Health Care Reform's 'Sunshine' Law Requires Drug and Device Company Disclosures

Employers in all industries face the challenge of implementing changes in their employee benefit plans as a result of the sweeping health care reform program that became law in March (see "Examining the New Health Care Law"). But health care providers, pharmaceutical companies and medical device makers face even more change as a result of "sunshine" and "integrity" provisions of the new law.

Included in the massive legislation is the Physician Payment Sunshine Act, which requires drug and device manufacturers to make annual federal disclosures of their financial relationships with, and in-kind contributions to, physicians and teaching hospitals. The reports will be available to the public via an online database. While some states already require such disclosures, the new law is the first federal transparency requirement for the health care industry.

"The sunshine provisions for the first time on a broad-based national basis would require the manufacturers of pharmaceuticals and devices to report payments that they make to physicians," says Laura Keidan Martin, a partner in the health care practice at Katten Muchin Rosenman. "It requires disclosure of every transfer of cash, in-kind consideration or stock. Every dinner a sales rep has with a doctor now will have to be reported. It's very controversial because physicians feel it is an invasion of privacy, but the point is the public should know the relationships that their physicians have."

While the first reporting deadline isn't until March 2013, Martin suggests that drug and device manufacturers start to prepare now.

"It's a huge undertaking to report every payment, in cash or in kind, including travel, consulting payments, royalty payments--and post them on a website," Martin says. "For those kinds of companies, it's a really big change. It will require companies who haven't already done so to do a comprehensive review of every arrangement with a physician and make sure there is a need for it."

Martin adds that the provision applies to contributions of all kinds to teaching hospitals as well to doctors.

"If a teaching hospital is getting a grant from a pharmaceutical company, that will have to be disclosed," she says.

The law calls for stiff penalties for failure to report. Penalties range from $1,000 to $10,000 per payment for unintentional failure to report, up $10,000 to $100,000 for intentional failure to report.

In addition, physicians will have to report ownership interests in imaging facilities such as MRI centers; hospitals; and group purchasing organizations. This provision apparently will take effect as soon as regulations are issued, probably later this year, Martin says.

The health care law's "integrity" provisions include an important change for health care providers, Martin adds. A provider that discovers an overpayment from Medicare and Medicaid now has just 60 days to report and return the overpayment.

"Sixty days to identify and go through the necessary approvals is a nano-second," Martin says. "It's a huge, huge change. [Providers] need to make changes now to have a protocol in place so once they ID an overpayment, they have a protocol to deal with it."

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