New Physician Gift and Disclosure Reporting Rules that Drug and Medical Device Manufacturers Should Know

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Drug and medical device manufacturers need to be aware and comply with state and federal gift disclosure rules because a failure to comply, even if inadvertent, could mean hefty monetary penalties.

Several states have adopted compliance and disclosure requirements for gifts and other value transfers to physicians by drug and medical device manufacturers. Some states have gone so far as to impose “gift bans,” providing narrow exceptions for permissible physician payments. For example, Vermont previously had a “gift ban” and on May 27, 2010 enacted new legislation, which amended the existing legislation related to physician relationships with medical device and drug manufacturers. Vermont is not alone. Minnesota and Massachusetts also have “gift ban” laws and several other states have proposed or have similar pending “gift ban” legislation. Some states, such as Colorado and Connecticut, have their own payment and gift disclosure laws.

In addition to the different state laws, drug and device manufacturers should be aware of a provision of the federal Patient Protection and Affordable Care Act (“PPACA”), which provides for transparency reports of industry payments to physicians to be publicly disclosed. This provision, Section 6002 of the PPACA is also known as the Physician Payment Sunshine Provision because it is based on the previously proposed, but never enacted, Physician Payment Sunshine Act. The PPACA requires that drug and medical device manufacturers report payments made to physicians to the Secretary of the Department of Health and Human Services (“Secretary”), but also requires the Secretary, in turn, provide these required payment disclosure reports to the public through an “Internet website” that is “searchable and in a format that is clear and understandable.”

The contents of the payment disclosure reports is contained in Section 6002 of the PPACA, which requires drug and medical device manufacturers to report in “electronic form” to the Secretary the following:

• name,
• business address,
• physician specialty, if applicable,
• National Provider Identifier,
• the amount of the payment or transfer of value,
• a description of the form of payment or other transfer of value (i.e. cash, in-kind items or services, stock, etc.), and
• a description of the nature of the payment or other transfer of value (i.e. consulting fees, gift, food, travel, entertainment, etc.).

The PPACA defines “payment or other transfer of value” very broadly to mean “a transfer of anything of value.” However, the following payments or transfers of value are exempt from disclosure:

• Payments or transfer of anything of value made indirectly to a physician through a third party, where the manufacturer is unaware of the identity of the physician;
• Payments less than $10, unless the total amount paid to a physician during a calendar year exceeds $100;
• Product samples that are not intended to be sold and are intended for patient use;
• Educational materials that directly benefit patients or are intended for patient use;
• The loan of a medical device for a short-term trial period that does not exceed 90 days;
• Items or services provided under a contractual warranty, including the replacement of a medical device, where the terms of the warranty are set forth in the purchase or lease agreement for the medical device;
• A transfer of anything of value to a physician when the physician is a patient and not acting in a professional capacity;
• Discounts and rebates;
• In-kind items used for charity; and
• A dividend or other profit distribution from ownership or investment interest in, a publicly traded security or mutual fund.

While the PPACA requires information to be made public, it treats payments to physicians assisting in the research and development of new drugs and devices differently. The Secretary will not publish payment information on the website until after the earlier of the following: (1) the date the U.S. Food and Drug Administration approves or clears the drug, device, biological, or medical supply or (2) four years after the date of the payment to the doctor.

Drug and device manufacturers may face significant penalties for noncompliance with the reporting requirements, even if inadvertent. Under the PPACA, a manufacturer that fails to submit the required information in a timely manner “shall be subject to a civil money penalty of not less than $1,000, but not more than $10,000.” If a manufacturer “knowingly fails” to submit the required information in a timely manner, the manufacturer “shall be subject to a civil money penalty of not less than $10,000, but not more than $100,000” for each payment not reported.

Many in the industry had hopes that the federal PPACA would preempt the various state laws on this subject. However, the PPACAs preemption clause does not preempt any state statute or regulation that requires disclosure or reporting of information that is “not of the type required to be disclosed or reported” under the PPACA. It only preempts those state laws that are similar or weaker. As a result, drug and device manufacturers will not only have to comply with the federal reporting and disclosure requirements imposed under the PPACA, but also with the various and additional requirements of the States.

Drug and device manufacturers have time to prepare for the new federal disclosure requirements while also complying with the state laws. Under the PPACA, the Secretary is required to establish regulations and procedures for the submission of the payment information by October 1, 2011. Drug and device manufacturers must begin collecting and recording payment information on January 1, 2012 and the first disclosure of payments to physicians made during the preceding year must be submitted to the Secretary on or about March 31, 2013.

For more information on the payment disclosure and reporting requirements under the PPACA and the various state statutes and regulations, please contact us at contact@fidjlaw.com or (305) 350-5690.