Understanding how to comply with the federal Physician Payments Sunshine Act—which went into effect in 2013—is crucial for biotechnology, pharmaceutical and medical device companies and health care providers. The law, commonly known as the Sunshine Act, was established in 2010 as part of the Affordable Care Act. Gaps in knowledge around compliance remain because the law is still relatively new, and companies have often used outsourced providers to handle related compliance work. Leadership at biotechnology companies that have commercialized in the past few years or are in the process of commercializing now may still be unfamiliar with how best to adhere to the Sunshine Act’s regulations.
Companies subject to the law’s strict requirements must track payments and other transfers of value made to U.S. physicians and teaching hospitals. The act requires all payments and transfers of value made to U.S. physicians with active licenses in the United States to be reported, regardless of where the medical activity took place (e.g., overseas).
Many interactions between physicians and the pharmaceutical, biotech and medical device industries occur to advance clinical research that is essential to discovering treatments and improving patient care. The Sunshine Act is not designed to impede these important interactions; rather, the law intends to provide the benefit of transparency and avoid the burden of inaccurate reporting.
In the current environment of the coronavirus pandemic, doctors may not have much or any time to meet with pharmaceutical representatives or attend conferences. But even as the health care system is overwhelmed by responding to the pandemic, it is important to understand the specifics of complying with this law. Here are three basic steps in tracking financial transactions, as required by the Sunshine Act:
- Identify the covered recipient (CR): This could be the health care provider (HCP), the health care organization (HCO), or the health care agent (HCA).
- Capture spend data: This entails accurately identifying, aggregating and tagging spend transaction data to the CR. The company must have ERP systems in place to track, aggregate, analyze and report spend transaction data to state and federal governments.
- Proactively share data: Sharing data involves notification of spend transaction data to the CR prior to public filing of the reports. There must then be a 45-day window for the CR to review the accuracy of the reporting. HCP relationships must be managed through the notification, inquiry and dispute resolution process. This involves secure, private communication with the CRs to resolve issues prior to reporting and during public disclosure.
It is important to note the significance of identifying which HCPs in the United States qualify as providers. Payments and other transfers of value need to be reported only for those U.S. physicians who are currently licensed to practice in the United States, including medical doctors and doctors of optometry, osteopathy, dental surgery, dental medicine, podiatry and chiropractic medicine.
Under the Sunshine Act, meals provided to nurses and office staff will not be reportable and will not be attributed to physicians. However, some state marketing disclosure laws require disclosure of payments to a broader group of recipients, including nonphysician prescribers, nurses and office staff. Often, this spend is attributed to the physician or other prescriber in the office. For states with these types of disclosure requirements, these payments will not be preempted by the federal law, and thus are still reportable to the state. In addition, the AdvaMed Code of Ethics on Interactions with Health Care Professionals and some state laws prevent or limit meals to health care professionals under certain circumstances.
A clear understanding of the Sunshine Act reporting requirements allows companies to design useful reports within their ERP systems. Here is a look at the inputs required to ensure these reports are accurate:
Required reporting transactions
- Meals provided to U.S. physicians
- Contract services to U.S. physicians or teaching hospitals
- Speaker programs
- Advisory boards
- Clinical trials
- Travel-related expenses
- Travel arrangement fees
- Educational items (no direct benefit to patients)
- Stocks and grants
Exceptions to required reporting transactions
- Office staff meals:
- When the value of physician meals is calculated, the total cost of the meal is divided by the total number of people who ate (including physicians and nonphysicians) and only the proportional cost that is attributable to each physician is reported. For example, if a company spends $200 on a meal for five physicians and five nonphysician staff members, the physician meals will be reported at $20 each and the staff meals will be excluded from Sunshine Act reporting.
- Meals at conferences and large-scale events:
- The Sunshine Act does not require reporting of buffet meals, snacks, soft drinks or coffee made generally available to all participants at major conferences or other large-scale events.
- Patient educational materials:
- Educational materials and items that directly benefit patients or are intended to be used by or with patients are not reportable. However, textbooks and journal reprints do not fall within the exclusion.
- Speaker compensation at accredited continuing medical education events:
- Payments to physicians who serve as speakers at industry-supported independent continuing medical education (CME) events generally are not required to be reported, if the event is certified or accredited by the Accreditation Council for Continuing Medical Education or certain other organizations, the reporting company does not pay the physician directly, and does not select or suggest the individuals to be used as speakers.
In addition, all research-related payments and other transfers of value to U.S. physicians and teaching hospitals must be reported. Under the Sunshine Act, a payment or other transfer of value made in connection with an activity that meets the definition of research and that is subject to a written agreement, a research protocol or both should be included in the total amount of the research payment. Reporting must include both cash payments and the value of in-kind support.
According to the Sunshine Act, ownership or investment interests must also be reported. This includes ownership and investment interests held by physicians or their immediate family members and payments or other transfers of value to such physician owners or investors. The report must include the dollar amount invested and the value and terms of the ownership or investment interest, and any payment provided to the physician owner or investor. Stock options received as compensation are not an ownership or investment interest until they are exercised.
Pharmaceutical, biotechnology and medical device companies must submit reports to the Centers for Medicare and Medicaid Services by the 90th day of the calendar year. Those reports will then be published by June 30 of the same year. Before information is publicly posted, physicians and teaching hospitals will have 45 days to review submitted data and initiate disputes. If the dispute is not resolved during this 45-day period, an additional 15 days are provided to come to a resolution. If the dispute continues, the data still will be posted publicly but will be flagged as “disputed.” Physicians and teaching hospitals are able to seek correction or contest reports for two years after access has been provided to a report with disputed information. Pharmaceutical and medical device manufacturers do not have the ability to opt out of the Sunshine Act report requirements.
A proactive approach to mitigating risk and designing a system for accurately tracking health care provider spending for Sunshine Act reporting requirements will help organizations optimize their operations. Designing an effective process and system for reporting health care provider spending will ultimately help pharmaceutical and medical device companies enhance their operational compliance and overall efficiency, which in turn will allow them to continue to thrive.
RSM has a robust consulting practice strategically aligned to help companies with Sunshine Act compliance. Our services include rapid assessment of accounting best practices, ERP implementation, travel and entertainment optimization, and finance and accounting outsourcing. We collaborate with best-in-class vendors for aggregate spending analytics to assist companies with this integral component of reporting. The experience of our trained professionals at RSM proves our commitment to being first-choice advisors for Sunshine Act compliance.