The Potential Blinding Effect of the Physician Payments Sunshine Act

by John Zen Jackson

This past Monday June 30, 2014 was the deadline for submission to the Federal government of detailed data on payments from pharmaceutical and medical device manufacturers to physicians and teaching hospitals.  Designed to increase transparency of financial relationships between manufacturers and health care professionals and to thereby allow patients to make more informed decisions regarding their health and treatment choices, this area is rife with controversy.

Section 6002 of the Affordable Care Act – also known as the Physician Payment Sunshine Act – is codified as 42 U.S.C. § 1320a-7h.  Although a piece of the overall Obamacare legislation, the Sunshine Act has its origins and roots in the efforts of two United States Senators, Chuck Grassley (R-IA) and Herbert Kohl (D-WI), dating back to 2007.  The Sunshine Act mandates tracking and reporting of certain transfers of value from biologic, pharmaceutical, and device manufacturers to physicians and teaching hospitals as of August 1, 2013.  The Centers for Medicare and Medicaid Services (CMS) released the Final Regulations in February 2013 for what is now called the Open Payments Program.  See 78 Fed. Reg. 9458-9528.

The Sunshine Act appears in Title VI of the ACA with the categorization of Transparency and Program Integrity. It has a number of important defined terms. “Applicable manufacturers” is broadly defined in the ACA provisions and even more broadly defined in the applicable Open Payments regulations found at 42 CFR § 403.902 implementing the Sunshine Act.  It basically encompasses any manufacturer of a drug, biologic or medical device that is made or sold in the United States.  The “applicable manufacturers” are required to report “payments or transfers of value” to “covered recipients” which are defined as physicians or teaching hospitals. The latter are hospitals that received payment for Medicare direct graduate medical education (GME), inpatient prospective payment system (IPPS), indirect medical education (IME), or psychiatric hospital IME programs in the prior year.  The reporting requirement encompasses not only direct but also “indirect payments or transfer of value.”  However, there is a statutory minimum threshold of $10.00 (with an annual aggregate of $100.00) to trigger the reporting requirement.  This threshold amount will be adjusted based on changes in the annual Consumer Price Index.

The statute requires reporting on both the form of payment and the nature of payment for each payment or transfer of value made by an applicable manufacturer to a covered recipient. The statute provides a list of categories for both the form of payment and nature of payment and gives the Secretary discretion to add additional categories.  The Act has the following form of payment categories:

  • Cash or a cash equivalent.
  • In-kind items or services.
  • Stock, a stock option, or any other ownership interest, dividend, profit, or other return on investment.
  • Any other form of payment or other transfer of value.

The Act includes the following nature of payment categories:

  • Consulting fees.
  • Compensation for services other than consulting.
  • Honoraria.
  • Gift.
  • Entertainment.
  • Food.
  • Travel (including the specified destinations).
  • Education.
  • Research.
  • Charitable contribution.
  • Royalty or license.
  • Current or prospective ownership of investment interest.
  • Direct compensation for serving as faculty or as a speaker for a medical education program.
  • Grant.
  • Any other nature of the payment or other transfer of value.

The Open Payments regulations permit physicians and teaching hospitals to register so as to review, dispute and correct information provided by the applicable manufacturers.  There is no right to preview the information before it is submitted.  The time period for disputing data is a very limited 45 days.  CMS will begin publishing the reported data on a public website later in 2014.  The information to be available on the website is to consist of

  • the name and address of the physician and specialty
  • the amount and date of the payment
  • the form of the payment, such as cash or stocks
  • the nature of the payment, such as consulting fees, gifts, or entertainment expenses the name of the drug, device, biologic, or medical supply involved.

The American Medical Association has recommended that physicians register with CMS and utilize the right to access and review reports regarding payments to them and also prepare to be transparent with patients regarding financial interactions with industry.

The quest for transparency is fundamentally illusory.  At its essential core, there is an intrinsic conflict in any payment made for professional services.  If the payment is based on the number or extent of services provided, there is an incentive to overutilize and inflate the expense.  If the payment is simply based on the fact of a patient encounter, there is an incentive to undertreat so as to limit the cost to the provider.  This is the space where professionalism must come in to engender and hold patient trust.  But the potential corrupting influence of payments from manufacturers to health care providers is an unfortunately recurring issue.  At the same time there are many interactions between physicians and manufacturers of pharmaceutical products, medical devices or other medical supplies that benefit patients and advance medicine and the ability to optimize outcomes and health.  There are strong arguments to support compensating knowledgeable and well-credentialed physicians who serve as consultants.  The consequences of alternatives could be dire.  The Sunshine Act transparency reports present the prospect of information overload as well as the limits of actual access to an internet resource.  Moreover these reports can provide patients and public with information that likely will be subject to interpretation but also too frequently misinterpretation.  Thoughtful commentators such as Professors Kathleen Boozang and Carl Coleman of SetonHallLawSchool have suggested that disclosure will not resolve all of the ethical and practical problems presented by conflicts of interest arising from financial transactions between physicians and pharmaceutical or medical device manufacturers.

Indeed, payment disclosures present the real risk of a socially unworkable framework for healthcare in the long term.  Attention is diverted from the scientific merit of the information presented and focus instead is given to the identity and presumed motives of those presenting the information.  But the Sunshine Act is the law of the land.

A number of states, such as California, Colorado, Connecticut, Maine, Massachusetts, Minnesota, Nevada, Vermont and West Virginia, as well as the District of Columbia have had laws requiring pharmaceutical or medical device manufacturers to report certain types of payments.  Pursuant to 42 U.S.C. § 1320a-7h(d)(3)(A), the Sunshine Act will preempt state laws requiring disclosure or reporting of the type of information described in it but explicitly leaves state regulation of other types of information unaffected.  In December 2009, the New Jersey Attorney General had released a report from the Division of Consumer Affairs that set forth recommendations regarding the impact of potential conflicts of interest on patient care and new polices to be considered by the Board of Medical Examiners, the Board of Pharmacy, and the Department of Health and Senior Services.  No regulations, however, were promulgated in follow-up to that report.  Nonetheless, as of the 2011-12 timeframe the Board of Medical Examiners has included questions in its biennial license renewal process concerning payments from pharmaceutical manufacturers and device manufactures.  The threshold used has $5,000 in the course of a year.  In addition, in 2011 disciplinary action was taken against several physicians for failing to disclose to their institutions where clinical trials were being conducted that they had an ownership interest in the device manufacturer of the product being studied and in connection with the renewal of their licenses.

In connection with the announcement of the reprimands, the Attorney General had declared that “[t]he undisclosed conflicts of interest on the part of these doctors undercut public trust in the medical profession. The Board has acted to maintain the integrity and high ethical standards that the public rightfully expects from their doctors.”

The opening act for the 1969 Woodstock festival was Richie Havens.  The most famous performance in his career was his later rendition of “Here Comes the Sun.”   Having the lyrics in mind, we will see if smiles return to any faces.