2013-02572 Physician Payment Sunshine Act

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Vol. 78 Friday,No. 27 February 8, 2013

Part II

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 402 and 403Medicare, Medicaid, Childrens Health Insurance Programs; TransparencyReports and Reporting of Physician Ownership or Investment Interests;Final Rule

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9458 Federal Register / Vol. 78, No. 27/ Friday, February 8, 2013 / Rules and Regulations

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Centers for Medicare & MedicaidServices

42 CFR Parts 402 and 403

[CMS5060F]

RIN 0938AR33

Medicare, Medicaid, Childrens HealthInsurance Programs; TransparencyReports and Reporting of PhysicianOwnership or Investment Interests

AGENCY: Centers for Medicare &Medicaid Services (CMS), HHS.ACTION: Final rule.

SUMMARY: This final rule will requireapplicable manufacturers of drugs,devices, biologicals, or medical suppliescovered by Medicare, Medicaid or theChildrens Health Insurance Program

(CHIP) to report annually to theSecretary certain payments or transfersof value provided to physicians orteaching hospitals (coveredrecipients). In addition, applicablemanufacturers and applicable grouppurchasing organizations (GPOs) arerequired to report annually certainphysician ownership or investmentinterests. The Secretary is required topublish applicable manufacturers andapplicable GPOs submitted paymentand ownership information on a publicWeb site.DATES: Effective date:These regulations

are effective on April 9, 2013.Compliance date:Applicablemanufacturers and applicable grouppurchasing organizations must begin tocollect the required data on August 1,2013 and report the data to CMS byMarch 31, 2014.FOR FURTHER INFORMATION CONTACT:Erica Breese, (202) 2606079.

SUPPLEMENTARY INFORMATION:

I. Executive Summary and Background

A. Executive Summary for This FinalRule

1. Purpose

This final rule is necessary toimplement the requirements in section6002 of the Affordable Care Act, whichadded section 1128G to the SocialSecurity Act (the Act). That provisionrequires applicable manufacturers ofdrugs, devices, biologicals, or medicalsupplies covered under title XVIII of theAct (Medicare) or a State plan undertitle XIX (Medicaid) or XXI of the Act(the Childrens Health InsuranceProgram, or CHIP) to report annually tothe Secretary certain payments or other

transfers of value to physicians andteaching hospitals. Section 1128G of theAct also requires applicablemanufacturers and applicable grouppurchasing organizations (GPOs) toreport certain information regarding theownership or investment interests held

by physicians or the immediate familymembers of physicians in such entities.

We believe that these provisions ofthe Act were modeled largely on therecommendations of the MedicarePayment Advisory Commission(MedPAC), which voted in 2009 torecommend Congressional enactment ofa new regulatory program. In addition,the Institute of Medicine (IOM)recommended implementing a nationaldisclosure program for payments tohealth care providers and prescribers inthe 2009 report titled, Conflict ofInterest in Medical Research, Educationand Practice. Given theserecommendations and other information

on conflicts of interest that could affecttreatment decisions, Congress enactedlegislation establishing a nationaldisclosure program with section 6002 ofthe Affordable Care Act. This final ruleprovides the implementingrequirements for this program.

2. Summary of the Major Provisions

a. Transparency Reports

This rule finalizes requirements forapplicable manufacturers to annuallyreport certain payments or othertransfers of value to covered recipients.The rule provides definitions of

numerous terms, such as applicablemanufacturer, and covered drug, device,biological, and medical supply. Inaddition, the rule also clarifies howapplicable manufacturers should reportand characterize payments or othertransfers of value, including rules forresearch payments, and indirectpayments provided to a coveredrecipient through a third party. The rulealso finalizes which payments or othertransfers of value are excluded from thereporting requirements.

In addition, the rule finalizes therequirements for applicable

manufacturers and applicable GPOs toannually report information aboutcertain ownership or investmentinterests held by physicians and theimmediate family members ofphysicians in such entities, as well aspayments and other transfers of value tosuch physicians. The rule details whatconstitutes an ownership or investmentinterest for purposes of the reportingrequirements, and defines for whomthey must be reported. The rule alsoclarifies the content for the ownershipor investment interest report.

b. Report Submission, Correction, andPublication

The rule finalizes the processes andrequirements for applicablemanufacturers and applicable GPOs tosubmit their reports to CMS, includingthe specific data elements required to beincluded in the reports and the reportformat. The rule also details theprocesses for the review, dispute, andcorrection period when applicablemanufacturers, applicable GPOs,covered recipients, and physicianowners or investors are provided theopportunity to review, dispute, andpropose corrections to reportedpayments or other transfers of value, orownership or investment interests,attributed to them. In addition, the ruleclarifies the information to be includedon the publicly available Web site, aswell as the usability of the public Website. Finally, the rule includes details onthe processes for reporting and

publishing payments or other transfersof value which are eligible for delayedpublication.

c. Penalties

The rule includes details regardingthe statutorily authorized civil monetarypenalties for failure to report paymentsor other transfers of value, or physicianownership or investment interests,including clarification of the instanceswhen the penalties will be imposed.

d. Annual Report

The rule finalizes the details of theannual reports to Congress and the

States.

e. Relation to State Laws

The rule clarifies the statutoryrequirements for the pre-emption ofState laws.

3. Summary of Costs and Benefits

Based on the comments submitted, weanticipate that much of the totalestimated burden of this final rule willfall on applicable manufacturers andapplicable GPOs. We have estimatedthat the total cost of these provisionswill be approximately $269 million in

the first year and $180 million annuallythereafter. We have no empirical abilityto estimate the monetary benefits of thisprovision; however, there arenonmonetary benefits, which aredifficult to quantify. Increasedtransparency regarding the extent andnature of relationships betweenphysicians, teaching hospitals, andindustry manufacturers will permitpatients to make better informeddecisions when choosing health careprofessionals and making treatmentdecisions, and deter inappropriate



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9459Federal Register / Vol. 78, No. 27/ Friday, February 8, 2013 / Rules and Regulations

financial relationships which cansometimes lead to increased health carecosts. Additionally, increasedtransparency about the owners andinvestors in GPOs will allow purchasersto make better informed decisions andidentify potential conflicts of interestwith ordering physicians.

B. Background1. Legislative Overview (StatutoryBackground)

Section 6002 of the Affordable CareAct added section 1128G to the Act,which requires applicablemanufacturers of drugs, devices,

biologicals, or medical supplies coveredunder Medicare or a State plan underMedicaid or CHIP to report annually tothe Secretary certain payments or othertransfers of value to physicians andteaching hospitals. Section 1128G of theAct also requires applicablemanufacturers and applicable GPOs to

report certain information regarding theownership or investment interests held

by physicians or the immediate familymembers of physicians in such entities.

Specifically, manufacturers of covereddrugs, devices, biologicals, and medicalsupplies (applicable manufacturers) arerequired to submit on an annual basisthe information required in section1128G(a)(1) of the Act about certainpayments or other transfers of valuemade to physicians and teachinghospitals (collectively called coveredrecipients) during the course of thepreceding calendar year. Similarly,

section 1128G(a)(2) of the Act requiresapplicable manufacturers andapplicable GPOs to disclose anyownership or investment interests insuch entities held by physicians or theirimmediate family members, as well asinformation on any payments or othertransfers of value provided to suchphysician owners or investors.Applicable manufacturers must reportthe required payment and other transferof value information annually to theSecretary of the Department of Healthand Human Services (HHS) (theSecretary) in an electronic format. The

statute also provides that applicablemanufacturers and applicable GPOsmust report annually to the Secretarythe required information aboutphysician ownership and investmentinterests, including information on anypayments or other transfers of valueprovided to physician owners orinvestors, in an electronic format by thesame date. Applicable manufacturersand applicable GPOs are subject to civilmonetary penalties (CMPs) for failing tocomply with the reporting requirementsof the statute. The Secretary is required

by statute to publish the reported dataon a public Web site. The data must bedownloadable, easily searchable, andaggregated. In addition, we must submitannual reports to the Congress and eachState summarizing the data reported.Finally, section 1128G of the Actgenerally preempts State laws thatrequire disclosure of the same type of

information by manufacturers.2. Transparency Overview

We recognize that collaborationamong physicians, teaching hospitals,and industry manufacturers contributesto the design and delivery of life-savingdrugs and devices and we receivedmany comments supporting thisstatement. However, as discussed in theproposed rule and in the publiccomments submitted, payments frommanufacturers to physicians andteaching hospitals can also introduceconflicts of interest that may influenceresearch, education, and clinicaldecision-making in ways thatcompromise clinical integrity andpatient care, and may lead to increasedhealth care costs.

We recognize that disclosure alone isnot sufficient to differentiate beneficialfinancial relationships from those thatcreate conflict of interests or areotherwise improper. Moreover, financialties alone do not signify aninappropriate relationship. However,transparency will shed light on thenature and extent of relationships, andwill hopefully discourage thedevelopment of inappropriate

relationships and help prevent theincreased and potentially unnecessaryhealth care costs that can arise fromsuch conflicts. Given the intricacies ofdisclosure and the importance ofdiscouraging inappropriaterelationships without harming

beneficial ones, we have worked closelywith stakeholders to better understandthe current scope of the interactionsamong physicians, teaching hospitals,and industry manufacturers. In additionto this feedback, we consulted with theHHS Inspector General, as required bythe statute. Our conclusions and

interpretations in the preamble aresolely for purposes of this regulationand do not apply in other contexts.

II. Provisions of the Proposed Rule andAnalysis of and Responses to PublicComments

In the December 19, 2011 proposedrule (76 FR 78742), we solicited publiccomment on a number of proposalsregarding transparency reports and thereporting of physician ownership orinvestment interests. In response to oursolicitation, we received approximately

373 timely public comments. Most ofthe public comments addressedprovisions included in the proposedrule. We received some comments thatwere outside the scope of the proposedrule and, therefore, will not beaddressed in this final rule. Summariesof the public comments that are withinthe scope of the proposals and our

responses to those comments are setforth in the various sections of this finalrule under the appropriate headings. Inthis final rule, we have organized thedocument by presenting our proposals,summarizing and responding to thepublic comments for the proposal(s),and describing our final policy.

The following sections outline theagencys directives concerningimplementation of section 1128G of theAct, including clarification of the termsand definitions used in the statute, aswell as procedures for the submission,review, and publication of the reported

data. For terms undefined by the statute,we have provided definitions whereappropriate to provide additionalclarity, as well as explanations of howwe interpret such terms. During thepublic comment period, we receivednumerous comments on how toapproach and structure the final rule,such as providing additional examplesand memorializing intentions in theregulatory text. We appreciate thecomments and have endeavored todevelop a final rule that allows forreporting flexibility while alsoproviding sufficient detail, clarity, andstandardized processes, in order to

better ensure the accuracy of thepublished data. Throughout the finalrule, time periods referenced in days areconsidered to be calendar days, unlessotherwise noted.

A. Timing

This final rule has not been publishedin time for applicable manufacturersand applicable GPOs to begin collectingthe information required in section1128G of the Act on January 1, 2012, asprovided in the statute. In the proposedrule, we indicated that we would notrequire applicable manufacturers and

applicable GPOs to begin collecting therequired information until after thepublication of this final rule. Weproposed a preparation period of 90days. Additionally, we consideredrequiring the collection of data for partof 2012, to be reported to CMS by thestatutory date of March 31, 2013. Wealso stated that we were consideringrequiring the collection of data for partof 2012, to be reported to CMS by thestatutory date of March 31, 2013, andrequested comments on the feasibility ofa partial year collection.



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Comment:Many commenters wereconcerned with the length of timeapplicable manufacturers andapplicable GPOs would be givenfollowing publication of the final rule

before the data collection requirementsbegin.

A number of these commenterssuggested that the reporting

requirements begin as quickly aspossible following the publication of thefinal rule, in order to ensure that thereis sufficient time for data to be collectedfor a partial year of 2012. Thesecommenters recommended a 30-daypreparation period. Conversely, manyother commenters requested that thedata collection requirement not beginuntil January 1, 2013, stating that thedata collection requirement forcollecting a partial year of data would

be difficult and overly burdensome.Other commenters did not address the

beginning date for data collection, but

instead advocated for a longerpreparation period than the proposed 90days. The majority of these commentersrequested an 180-day preparationperiod, but a few suggested longer, withthe longest being 15 months. Somecommenters also requested thatregardless of the timing, data collectionshould begin at the beginning of aquarter and also explained that makingsystems changes during the last quarterof a year would be difficult.

Response:We appreciate thesecomments and agree that data collectionneeds to begin as soon as reasonablypossible; however, to allow us time to

address the important input we receivedfrom stakeholders during therulemaking process, we announced inMay 2012 that we would not require thecollection of any data before January 1,2013. We are finalizing that the datacollection requirement will begin onAugust 1, 2013, allowing about an 180-day preparation period. We believe thatthis is a sufficient amount of time forapplicable manufacturers andapplicable GPOs to prepare.

Comment:A few commentersrequested that CMS modify thereporting requirements for the first year.

Some suggested easing the initialburden by phasing in reporting with ahigher minimum dollar threshold, whileothers recommended collecting moredata for 2012 by requiring retroactivereporting.

Response:We appreciate thesecomments, but we do not believe thatwe have authority to amend thereporting requirements for the first year.In addition, we believe that changingthe reporting requirements for a singleyear would be operationally difficult,since both CMS and applicable

manufacturers and applicable GPOswould have to develop systems andthen change them after the first year.The statute sets forth the minimumthreshold for reportable payments anddoes not appear to provide anyauthority for us to change it. We believethat because the threshold is providedin the statute itself, applicable

manufacturers were given adequatenotice of the threshold amount andshould be able to prepare for it. We arealso concerned that changing thethreshold for 1 year would be confusingto users. With regard to retroactivereporting, we similarly believe that wedo not have the authority to require thisand will not adopt that approach.

After consideration of the publiccomments received and given the timingof the final rule, we are establishing thatdata collection will begin on August 1,2013 and must be reported to us byMarch 31, 2014. There will be no

retroactive reporting.B. Transparency Reports

Section 1128G(a) of the Act outlinesthe transparency reporting requirementsand consists of two paragraphs. Thefirst, section 1128G(a)(1) of the Act,outlines the required reports fromapplicable manufacturers on paymentsor other transfers of value to coveredrecipients. The second, section1128G(a)(2) of the Act, outlines thereporting requirements for applicablemanufacturers and applicable GPOsconcerning ownership and investmentinterests of physicians, and their

immediate family members, as well asinformation on any payments or othertransfers of value provided to suchphysician owners or investors. Whilethere is some overlap between thesesubmissions, we proposed that thesetwo types of information be reportedseparately to ensure that the relevantreporting obligations of applicablemanufacturers and applicable GPOs areclearly distinguished. We solicitedcomment on this general approach, butreceived no comments, so we arefinalizing this provision as proposed.

Additionally, we also want to

emphasize that compliance with thereporting requirements of section 1128Gof the Act does not exempt applicablemanufacturers, applicable GPOs,covered recipients, physician owners orinvestors, immediate family members,other entities, and other persons fromany potential liability associated withpayments or other transfers of value, orownership or investment interests (forexample, potential liability under theFederal Anti-Kickback statute or theFalse Claims Act). However, we alsowant to make clear that the inclusion of

a payment or other transfer of value, orownership or investment interest on thepublic database does not mean that anyof the parties involved were engaged inany wrongdoing or illegal conduct.

1. Reports on Payments and OtherTransfers of Value Under Section1128G(a)(1) of the Act

a. Applicable ManufacturersWhile the term applicable

manufacturer was defined in section1128G of the Act, we providedadditional clarification in the proposedrule. In this section, we aim to evenmore clearly define the entities that will

be required to report.

(1) Definition of ApplicableManufacturer

In the proposed rule we definedapplicable manufacturer for thepurposes of this regulation as an entitythat is

Engaged in the production,preparation, propagation, compounding,or conversion of a covered drug, device,

biological, or medical supply for sale ordistribution in the United States, or ina territory, possession, orcommonwealth of the United States; or

Under common ownership with anentity in the first paragraph of thisdefinition, and which providesassistance or support to such entity withrespect to the production, preparation,propagation, compounding, conversion,marketing, promotion, sale, ordistribution of a covered drug, device,

biological, or medical supply for sale ordistribution in the United States, or ina territory, possession, orcommonwealth of the United States.

In defining applicable manufacturer,we interpreted the statutory phraseoperating in the United States, or ina territory, possession, orcommonwealth of the United States insection 1128G(e)(2) of the Act, as forsale or distribution in the UnitedStates, or in a territory, possession, orcommonwealth of the United States.

Comment:Many commentersexpressed concern with CMSsinterpretation of the phrase applicablemanufacturer. Specifically, manycommenters suggested that the phrasefor sale or distribution is overly broadand would apply to nearly any entity inthe world involved in themanufacturing chain or marketing of acovered drug, device, biological, ormedical supply (referred to generally forpurposes of this rule as a coveredproduct) that is ultimately sold ordistributed in the United States, even ifsuch entity has no operations in theUnited States. These commenters



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recommended that CMS retain thestatutory language and define the phraseoperating in the United States ashaving a physical location in the UnitedStates or conducting business activitiesin the United States. Severalcommenters agreed with and supportedthe proposed definition.

Response:We appreciate the

comments and agree that the proposeddefinition may have inadvertentlycaptured entities that operate whollyoutside the United States, many ofwhich may have little or no interactionwith U.S. health care providers. We didnot intend to capture foreign entitiesthat may contribute to themanufacturing process of a coveredproduct, but have no business presencein the United States. Accordingly, wehave decided to revise the definition byretaining the statutory phrase operatingin the United States, which we definedas having a physical location within the

United States, or otherwise conductingactivities within the United States or ina territory, possession, orcommonwealth of the United States. We

believe that any manufacturer, foreignor not, which operates in the UnitedStates (including by selling a product)must comply with the reportingrequirements, regardless of where theproduct is physically manufactured.Therefore, under this final rule, entities

based outside the United States that dohave operations in the United States aresubject to the reporting requirements.Additionally, we note that entities thathave operations in the United States are

not permitted to circumvent thereporting requirements by makingpayments to covered recipientsindirectly through a foreign entity thathas no operations in the United States.Such payments are considered to bemade by the entity that is operating inthe United States as an indirect paymentor other transfer of value and must bereported as such, so long as the entityoperating in the United States is awareof the identity of the covered recipientsreceiving the payments as required forall indirect payments or other transfersof value.

Comment:Many commentersrecommended additional limitations onthe scope of the definition of applicablemanufacturer. A few commenterssuggested CMS limit the definition tomanufacturers directly involved inmanufacturing of the final products, andnot entities that supply components andraw materials. In addition, manycommenters stated that the definitionshould not include hospitals or otherentities that produce covered productsfor sale to or use by their own patientsonly. A few commenters provided

similar comments that entities thatproduce or compound products or testsshould be exempt from the definition.For example, many pharmaciescompound medications in small batchesfor individual patients at the directionof a prescribing physician.

Response:We recognize that entitiesthat only manufacture raw materials or

components may differ frommanufacturers of the final product, andwe believe that the statutory frameworkalready treats them differently. Thedefinition of applicable manufactureris dependent on the definition ofcovered drug, device, biological ormedical supply. Raw materials andcomponents often do not meet thedefinition of covered drug, device,

biological, or medical supply becausepayment is not available for them intheir component form under Medicare,Medicaid or CHIP. Entities that onlymanufacture raw materials or

components, which are not themselvescovered products, will not be requiredto report unless they are under commonownership with an applicablemanufacturer and assist suchmanufacturer with the production,preparation, propagation, compounding,conversion, marketing, promotion, sale,or distribution of a covered drug,device, biological, or medical supply. Inthe event a supplier of raw materials isunder common ownership with anapplicable manufacturer, it will besubject to the reporting requirements forentities under common ownership,including options for consolidated

reporting with the applicablemanufacturer.

In addition, we agree with thecomments regarding hospitals,pharmacies, and laboratories thatproduce or manufacture materials andproducts solely for their own use or use

by their patients. We believe that it wasnot the intent of the statute to includethese entities as applicablemanufacturers, since they are not listedin the statute as manufacturers. Giventhese considerations, we have revisedthe definition of applicablemanufacturer to exclude entities such as

hospitals, hospital-based pharmaciesand laboratories that manufacture acovered product solely for use by orwithin the entity itself or by an entitysown patients. In addition, the definitionof applicable manufacturer does notinclude pharmacies, includingcompounding pharmacies, that meet allof the following conditions: (1) Maintainestablishments that comply withapplicable local laws regulating thepractice of pharmacy; (2) regularlyengage in dispensing prescription drugsor devices upon prescriptions from

licensed practitioners in the course oftheir professional practice; and (3) donot produce, prepare, propagate,compound, or convert drugs or devicesfor sale other than in the regular courseof their business of dispensing or sellingdrugs or devices at retail to individualpatients.

Comment:Many commenters

addressed whether distributors andwholesalers, including repackagers,relabelers, and kit assemblers, met thedefinition of applicable manufacturer.These entities were not specificallyaddressed in the proposed rule otherthan the recognition that there are otherdefinitions of manufacture,manufacturer and manufacturingwith which industry may be familiar(such as those in 21 CFR 207.3, 21 CFR210.3(b)(12), 21 CFR 820.3(o), and 42U.S.C. 1396r8(k)(5)). The commentersrepresented both sidessome advocatedthat these types of entities meet the

definition, while others advocated thatthey do not. Some commenters notedthat distributors and wholesalerspurchase and often take the title tocovered products and then sell them toproviders. The distributor may or maynot rebrand or repackage the product

before resale. Commenters on both sidesreferred to other definitions ofmanufacturer and manufacture

both in the Affordable Care Act andelsewhere, some of which specificallyreference distributors and some ofwhich did not, similar to the statutorydefinition in section 1128G(e)(9) of theAct. The advocates for including

distributors and wholesalers state thatbecause these entities are involved inpreparation and propagation ofcovered products, they should beincluded based on the statutorydefinition. Conversely, othercommenters stated that distributors andwholesalers stock multiple competingproducts, so they do not try to swaypurchasing decisions in the same way asa manufacturer.

Response:We agree that distributorsand wholesalers (which includerepackagers, relabelers, and kitassemblers) that hold the title to a

covered drug, device, biological ormedical supply meet the definition ofan applicable manufacturer for thepurpose of this rule. We believe thatdistributors that hold the title to acovered product are similar toapplicable manufacturers since bothhold title to the product at some pointin the production and distributioncycle. These entities will be subject tothe same requirements as all otherapplicable manufacturers, as describedin more detail in this section.Wholesalers or distributors that do not



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hold the title of a covered product willnot be subject to the reportingrequirements, unless they are undercommon ownership with an applicablemanufacturer and provide assistance orsupport with respect to a covered drug,device, biological, or medical supply.Finally, an applicable manufacturer thathas product(s) with titles held by

distributors does not need to reportpayments or other transfers of valuemade by the distributor or wholesaler tocovered recipients, since these will bereported by the distributor orwholesaler. However, in the event thatthe applicable manufacturer makespayments or other transfers of valuerelated to the product independentlyfrom the distributor or wholesaler (orthrough the distributor or wholesaler asa third party), then the applicablemanufacturer would have to reportthese payments or other transfers ofvalue.

(2) Limitations to the Definition ofApplicable Manufacturer

In the preamble to the proposed rule,we clarified that the applicablemanufacturer definition includedentities that hold Food and DrugAdministration (FDA) approval,licensure, or clearance for a covereddrug, device, biological, or medicalsupply, even if they contract out theactual physical manufacturing of theproduct to another entity. Weinterpreted these entities as beingengaged in the production,

preparation, propagation, compounding,or conversion of a covered drug, device,biological, or medical supply.However, we did not address whetherthe entity manufacturing the productunder contract is an applicablemanufacturer. We also proposed thatany manufacturer that meets thedefinition of applicable manufacturer bymanufacturing at least one covereddrug, device, biological or medicalsupply (as defined later in this section)would be considered an applicablemanufacturer, even though it may alsomanufacture products that do not fallwithin that category.

Comment:A few commentersrequested clarification on the reportingrequirements for situations when thelicense-holder is not the manufactureror the manufacturing process iscontracted out. These commentersrecommended that if an entity, whichmanufactures a covered product undercontract, but does not market ordistribute the product and is not anapplicable manufacturer otherwise, thenthe entity does not meet the definitionand does not need to report.

Response:We agree that additionalclarification is necessary, although werecognize that it is difficult to anticipateall potential manufacturingarrangements. In general, we believethat our proposed position to requirereporting by an entity that holds an FDAapproval, licensure, or clearance for acovered product is appropriate. Such

entities are clearly engaged in theproduction, preparation, propagation,compounding, or conversion of acovered product. We did not receive anycomments on this and are finalizing itas proposed. For the contracted entityconducting the actual manufacturing,we believe that these entities fit into thedefinition of applicable manufacturer,since they are actually manufacturing acovered product and clearly areengaged in the production,preparation, propagation, compounding,or conversion of a product. Therefore,we are finalizing that entities that

manufacture any covered product areapplicable manufacturers, even if themanufacturer does not hold the FDAapproval, licensure, or clearance. Whilewe recognize that such entities do notnecessarily market the product, we

believe it is clear that they domanufacture it. However, we alsounderstand that these manufacturers

business model may not be focused oncovered products. Therefore, if anapplicable manufacturer does notmanufacture a covered drug, device,

biological, or medical supply exceptpursuant to a written agreement to

manufacture the covered product foranother entity, does not hold the FDAapproval, licensure or clearance for theproduct, andis not involved in the sale,marketing or distribution of the product,then the manufacturer is only requiredto report payments or other transfers ofvalue related to the covered product.This is described in the regulatory textat 403.904(b)(4). If an applicablemanufacturer has this businessarrangement for some products and alsomanufactures at least one coveredproduct that does not meet thesecriteria, then the applicablemanufacturer must report all paymentsor other transfers of value subject to thereporting requirements. We believe thatthis is consistent with our treatment ofother manufacturers with businessmodels that are not focused on coveredproducts, as discussed in more detail inthis section. Finally, no payment orother transfer of value should bereported more than one time by a singleentity.

Comment:Several commenters alsodiscussed CMSs proposed decision torequire applicable manufacturers to

report all payments or transfers of valueto covered recipients rather than onlypayments related to covered drugs,devices, biologicals, and medicalsupplies. While a few commenterssupported this proposal, others did not.Entities and organizations with only asmall number of covered products

believed that reporting all payments

would be overly burdensome andrecommended limiting the definition tomanufacturers that obtain a certainpercentage (generally 5 or 10 percent) oftheir sales or revenues from coveredproducts.

Response:We stand by our decisionto require reporting of all payments ortransfers of value to covered recipientsrather than only payments related tocovered drugs, devices, biologicals, andmedical supplies and discuss thisdecision more fully in section II.B.1.b ofthis final rule. We do not believe that allpayments or other transfers of value are

related to particular covered products,so we do not want an applicablemanufacturer to avoid reporting byrepresenting certain payments or othertransfers of value to covered recipientsas being unrelated to covered products.

However, we are sensitive toapplicable manufacturers whoseprimary business focus is not theproduction of covered drugs, devices,

biological or medical supplies, but maystill produce one or a few coveredproducts. We recognize that since sofew of their products are covered, manyof their competitors will not be subjectto the reporting requirements, providing

the competitors with a potentialcompetitive advantage. Despite thisrecognition, we also do not believe thatthese entities should be exempt from allreporting, since other manufacturers ofthe same covered products with adifferent business model would besubject to reporting. We recognize thatthese applicable manufacturers couldalso classify payments or other transfersof value as unrelated to a covered drug,device, biological or medical supply inorder to try to avoid the reportingrequirements; however, we believe the

burden on these applicable

manufacturers of reporting allinteractions related to all products (notjust covered drugs, devices, biologicals,or medical supplies) outweighs thisconcern. Therefore, we have clarifiedthe agencys position in 403.904(b)(1)to allow applicable manufacturers withless than 10 percent of total (gross)revenues from covered drugs, devices,

biologicals or medical supplies duringthe previous fiscal year to report onlypayments or other transfers of valuespecifically related to covered drugs,devices, biologicals or medical supplies.



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The 10-percent threshold should becalculated based on the companys total(gross) annual revenue. Applicablemanufacturers with less than 10 percentof total (gross) revenue from coveredproducts during the previous year thathave payments or other transfers ofvalue to report must register with CMSand must attest that less than 10 percent

of total (gross) revenues are fromcovered products, along with theirattestation of the submitted data. Weselected a 10-percent threshold based onthe public comments that we receivedsuggesting a range from 5 to 10 percent;we chose the higher percentage in orderto reduce the reporting burden on agreater number of entities.

Comment:A few commenters alsorequested additional clarification onwhen an entity with no coveredproducts becomes an applicablemanufacturer because payment becomesavailable for one of the companys

products under Medicare, Medicaid orCHIP (for example, because amanufacturers only product receivedFDA approval). Most of the commenterssimply requested clarification, since thiswas not addressed in the proposed rule.However, a commenter suggested thatCMS should allow new applicablemanufacturers a grace period (forexample, 180 days) to allow themanufacturer time to prepare to complywith the data collection requirements.

Response:We agree that we shouldprovide clarification on when a product

becomes covered and, thus, when anapplicable manufacturer who did not

previously have any other coveredproducts becomes subject to the datacollection and reporting requirementsunder this rule. We will allow theapplicable manufacturer a grace periodof 180 days following a product

becoming covered to begin complyingwith the data collection and reportingrequirements. We believe this isappropriate because it is the samepreparation period allowed after thepublication of the final rule, allowing allnew applicable manufacturers the sametime to prepare for complying with thedata collection and reporting

requirements.(3) Common Ownership

The definition of applicablemanufacturer includes entities undercommon ownership with an applicablemanufacturer. We proposed to definecommon ownership as when the sameindividual, individuals, entity, orentities, directly or indirectly, own anyportion of two or more entities. Thiswould apply to a range of corporatearrangements, including, but not limitedto, parent companies and subsidiaries

and brother/sister corporations. Inaddition, we also included an alternateinterpretation that would limit thecommon ownership definition tocircumstances where the sameindividual, individuals, entity, orentities own 5 percent or more of totalownership in two or more entities. Thiswould be subject to the same

requirements as the definition describedpreviously, but would only apply tocommon interests of 5 percent or more.

Regarding how applicablemanufacturers under commonownership will submit reports, weproposed that if two or more entitiesindividually met the proposeddefinition of an applicable manufacturerunder paragraph (1) of the definition,the entities should report separatelyunder section 1128G of the Act.However, if only one company undercommon ownership met the proposeddefinition of applicable manufacturer

under paragraph (1) of the proposeddefinition, and the other company isrequired to report under paragraph (2) ofthe definition, then the affected entitiescan choose whether or not to reporttogether. Additionally, we proposed thata payment or other transfer of valueprovided to a covered recipient inaccordance with a joint venture or othercooperative agreement between two ormore applicable manufacturers must bereported in the name of the applicablemanufacturer that actually furnished thepayment or other transfer of value to thecovered recipient, unless the terms of awritten agreement between the

applicable manufacturers specificallyrequire otherwise, so long as theagreement requires that all payments orother transfers of value in accordancewith the arrangement are reported byone of the applicable manufacturers.

Comment:Many commenters did notsupport the agencys definition ofcommon ownership. These commentersgenerally recommended that a thresholdgreater than the proposed alternative of5 percent be applied to determinecommon ownership. The commentersthat support a higher thresholdgenerally advocated for a common

control standard, which is traditionallya greater ownership percentage of 50 to80 percent, rather than an affiliatestatus, which is generally around 5percent. Conversely, some commenterssupported the proposed definition, aswell as the 5 percent alternative.

Response:We appreciate thecomments and have decided to finalizethe 5-percent ownership threshold forcommon ownership. We recognize thatthis is a lower threshold than many ofthe commenters recommended;however, we believe this is appropriate.

We believe that had Congress intendedto establish a common controlstandard, it would have used that term,rather than common ownership.Similarly, a 5-percent threshold forcommon ownership is used elsewherein the Act, in other CMS regulations,and is one with which entities arefamiliar. For example, section 1124(a)(3)

of the Act defines the term person withan ownership or control interest, inpart, as a person who has a direct orindirect ownership interest in an entityof at least 5 percent. We also believethat clarifying when an entity undercommon ownership has to report (asexplained in this section) will helpreduce the number of entities undercommon ownership reporting.

Comment:Many commenters alsorequested additional clarification onhow the agency was interpretingassistance and support for entitiesunder common ownership, since only

entities under common ownershipwhich provide assistance and supportfor the listed manufacturing activitiesneed to report. These commentersvaried in their suggestions, but mostadvocated a narrow interpretation, suchas only those involved in sales andmarketing or those entities integral ornecessary to the manufacturing process.In addition, some commentersquestioned whether separate operatingdivisions, which are not related tocovered products, such as the animalhealth division or over-the-counterdrugs division, need to report. Thecommenters advocated that reporting of

these divisions would be confusing,since they are unrelated to coveredproducts.

Response:We appreciate thesecomments and agree that we shouldprovide greater clarification to helpidentify the entities under commonownership which are required to report.We define assistance and support as

being necessary or integral to theproduction, preparation, propagation,compounding, conversion, marketing,promotion, sale, or distribution of acovered product. For example, an entityunder common ownership which

produces the active ingredient for acovered drug and provides it to theapplicable manufacturer for inclusion inthe final product would be considerednecessary to the manufacturing of thatproduct, since the applicablemanufacturer could not produce thedrug without the active ingredient.Conversely, an entity under commonownership that only aids the applicablemanufacturer with human resourcesadministrative functions would not bedeemed necessary or integral to theproduction, preparation, propagation,



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compounding, conversion, marketing,promotion, sale, or distribution ofcovered products, since humanresources functions are not directlyinvolved with any of thesemanufacturing processes.

In general, we believe that allpayments or other transfers of valuerelated to covered products should be

reported, but that we should minimizethe reporting of payments or othertransfers of value unrelated to coveredproducts. The final rule does not requireentities under common ownership toreport when they are not necessary orintegral to manufacturing, and are notapplicable manufacturers in and ofthemselves. However, an indirectpayment or other transfer of value madeto a covered recipient through an entityunder common ownership that is notnecessary or integral to themanufacturing process must still bereported as required for indirect

payments or other transfers of value. Inaddition, we believe that entities undercommon ownership that are necessaryor integral to the production,preparation, propagation, compounding,conversion, marketing, promotion, saleor distribution of a covered productshould not have to report all paymentsor other transfers of value that theentities provide to covered recipients,and 403.904(b)(2) of this final rulestates that they only need to reportpayments or other transfers of value thatare related to covered products.

Finally, with regard to applicable

manufacturers that have separateoperating divisions that only producenon-covered products and do not meetthe definition of providing assistanceand support, we believe that suchdivisions only need to report paymentsor other transfers of value that arerelated to a covered drug, device,

biological or medical supply as stated in 403.904(b)(3). We believe that the vastmajority of payments or other transfersof value will not be related to coveredproducts. To prevent applicablemanufacturers from diverting paymentsthrough these divisions in order to

avoid the reporting requirements, we arefinalizing that all payments or othertransfers of value made by thesedivisions that are related to coveredproducts must be reported. Thisincludes payments or other transfers ofvalue made directly by the operatingdivision, as well as payments or othertransfers of value made indirectly by theapplicable manufacturer through theseparate operating division, as the latterpayments are required to be reported asindirect payments or other transfers ofvalue.

Comment:Many commentersadvocated that CMS should allowentities more flexibility to submitconsolidated reports, regardless ofwhether an entity meets the definitionof applicable manufacturer underparagraph 1 or 2 of the proposeddefinition and at the company oroperating division level. These

commenters explained thatmanufacturers may have complicatedcorporate structures and reportingsystems and suggested that the agencyprovide additional flexibility inreporting. Additionally, the commentersnoted that consumers may not befamiliar with the names ofmanufacturers smaller divisions and,therefore, publication of the data underthe names of the smaller divisions couldlimit the usefulness of the publisheddata to consumers. Other commentersagreed with increased flexibility, butadvocated that the reports should

clearly state what entities are includedin the report, including reporting whichpayments were made by which entity.

Response:We agree that entitiesshould have more flexibility to reporttogether or separately. Therefore, weclarified in 403.908(d) that applicablemanufacturers under paragraph 1 of thedefinition that are under commonownership with separate entities thatare also applicable manufacturers underparagraph 1 may, but are not requiredto, file a consolidated report for all ofthe entities. Additionally, as we statedin the proposed rule, applicable

manufacturers under paragraph 1 of thedefinition of applicable manufacturerand an entity (or entities) undercommon ownership with suchmanufacturer under paragraph 2 of thedefinition also may, but are not requiredto, file a consolidated report. We believethat this will make reporting less

burdensome to entities and will providemore clarity to consumers. However, weare concerned that it will not be clearto CMS or consumers which companiesare under common ownership and areeither reporting together or separately.Therefore, if multiple applicablemanufacturers (under paragraph 1 and/or 2 of the definition) submit aconsolidated report, we are requiringthat the report must provide informationspecified by CMS to identify eachapplicable manufacturer and entity (orentities) under common ownership thatthe report covers. Additionally,applicable manufacturers submittingconsolidated reports must specify on anindividual payment line which entitymade which discrete payment or othertransfer of value. We believe thismethod is more useful for consumers

since it clarifies the specific entitymaking the payment. We also believethat this method provides significantlymore clarity for covered recipients whenreviewing their payments or othertransfers of value, allowing them to

better review the information submittedon their behalf. Regardless of whetherapplicable manufacturers file separate

or consolidated reports, 403.908(d)(1)(iv) and (d)(2)(ii) clarifythat in no case shall a single paymentor other transfer of value be reportedmore than once by multiple applicablemanufacturers (under commonownership or not). Each transaction

between an applicable manufacturerand a covered recipient must bereported only one time. Also, to supportour ability to improve identity and datamatching, regardless of whetherapplicable manufacturers file separateor consolidated reports, all coveredrecipients included in the report must

be individually, uniquely andconsistently identified. The sameindividual, if present on multiplepayment lines within the same report,must have the same unique identifiersfor all occurrences within the report.For example, the same name andNational Provider Identifier (NPI) (asrequired to be reported in this final rule)should be used consistently for allpayment lines and any subsequentupdates for the same individual.Finally, we did not receive anycomments on our proposed reportingmethod for joint ventures and co-

promotions, so we have finalized theseprovisions as proposed, which requiredreporting by the applicablemanufacturer that actually made thepayment or other transfer of value(unless decided by the parties to reportdifferently) and that the payment orother transfer of value was only reportedonce.

In sum, after consideration of thepublic comments received, we arerevising the interpretation of what itmeans that an entity is operating inthe United States. We are finalizing theposition that applicable manufacturersmust report all payments or othertransfers of value, but clarifying thatmanufacturers with less than 10 percentof their gross revenue coming fromcovered products only have to reportpayments related to covered products.In addition, we are also finalizing thedefinition of common ownership torequire a threshold of 5 percent or morecommon ownership interest andproviding additional clarification on therequirements for reporting by entitiesunder common ownership. Finally, weare allowing additional flexibility for



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applicable manufacturers (underparagraph 1 and/or 2 of the definition)to report separately or togetherdepending on their internal structure.

b. Covered Drug, Device, Biological, orMedical Supply

The data collection and reportingrequirements are limited to applicable

manufacturers of a covered drug,device, biological, or medical supply.The phrase covered drug, device,

biological, or medical supply isdefined in section 1128G(e)(5) of the Actas any drug, biological product, device,or medical supply for which payment isavailable under Medicare, Medicaid,or CHIP. Because there are numerouspayment mechanisms in Medicare,Medicaid and CHIP, we proposed thatdrugs, devices, biologicals, or medicalsupplies for which payment is availablethrough a composite payment rate, aswell as those reimbursed separately, areconsidered to be covered productsunder section 1128G of the Act. Wewere particularly concerned aboutinadvertently excluding items, such asimplantable devices, for which paymentmay be available only as part of a

bundled payment.We proposed to define covered drug,

device, biological, or medical supplyas: any drug, device, biological, ormedical supply for which payment isavailable under Title XVIII of the Act orunder a State plan under Title XIX orXXI (or a waiver of such plan), eitherseparately, as part of a fee schedulepayment, or as part of a composite

payment rate (for example, the hospitalinpatient prospective payment systemor the hospital outpatient prospectivepayment system).

The proposed definition included twoexceptions to limit the entitiesreporting. We proposed to limit drugsand biologicals in the definition ofcovered drug, device, biological, andmedical supply, to drugs and

biologicals that, by law, require aprescription to be dispensed, thusexcluding drugs and biologicals that areconsidered over-the-counter (OTC).Similarly, we proposed an additional

limitation to the definition as it pertainsto devices and medical supplies, whichwould limit them to those devices(including medical supplies that aredevices) that, by law, require premarketapproval by or notification to FDA. Thiswould exclude many Class I devices andcertain Class II devices, which areexempt from premarket notificationrequirements under 21 U.S.C. 360(l) or(m), such as tongue depressors andelastic bandages.

Beyond coverage, the proposed rulealso discussed what payments or other

transfers of value must be reported. Inthe proposed rule, we specifically statedthat manufacturers who manufacture

both non-covered products (such asOTC drugs) andat least one productthat falls within the definition of acovered drug, device, biological ormedical supply would be required toreport allpayments or transfers of value

to covered recipients required bysection 1128G of the Act (whether or notassociated with a covered drug, device,

biological or medical supply).Comment:Many commenters

inquired about the definition of covereddrug, device, biological, or medicalsupply. Many commenters supportedthe proposed definition, particularly theproposed limitations, which did notreceive any opposition. However, a fewcommenters sought clarification on howthe two parts of the definition worktogether. These commenters soughtclarification, for example, on whether a

drug or biological that requires aprescription to be dispensed or a devicethat requires premarket approval orclearance, but for which payment is notavailable under Medicare, Medicaid orCHIP, would be a covered product.

Response:We are pleased with thesupport for the proposed definition,including the limitations, and havefinalized them. In addition, we agreewith the commenters regarding a needfor clarification concerning therelationship between the parts of thedefinition. We had intended theinterpretation of the definition to

require that a product must meet bothparts of the definition in order to beconsidered covered. In order to makethis more clear, we have revised thedefinition to clearly state that a covereddrug, device, biological or medicalsupply is one for which payment isavailable under Medicare, Medicaid orCHIP andwhich, requires a prescriptionto be dispensed (in the case of a drugor biological) or premarket approval byor notification to the FDA (in the caseof a device or a medical supply that isa device). For example, a device whichis of a type that requires premarketnotification, but for which payment isnot available under Medicare, Medicaid,or CHIP, would not be a covered deviceunder the program. Finally, we do notintend to capture allitems that requireFDA premarket approval or premarketnotification and for which payment isavailable under Medicare, Medicaid, orCHIP; rather, we only intend to includeitems that meet these criteria andthatare devices (or medical supplies that aredevices). For example, the definition isnot intended to include products thatrequire premarket approval or

premarket notification, but that areregulated by the FDA solely as a food.

Comment:Many commentersrequested additional clarification anddetails concerning the meaning ofpayment being available underMedicare, Medicaid or CHIP. Somecommenters inquired whether theavailability of payment referred only to

those items that have been approved orcleared by FDA. Other commenterssuggested that the definition shouldonly include payments for productswhich are reimbursed separately, andnot through a bundled payment. Finally,a few commenters inquired whether theproposed definition referred to paymentavailability on a single basis (forexample, as a result of an appeal) or ifpayment was regularly available.

Response:We agree with thecomments that additional clarificationof the meaning of availability ofpayment would be useful. The statuteprovides that in order to be a coveredproduct, payment must be availableunder Medicare, Medicaid or CHIP.While the statute does not discuss FDAapproval, clearance or notification, mostproducts for which payment is availableunder Medicare, Medicaid or CHIP willhave received FDA approval orclearance. However, we note that theremay be exceptions. For example,payment may be available underMedicare for certain investigativedevices that receive an investigationaldevice exemption (IDE) from the FDAand are classified as a Category Bdevice, in accordance with 42 CFR part

405 Subpart B. In addition, paymentmay be available under Medicaid forcertain drug products described insection 1927(k)(2) of the Act, that havenot been approved by the FDA, but werecommercially used or sold in the UnitedStates before the date of the enactmentof the Drug Amendments of 1962 (orwhich are identical, similar, or relatedwithin the meaning of 21 CFR310.6(b)(1) to such drugs) andhave not

been the subject of a final determinationby the Secretary that they are a newdrug. While we understand that a

bright line test would be useful, limiting

covered products to those that havereceived FDA approval or clearance (orfor which notification has beenprovided to the FDA) would not becomprehensive. We believe thatmanufacturers are generally aware whenpayment is available for their drugs,devices, biologicals, or medical suppliesunder a Federal health care program.

In addition, we do not agree with thesuggestions to interpret paymentavailability as being limited to thoseprovided separately, rather than througha bundled payment. We recognize that



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1List of exempt products: http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfm .

it is not always clear whether a productis paid through a bundle, making itdifficult to establish whether payment isavailable. We also recognize that thisexpands the number of productsmeeting the definition of covered drug,device, biological or medical supply.However, bundled payments constitutea significant portion of Medicare

reimbursement and excluding productsthat are reimbursed only as part of

bundled payments would excludemanufacturers of products who havehistorically had significant relationshipswith physicians and teaching hospitals.For example, we believe it would beinappropriate to exclude implanteddevices that are reimbursed through thehospital inpatient prospective paymentsystem (IPPS) or the outpatientprospective payment system (OPPS), aswell as chronic kidney disease drugsand products reimbursed through theend stage renal disease (ESRD) bundled

payment system. As a result, the finalrule adopts the proposal to includeproducts which are reimbursedseparately or as part of a bundledpayment. We note that because therewas some confusion about the phrasecomposite payment rate in theproposed rule, we have replaced it withthe phrase bundled payment andcontinue to interpret that as meaningIPPS, OPPS, and other prospectivepayment systems.

Comment:Many commenters alsorequested clarification on what productsconstituted a device or medical supply.

The proposed rule did not define theseterms, so commenters providedrecommendations for ways to clarify theterms, such as limiting them to productclasses or providing definitions.Additionally, commenters questionedwhether specific products would orwould not be considered a device ormedical supply for the purposes ofthe reporting requirements.

Response:We appreciate thecomments and note that covered devicesand medical supplies are limited tothose devices and medical supplies forwhich payment is available underMedicare, Medicaid or CHIP, and are ofthe type that require premarketnotification to or premarket approval bythe FDA. We believe that this providesapplicable manufacturers with a clearsense of the devices and medicalsupplies that constitute covered devicesand medicals supplies, as well as thosethat do not. For example, FDA definesthe devices (including certain medicalsupplies) that are exempted from thepremarket notification requirements.This information can be found in 21CFR parts 862 through 892 and is

publicly available on the FDAs Website.1

Comment:A few commenterssuggested that reporting on all paymentsor other transfers of value, includingthose related to products underdevelopment, is too broad. Thesecommenters recommended that onlypayments or other transfers of value

related to covered products should bereported. Similarly, other commentersrequested that payments or othertransfers of value for certain products,such as veterinary drugs, be excludedsince the relationships related to suchproducts are not intended to beincluded by the statute.

Response:As noted previously, weare finalizing the proposal that, in mostcircumstances, applicablemanufacturers must report payments orother transfers of value to coveredrecipients regardless of whether they arerelated to a covered product. We believe

that not all payments or other transfersof value will be related to specific drugs,devices, biologicals, or medicalsupplies, but they neverthelessrepresent a financial relationship

between an applicable manufacturerand a covered recipient that has thepotential to affect medical judgment andmust be reported under therequirements in section 1128G of theAct. Additionally, we are concernedthat limiting the reporting requirementsto payments or other transfers of valuerelated to covered products wouldcreate loopholes that would allowentities to avoid reporting of certain

payments or other transfers of value.However, we do understand thatpayments related to products that willnever become covered by Medicare,Medicaid or CHIP (such as animalhealth products) may unnecessarilyincrease the scope of reporting.Therefore, we have limited the reportingrequirements to address this situation,as well as other situations describedpreviously in the discussion of thelimitations to the definition ofapplicable manufacturer, whererequiring an applicable manufacturer toreport payments related to non-covered

products would be unnecessarilyburdensome and not particularly usefulto the public. We are finalizing thatseparate divisions that manufactureonly non-covered products do not needto report payments or other transfers ofvalues unless the payments or othertransfers of value are in fact related tocovered products (see the applicablemanufacturer and payments or other

transfers of value sections of this finalrule). Similarly, we do not intend tocapture payments made to a veterinaryschool that may be associated with ateaching hospital.

c. Covered Recipients

Under section 1128G(a)(1) of the Act,applicable manufacturers are required to

disclose certain payments or othertransfers of value made to coveredrecipients, or to entities or individualsat the request of, or designated on behalfof, a covered recipient. Section1128G(e)(6) of the Act defines coveredrecipient as: (1) a physician, other thana physician who is an employee of anapplicable manufacturer; or (2) ateaching hospital. As required bysection 1128G(e)(11) of the Act, weproposed to define physician ashaving the meaning set forth in section1861(r) of the Act, which includesdoctors of medicine and osteopathy,dentists, podiatrists, optometrists, andchiropractors, who are legallyauthorized to practice by the State inwhich they practice.

The statute excludes from thedefinition of covered recipient aphysician who is an employee of theapplicable manufacturer, as defined insection 1877(h)(2) of the Act. Section1877(h)(2) defines employee as anindividual who would be considered to

be an employee of an entity under theusual common law rules applicable indetermining the employer-employeerelationship (as applied for purposes ofsection 3121(d)(2) of the Internal

Revenue Code of 1986). We note thatthese common law rules are discussedin 20 CFR 404.1007 and 26 CFR31.3121(d) through 1(c).

Finally, we proposed to define theterm teaching hospital by linking it toMedicare graduate medical education(GME). The proposed rule definedteaching hospital as any institution thatreceived payments under section1886(d)(5)(B) of the Act (indirectmedical education (IME)); section1886(h) of the Act (direct GME); orsection 1886(s) of the Act (psychiatrichospital IME) during the most recent

year for which such information isavailable.Comment:Many commenters

recommended changes to the proposeddefinition of physician. Somecommenters requested that CMS expandthe definition of physician to includeother entities with prescribingprivileges. Other commenters inquiredabout whether residents would beconsidered physicians. Somecommenters requested that thedefinition exclude physicians who arenot actively engaged in (or who do not

http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfmhttp://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfmhttp://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfmhttp://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfmhttp://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfmhttp://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfpcd/315.cfm


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perform) the practice of medicine,which would include physicians notacting solely within their role as aphysician, as well as medicalresearchers. They refer to the phrase inthe statutory definition that a physicianis an individual licensed in the State inwhich he performs such function oraction. Other commenters

recommended that the reportingrequirements should be limited tophysicians enrolled in Medicare,Medicaid or CHIP, on the basis of recentreimbursement or expectedreimbursement. Finally, a fewcommenters recommended that CMSestablish an opt-out function forphysicians to declare that they haveopted out, and no payments wouldappear on the public Web site attributedto them.

Response:We appreciate thecomments, but we will not expand thedefinition to include other provider

types nor will we limit the definition toexclude those clearly intended in thestatutory definition. The statute definesthe term physician as having the samemeaning as in section 1861(r) of the Act.We recognize that, as a result, we willnot be able to fully capture financialrelationships between industry andprescribers, specifically non-physicianprescribers such as nurse practitioners.However, to the extent that applicablemanufacturers make payments or othertransfers of value to non-physicianprescribers to be passed through to aphysician, they would be indirectpayments to the physician and would

have to be reported under the name ofthe physician.

Additionally, we believe that thedefinition hinges on whether aphysician is legally authorized topractice, so all physicians (including allproviders types listed in the statutorydefinition) that have a current license topractice will be considered coveredrecipients. By holding a current licenseto practice, the physician is legallyauthorized to practice regardless of theextent to which they do so.

Payments or other transfers of value toresidents (including residents in

medicine, osteopathy, dentistry,podiatry, optometry and chiropractic)will not be required to be reported forpurposes of this regulation. Werecognize that some States require orallow residents to obtain licenses topractice, whereas other States do notrequire or allow residents to obtainthem. We do not want to treat residentsdifferently depending on their State ofresidency by requiring reporting onpayments to residents in only thoseStates that require or allow residents tohave a license. Moreover, we believe it

will be difficult for us to accuratelyidentify residents and ensure thatpayments or other transfers of value areattributed across applicablemanufacturers appropriately becausemany of them do not have a NPI and/or State professional license number(used for physician identification,discussed later in this section). Due to

the operational and data accuracyconcerns regarding aggregation ofpayments or other transfers of value toresidents, many of whom have neitheran NPI nor a State professional licensenumber, applicable manufacturers willnot be required to report such paymentsor other transfers of value.

With regard to the comment that theterm physician should be limited tothose enrolled in Medicare, we believesuch an interpretation would becontrary to the language of the statute.In contrast to the statutory requirementthat products are limited to those for

which payment is available underMedicare, Medicaid or CHIP, the statutedid not indicate that physician coveredrecipients be limited to those enrolledin Medicare, Medicaid or CHIP.

Finally, while we appreciate theinterest in allowing physicians theopportunity to opt-out of thereporting requirements, we do not

believe it would be possible toimplement a system of this kind. We

believe it would be overly burdensomefor both CMS and applicablemanufacturers to track who has optedout and ensure that no payments orother transfers of value are made to

those individuals. Additionally, wewould need to create a system toreconcile any payments reported ashaving been made to physicians statingthat they have opted out. We believethat a physician who wants to opt outshould simply refuse all payments orother transfers of value frommanufacturers, and will, accordingly,not be included on the public Web site(unless they hold ownership orinvestment interests in an applicablemanufacturer or applicable GPO).

Comment:Many commentersaddressed the exclusion for employees

of applicable manufacturers from thedefinition of physician coveredrecipient. A few commentersrecommended revising the definition toensure that only bona fide employeerelationships are excluded fromreporting, similar to the language in theemployee exception in the Anti-Kickback Statute in section1128(b)(3)(B) of the Act and thecorresponding HHS OIG regulation at 42CFR 1001.952(i). Other commentersquestioned whether employees of agentsof the applicable manufacturer would be

included in the exception. Thecommenters also noted that thelanguage in the proposed rule indicatedthat the exception included physiciansemployed by an applicablemanufacturer, so it was not limited toemployees of the applicablemanufacturer making and reporting thepayment or other transfer of value. In

addition to these more generaldefinitional comments, we also receivednumerous comments recommendingother situations (such as physicians whoserve as medical directors or retirees)that should be included in the employeeexception.

Response:We appreciate thecomments and have clarified thedefinition of covered recipient to ensurethat only bona fide employmentrelationships are included in theemployee exclusion. We are concernedthat in the absence of this clarification,applicable manufacturers could

circumvent the reporting requirementsby styling a physician as an employeeand not reporting payments made tosuch a physician. Additionally, we didnot intend to allow the exception foremployees to include physicianemployees at any applicablemanufacturer, rather than only thereporting applicable manufacturer itself.The proposed rule incorrectly quotedthe statute, which in section1128G(e)(6)(B) of the Act states that theterm covered recipient does notinclude a physician who is an employeeofthe applicable manufacturer. For thefinal rule, we have reverted to the

statutory language. Additionally,regarding employees of agents of theapplicable manufacturer, we do notintend these individuals to be includedin the exception, since they are notemployees of the applicablemanufacturer. However, as discussed inthe section on indirect payments(section II.B.1.k of this final rule), we donot believe that payments or othertransfers of value to legal agents of anapplicable manufacturer that happen tohave physicians on staff constitutes apayment or other transfer of value forthe purposes of this rule.

We appreciate the commentsregarding other situations thatcommenters would like to see includedin the employee exclusion, such as anapplicable manufacturers boardmembers and medical directors.However, we believe that whether suchindividuals fall within the statutorydefinition of employee in section1877(h)(2) of the Act, which definesemployee by referencing common lawrules used to determine the employer-employee relationship for InternalRevenue Service purposes, will require



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2NPI Registry can be found at: https://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.do.

3Database can be downloaded at http://nppes.viva-it.com/NPI_Files.html.

a case-specific analysis. Therefore, weare not able to adopt a bright-line policythat all board members or medicaldirectors are (or are not) bona fideemployees for purposes of the reportingexclusion.

Similarly, with regard to thecomments suggesting that prospectiveemployees and retirees should treated as

employees for purposes of beingexcluded from the reportingrequirements, we believe that whethersuch individuals fall within thestatutory definition of employee insection 1877(h)(2) of the Act willrequire a case-specific analysis.Therefore, we are unable to state thatpayments to such physicians, such asrecruiting costs paid to prospectiveemployees, do not need to be reported.

Comment:We received significantsupport for our proposed definition ofteaching hospital. However, somecommenters recommended that CMS

clarify that payments or other transfersof value to non-healthcare departmentsat universities affiliated with teachinghospitals should not be included in thereporting requirements.

Response:We have decided to finalizethe proposed definition. As explained inthe proposed rule, we recognize thatthis definition may not capturehospitals with accredited medicalresidency programs that do not receiveIME or direct GME payments; however,we are unable to include these hospitalssince we cannot readily identify them

based on Medicare payment data.

Finally, we do agree; payments to non-healthcare departments of universitiesaffiliated with teaching hospitals shouldnot be included in reportingrequirements. However, any paymentsor other transfers of value made throughthese departments to a covered recipientas indirect payments or other transfersof value must be reported as required forindirect payments.

d. Identification of Covered Recipients

In order to accurately identify anddistinguish covered recipients, section1128G(a)(1) of the Act requires that

applicable manufacturers report thecovered recipients name and businessaddress, and for physician coveredrecipients, the physicians NPI, andspecialty. The collection of thisinformation is necessary for applicablemanufacturers, in order to distinguishindividual covered recipients whenreporting to CMS, and for CMS, in orderto be able to aggregate the data. Thissection outlines the comments receivedregarding identification of bothphysician and teaching hospital coveredrecipients.

(1) Identification of Physicians

Section 1128G of the Act requires thatapplicable manufacturers report aphysician covered recipients name,

business address, NPI and specialty.This information will be used todistinguish physicians and allow us tomatch physicians across applicablemanufacturers. We proposed thatapplicable manufacturers use theNational Plan & Provider EnumerationSystem (NPPES), which we currentlymaintain and update on the public Website, to assist with identifying physiciancovered recipients. The NPPES Web siteincludes a database of physician NPIsand has an NPI Registry function thatallows applicable manufacturers to lookup individual physicians NPIs.2 Thefull database can be downloaded fromthe CMS Web site.3 We proposed that ifthe physician NPI was not available inNPPES, the applicable manufacturerwould be responsible for obtaining the

physicians individual NPI directly fromthe physician, if the physician has anNPI. Other than NPI, in the proposedrule, we considered whether we shouldrequire, under the discretion granted insection 1128G(a)(1)(A)(viii) of the Act,that applicable manufacturers reportanother unique identifier, such as Stateprofessional license number, forphysicians who are identified, but donot have an NPI.

Comment:A number of commentersprovided input on the processes andrequirements for applicablemanufacturers to report the NPI for aphysician. Some commenters noted thatreporting a physician coveredrecipients NPI is complicated, since notall physicians have an NPI andmanufacturers typically do not collectsuch information. Additionally, a fewcommenters did not support therequirement that applicablemanufacturers must obtain an NPI froma physician, if it was not readilyavailable in the NPPES database. Theyexplained it would be difficult to obtainand questioned how an applicablemanufacturer would really know if aphysician did not have an NPI. Someother commenters requested

clarification that if an applicablemanufacturer cannot identify an NPI fora physician then the NPI field can beleft blank. Beyond determining aphysicians NPI, a few commentersrecommended that CMS clarify thatphysicians are not required to providetheir NPI when requested and thatapplicable manufacturers should state

that it will not be made public. Finally,some commenters recommended thatCMS should require physicians toobtain NPIs to ensure that all physicianshave one.

Response:We appreciate thecomments, but want to reiterate thatreporting a physician coveredrecipients NPI is a statutoryrequirement, so the agency does nothave flexibility to waive therequirement. Similarly, we do not

believe that section 1128G of the Actprovides the agency with authority torequire all physicians to obtain an NPI.We agree that it may be difficult for anapplicable manufacturer to definitivelyknow whether a physician does nothave an NPI; however we believe it isreasonable for the applicablemanufacturer to bear responsibility fordetermining a physician coveredrecipients NPI (or lack thereof).Applicable manufacturers should be

able to demonstrate that they made agood faith effort to obtain an NPI for thephysician. We believe that a good faitheffort includes, but is not limited to,specifically requesting an NPI from thephysician, checking the NPPESdatabase, and calling the NPPES helpdesk. This statute does not imposerequirements on covered recipients, sowe do not believe we can requirephysicians to disclose their NPI toapplicable manufacturers whenrequested; however, we stronglyencourage physicians to provide thisinformation because it is essential for

matching payments or other transfers ofvalue to physicians accurately. Webelieve it is in the best interest of allparties (applicable manufacturers,physician covered recipients,consumers and others) that payments beattributed to the correct physician, andwe hope that physicians will be willingto provide their NPI to applicablemanufacturers to make this possible,especially since their NPI will not bemade public on the public Web site. If,after a good faith effort, the applicablemanufacturer cannot determine an NPIfor a physician covered recipient, or a

physician does not have an NPI, weagree with the commenters and havefinalized that the NPI field may be left

blank to indicate that the applicablemanufacturer could not identify an NPIfor the physician covered recipient.However, if we determine that aphysician covered recipient does havean NPI, we may inform the applicablemanufacturer and require the applicablemanufacturer to re-submit the dataincluding the NPI and re-attest to theupdated data. Additionally, notreporting an NPI for physician covered

https://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.dohttps://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.dohttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttps://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.dohttps://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.do


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recipients that do have an NPI will beconsidered inaccurate reporting, whichmay be subject to penalties. Finally, wewant to reiterate that only oneindividualNPI (not a group NPI) may bereported for each physician, and thatapplicable manufacturers should use theNPI listed in NPPES, if a dispute arises.Also as required by statute, physician-

covered recipients NPIs will notbeincluded on the public Web site.

Comment:Some commentersdiscussed the proposal to allowreporting of an alternative identifier forphysicians without an NPI. Many ofthese commenters supported reporting aState professional license number as analternative to an NPI. Conversely, a fewadvocated that CMS not require anadditional alternative unique identifier,whether it is a State professional licensenumber or another identifier. Somecommenters that supported Stateprofessional license number

recommended that CMS should allowState professional license numberinstead of NPI at the discretion of theapplicable manufacturer, since they

believe it is could be burdensome forthe applicable manufacturer to find theNPI.

Response:We agree that obtaining aunique identifier is particularlyimportant for physicians who do nothave an NPI or for whom an NPI cannot

be reasonably identified. Without thisinformation, it will be difficult for us toensure that payments are attributed tothe appropriate physician and toaggregate payments accurately. We

believe that the more unique identifierssupplied for a physician coveredrecipient, the more accurate the datawill be, since they are essential for usto appropriately match data about thesame physician within and acrossreports, and publish data appropriatelyon the public Web site. Therefore,pursuant to the discretion granted insection 1128G(a)(1)(A)(viii) of the Act,we will finalize that applicablemanufacturers mustreport the State(s)and appropriate State professionallicense number(s) for at least one (butmultiple will be accepted) State where

the physician maintains a license for allphysician covered recipients, regardlessof whether the applicable manufacturerhas identified an NPI for the physiciancovered recipient or not. While this isslightly broader than what wasproposed in the proposed rule, we

believe (based on the comments) thatreporting applicable State professionallicense numbers for all physiciancovered recipients, rather than only thesubset that do not have NPIs, willsignificantly improve data accuracy andwill not represent a significant

additional burden on applicablemanufacturers. Many commentersindicated that applicable manufacturersmaintain this information already.Moreover, we believe that anyadditional burden associated withcollecting and reporting physiciansState professional license numbers will

be outweighed by the increased

accuracy of the data attributingpayments or other transfers of value tophysician covered recipients.

Comment:Many commentersdiscussed the proposal that applicablemanufacturers use NPPES to identifyphysician covered recipients. Manycommenters did not support requiringapplicable manufacturers to use theinformation listed in NPPES, rather thanwhat was in their internal files,particularly for specialty and businessaddress. The commenters explained thatthe data in NPPES is not as accurate insome cases, as their internal databases

and information. Similarly, somecommenters did not believe it madesense to report information from NPPES

back to CMS. Many commenters alsodiscussed how applicablemanufacturers should use NPPES. Thesecommenters inquired whether therewould be point in time (such as 90 days

before the reporting year) when the NPIsin the database would be finalized andno longer changed, and whethermanufacturers could rely on it. A fewcommenters recommended thatapplicable manufacturers should benotified of changes in NPPES. Forexample, a commenter advocated that

CMS should keep past versions ofNPPES in case of an audit. In addition,some commenters stated that NPPES isnot user friendly and CMS should beresponsible for improving it. Finally, afew commenters requested that CMScreate a list of physician coveredrecipients rather than using NPPES.

Response:We appreciate thecomments on NPPES and note that wedid not intend to require applicablemanufacturers to specifically or solelyuse NPPES in order to obtain the NPI ofa covered recipient. Applicablemanufacturers may obtain physician

NPI information (or any otherinformation) in any manner they see fit,as long as they report NPIs accurately asrequired. This may include matchingNPIs obtained elsewhere with the NPIsprovided in NPPES. The NPPESdatabase is continually updated, so it isdifficult to set a point in time to freezethe database for a reporting year ornotify applicable manufacturers of allchanges. Applicable manufacturers mayrely on NPI information in NPPES as of90 days before the beginning of thereporting year.

However, just because an NPI is notlisted in NPPES does not mean that theapplicable

2013-02572 Physician Payment Sunshine Act

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