Published 3/1/2013
Richard N. Peterson, JD

What the Sunshine Act Brings to Light

Pharmaceutical and medical device companies have long provided physicians with promotional materials, ranging from imprinted office supplies, gifts, and meals, to consulting fees and sample products. In recent years, however, questions have been raised about the impact of such materials on both prescribing and purchasing habits and patient care and safety.

Calls for increased transparency about the financial relationships between physicians and industry resulted in the inclusion of the Physician Payment Sunshine Act as part of the Patient Protection and Affordable Care Act. In February 2013, the Centers for Medicare and Medicaid Services (CMS) issued final rules implementing the provisions of the act. This and subsequent articles in AAOS Now will provide a broad overview of the Sunshine Act and its regulations; readers with specific questions should seek the advice of knowledgeable healthcare counsel.

What the Act requires
The Sunshine Act has two overlapping reporting obligations.

First, medical device and pharmaceutical companies are required to report “payments or other transfers of value” to “covered recipients” (defined as physicians and teaching hospitals) to CMS on an annual basis.

In addition, medical device and pharmaceutical companies—as well as group purchasing organizations (GPOs)—are required to disclose to CMS on an annual basis any ownership or investment interests held in such entities by physicians or their immediate family members. They must also report information on payments or other transfers of value made to such owners or investors. Physician-owned distributorships (PODs) that purchase covered products (drugs, devices, biologics, or medical supplies paid for under any U.S. government healthcare program) for resale or distribution are covered, but entities that purchase covered products solely for their own use are not.

Beginning in September 2014, this information will be publicly available on a searchable federal database. Beginning on April 1, 2015, CMS is required to submit annual reports to Congress and to each state, summarizing the aggregate information from each medical device or pharmaceutical company and GPO during the preceding calendar year, as well as information on any enforcement actions taken and any penalties paid.

Payments and transfers of value
Under the Sunshine Act, the following information must be reported:

  • physician's name and address
  • amount and date of the payment
  • form of the payment, such as cash or stocks
  • nature of the payment, such as consulting fees, gifts, or entertainment expenses

In addition, the companies and GPOs will annually report information about ownership or investments interest held by physician owners or investors and members of their immediate families.

Payments of less than $10 do not need to be reported unless the aggregate amount exceeds $100 annually. The $10 threshold will increase every year, based on the Consumer Price Index. Incidental items such as pens and note pads worth less than $10 that are provided at large-scale conferences do not have to be reported. Samples intended for patient use, including coupons and coupons to obtain samples (including devices and medical supplies), are exempt from reporting.

Educational materials ultimately intended to be used with patients (for example, wall models or anatomical models) are also excluded from the reporting requirements. Educational materials provided to physicians for their own education that do not “directly” benefit patients must be reported.

Other types of payments and transfers of value covered in the regulation include food and beverage allocations, continuing medical education expenses, research-related expenses, and “indirect” payments. These and other issues will be covered in subsequent articles.

What this may mean to you
Orthopaedic surgeons who have relationships with medical device or pharmaceutical companies should carefully study the Sunshine Act’s implementing regulations to understand their impact on day-to-day activities as well as on perceptions of patients, the media, enforcement authorities, and the public.

Orthopaedic surgeons who have financial relationships with companies should work directly with those companies to review their financial data before the data are submitted to CMS.

Richard N. Peterson, JD, is the AAOS General Counsel.

Additional information
CMS Announcement

Final Rule