medicines for children. In another case, a whistleblower claimed that surgeons were paid tens of millions of dollars in consulting contracts, royalties, and other types of payments.

Clearly something had to be done. Senators Kohl and Grassley drafted the Sunshine Act in 2007 and put it forward for enactment. It did not get through at that time, but following a Senate hearing entitled “Surgeons for Sale,” in 2008 it was reintroduced, and ultimately it found its way into the Healthcare Reform Bill.

Giving Up the Goods

As described above, the “something” that had to be done became the Sunshine Act. Now life sciences companies will be offering up a lot of information that used to be either private or informal.

There are two parts of this disclosure. First, each company will have to begin collecting, keeping records, and reporting annually on “payments or other transfers of value” to physicians and teaching hospitals. Second, applicable life sciences companies and group purchasing organizations will have to disclose any “ownership or investment interests” held by physicians or their immediate family members, as well as payments/value transfers provided to these physicians. This payment information, called the “aggregate spend,” will be reported annually to the secretary of health and human services, and to the public via a website.

On the face of it, the requirement directly affects only the life sciences companies—physicians and teaching hospitals will not be required to disclose any information themselves under this rule. Still, doctors and hospitals will be named in the course of disclosure, and the public website will publish payments made by manufacturers for a wide range of activities, including consulting, speaking, research, travel, and service on advisory boards.

Not Just Numbers, but Nature

Some of the complexity surrounding compliance has to do with the extent to which life sciences companies are going to have to open their kimonos. It’s not enough to disclose the number and sums transferred. For each payment, companies will have to clearly identify the form and nature of each payment based on specific categories. These categories cover not only items like consulting fees, investments, and services, but also things like gifts, food, entertainment, travel, speaking engagements, and charities.

Expect Some Sunburns

Bringing this information into the light potentially poses compliance risks for both manufacturers and health care providers. New litigation will be a very real possibility, with medical companies, hospitals, and physicians potentially exposed to new compliance and liability risks under federal and state fraud and abuse laws like the False Claims Act (FCA) and the Foreign Corrupt Practices Act (FCPA). For example, under Section 6402 of the PPACA, violations of the Anti-Kickback Statute will also be considered violations of the FCA, potentially extending the reach of enforcement and penalties to claims submitted by physicians or teaching hospitals.

The DOJ has also been diligent in pursuing FCPA prosecutions against life sciences companies in the last few years. Some of the companies that settled FCPA cases in 2011 were the same ones that were involved in Christopher Christie’s deferred prosecutions in 2007. It takes time to build robust policies and really clean house.

People will start using this information in a lot of different ways, and no one is sure exactly how far it will go. There could be inquiries into whether specific treatments provided were necessary and appropriate. Patients might be willing to bring suits involving the use of a covered medical drug or device. The IRS, ex-spouses, and even other physicians will be very interested to learn exactly which doctors are getting paid—and how much.

Going Forward, Changing Everything

While a recent Deloitte study found that neither companies nor physicians plan on changing their activities in the face of this increased transparency, there is reason to be skeptical. First of all, the study made clear that transfers of value from companies to doctors is widespread, and second, companies have made significant changes once exposed to a higher degree of scrutiny, as the medical device companies did after the settlement in 2007.

An in-depth article in the Journal of Joint and Bone Surgery found that many of the orthopedic device companies that Christie pursued did make changes. The increased monitoring and potential prosecution prompted the journal to state that “the U.S. Department of Justice investigation of orthopedic industry changed the business model of orthopedics in the United States.” It’s going to be interesting. Look out for investigations and big cases in late 2014 and 2015.

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