More than 22 months after President Obama signed into law the Patient Protection and Affordable Care Act, the Centers for Medicare and Medicaid Services (CMS) announced the release of the final regulations implementing section 6002 of the Act. Section 6002 of the Act, entitled “Transparency Reports and Reporting of Physician Ownership or Investment Interests,” is commonly known as the “Sunshine Act.”

Under the Sunshine Act, certain pharmaceutical, medical device, biological product and medical supply companies, who are “applicable manufacturers,” are required to annually disclose payments and other transfers of value provided to covered recipients in the “Payments or Other Transfers of Value Report.” Additionally, applicable manufacturers and “applicable group purchasing organizations” (GPOs) are required to annually report certain physician ownership or investment interests in the “Physician Ownership and Investment Interest Report.” The implementing regulations were published in the Federal Register on February 8, 2013, and became effective on April 9, 2013.

Thanks to these new regulations, applicable manufacturers and applicable GPOs were given approximately 180 days to prepare for the data capture period, which begins August 1, 2013. CMS recently released the revised templates, which will be used for the 2013 data collection and report submission.

With August 1 less than two months away, it is imperative that applicable manufacturers and applicable GPOs understand the federal requirements, and devise business practices to meet them. Below we provide information for applicable manufacturers about the “Payment or Other Transfer of Value Report” requirements and some commonly asked questions.

The Who

Who Is Subject to the Sunshine Act?

Under the Act, applicable manufacturers must disclose certain information to CMS. An “applicable manufacturer” is an entity with a physical location in the United States or who otherwise conducts activities in the United States, and

(1) is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological or medical supply [(collectively referred to hereafter as “Covered Product”)] . . . [or] (2) [a]n entity under common ownership with an entity in paragraph (1) of this definition, which provides assistance or support to such an entity with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a [C]overed [Product].

Under section 42 CFR § 403.902 of the Act, a Covered Product is defined as one that is covered under Medicare, Medicaid or the Children’s Health Insurance Program, and requires a prescription to be dispensed, or premarket approval by or notification to FDA. According to the Preamble to the Sunshine Act Regulations, 78 Fed. Reg. 9462 (Feb. 8, 2013), contract manufacturers of Covered Products are also considered applicable manufacturers. The final regulations define common ownership as “the same individual, individuals, entity, or entities [who] directly or indirectly own 5% or more total ownership of two entities.” The Act’s final rule takes it a step further to indicate that entities under common ownership may submit a consolidated report; however, the specific entity associated with each payment or other transfer of value must be identified.

For entities that are applicable manufacturers because they are contract manufacturers of Covered Products or are under common ownership with an applicable manufacturer and provide assistance or support to the entity, there is good news. If certain criteria are met, the reporting obligations will be limited. For example, a contract manufacturer’s reporting obligations will be limited to payments or other transfers of value related to the Covered Product it manufactures pursuant to a contract with another entity if the contract manufacturer: (1) does not manufacture a Covered Product for itself; (2) does not hold an NDA for the product; and (3) does not engage in the sale, marketing or distribution of the Covered Product. See 42 CFR § 403.904(b) for more details.

Once an entity determines that it is an applicable manufacturer, it must identify the individuals and entities who trigger a reporting obligation.

Who Is a Reportable Recipient?

Under the Act, payments or other transfers of value by an applicable manufacturer to a “covered recipient” must be reported. Covered recipients are teaching hospitals and physicians, except bona fide employees of the applicable manufacturer. To facilitate the identification of teaching hospitals, CMS posted a list of teaching hospitals on its National Physician Transparency Program: Open Payments Website.

Once an entity determines it interacts with individuals or entities that trigger reporting, the entity must understand what must be reported and when.

The What

What Must Be Included in the “Payments and Other Transfers of Value Report”?

Applicable manufacturers must report any direct and indirect payment or transfer of value provided to a teaching hospital or physician that exceeds $10; however, if the aggregated amount provided to a covered recipient exceeds $100 in a calendar year all payments are reportable. For every payment or transfer of value, the applicable manufacturer must provide the following:

• Full name of the recipient, including middle name of the physician;

• Primary business address;

• Recipient type, for physicians;

• Specialty, for physicians, which is provided in the National Plan and Provider Enumeration System or can be obtained from the applicable manufacturer’s records;

• National Provider Identifier Number;

• State license number and state of licensure of the recipient, for physicians;

• Payment amount;

• Date;

• Form of payment (e.g., cash or cash equivalent, in-kind items or services, etc.);

• Nature of payment (e.g., consulting fee, honoraria; entertainment, food and beverage, etc.); and

• Associated Covered Product.

If an applicable manufacturer makes a payment to a third party at the request of or on behalf of a covered recipient, the payment must be reported in the name of the covered recipient, and the name of the entity that received the payment or “individual” must be indicated if it was made to an individual.

Payments made in connection with research—a defined term—that are subject to a written agreement or research protocol have special reporting requirements and must be disclosed to CMS separately. These requirements apply to payments and transfers of value related to pre-clinical, phases I through IV, and investigator-initiated research. CMS will not publicly post research-related payments until the date of approval, licensure or clearance of the Covered Product by the FDA, or four calendar years after the payment or transfer of value was made. In the report, applicable manufacturers must include the following info for research-related payments:

• Name of the research institution, individual or entity receiving payment, and principal investigator;

• Primary business address;

• Total aggregate amount of research payment;

• Name of research study (not required for pre-clinical);

• Name(s) of any related Covered Product(s) and the National Drug Code(s), if applicable (not required for pre-clinical); and

• Indication of whether the payment is eligible for delayed publication.

What Is Excluded From the “Payments and Other Transfers of Value Report”?

The regulations specifically identify a number of payments or other transfers of value that are not reportable, including, but not limited to: educational materials distributed for the benefit of patients or intended for patient use; product samples intended for patient use; in-kind items used to provide charity care; and any indirect payment or transfer of value where the applicable manufacturer is unaware of the identity of the covered recipient. Please see Section 403.904(i) of the regulations for a complete list of the exclusions.

In addition to the “who” and “what,” applicable manufacturers must be keenly aware of the “when.”

The When

Within 90 days of the end of the calendar year, applicable manufacturers with reportable payments or other transfers of value must register with CMS. Additionally, the following dates are of major importance for applicable manufacturers:

• August 1, 2013: Data capture begins

• March 31, 2014: Reports due to CMS

• September 30, 2014: Data will be posted publicly by CMS on a searchable website

• April 1, 2015: The first report from CMS, which will include data submitted in the March 31, 2014 reports, is due to Congress

The dispute resolution timeframe, which is expected to take place sometime during the summer of 2014 for reports submitted on March 31, 2014, is significant, too. Applicable manufacturers and covered recipients will have a 45-day review period, during which disputes, errors, etc., can be resolved. Undisputed data will be finalized for publication at the end of the review period. Applicable manufacturers will have 15-days to revise the disputed data resolved during the 45-day period. If a resolution cannot be reached, the original data will be published, but will be flagged as “disputed.” To participate in the dispute resolution process, covered recipients must register with CMS. See 42 CFR § 403.908.

The Why

After reading the requirements, applicable manufacturers may ask themselves: Why does this matter? According to Senator Charles Grassley, the co-author of the Sunshine Act,

[d]isclosure brings about accountability, and accountability will strengthen the credibility of medical research, the marketing of ideas and, ultimately, the practice of medicine. The lack of transparency regarding payments made by the pharmaceutical and medical device community to physicians has created a culture that this law should begin to change substantially. The reform represented in the Grassley-Kohl Sunshine Law is in patients’ best interest.

If this statement from Senator Grassley is insufficient motivation for applicable manufacturers, perhaps the penalties associated with the Sunshine Act will move them. Applicable manufacturers that fail to submit information in a timely, accurate or complete manner are subject to monetary penalties of $1,000 to $10,000 per item not reported, the total of which will not exceed $150,000. Applicable manufacturers that knowingly fail to submit information are subject to monetary penalties of $10,000 to $100,000 per item, the total of which will not exceed $1,000,000. Notably, if entities under common ownership submit a consolidated report, the maximum penalties imposed will be aggregated separately.

Although these penalties may seem small compared to the settlement amounts for recent Corporate Integrity and Deferred Prosecution Agreements, given the intent of the Act, the negative implications of receiving penalties for failing to submit information will likely harm the public’s perception of the penalized entity. Thus, with less than two months until August 1, entities subject to the Act must understand the federal requirements, devise business practices to meet them, and document assumptions to avoid getting burned by the Sunshine Act.


  • John Patrick Oroho

    Executive Vice President and Chief Strategy Officer of Porzio Life Sciences, LLC, meets regularly with companies to identify sales and marketing issues. As principal of the law firm, Porzio, Bromberg & Newman, P.C., he concentrates his law practice in federal regulatory compliance with respect to the Physician Payment Sunshine Act, Prescription Drug Marketing Act, Anti-Kickback Statute, False Claims Act and state Life Sciences regulatory compliance.

  • Sandra Gonzalez, Esq

    Compliance Associate with Porzio Life Sciences, LLC, collaborates on the creation of new products and services and the management of existing offerings. She is an Associate of Porzio, Bromberg & Newman, P.C. and a member of the firm’s life sciences Compliance, Commercialization and Regulatory Counseling Department.


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