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CMS Publishes Physician Payment "Sunshine" Rule


The Centers for Medicare & Medicaid (CMS) recently published a long-awaited final regulation concerning payments to physicians from drug, device and supply manufacturers, as contemplated by section 6002 of the Affordable Care Act (ACA). Known as the physician payment "sunshine" rule, the new regulations require certain drug, device and supply manufacturers to report payments—direct and indirect—and other transfers of value provided either to physicians or teaching hospitals. 42 C.F.R. § 403.904. 

Though the sunshine rule gets its nickname from payments to physicians, the rule also requires manufacturers and group purchasing organizations (GPOs) to report ownership and investment interests in the manufacturers or the GPOs which are held by physicians or immediate family members of physicians. 42 C.F.R. § 403.906. 

On a general level, the obligations set forth by the final rule mirror the obligations set forth by section 6002 of the ACA, but the final rule provides many more details, exceptions, and exclusions. Section 6002 also requires CMS to publish the reported information on a publicly available website, with data which can be easily aggregated, downloaded and searchable, along with penalties imposed for failure to report.  

Who is an "applicable manufacturer"?

The final rule clarifies who must report payments and transfers of value to physicians and teaching hospitals. The obligation to report applies to an "applicable manufacturer," which is defined as an entity that is engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological, or medical supply. A "covered" drug, device, biological, or medical supply is essentially one requiring a prescription or FDA premarket approval or notification. By definition, an "applicable manufacturer" does not include distributors or wholesalers that do not hold title to any covered drug, device, biological or medical supply. Nor does it include manufacturing limited to drugs, devices, biologicals or medical supplies solely for use by or within the entity itself or by the entity's own patients. But the definition does include certain corporate affiliates of manufacturers which assist or support certain tasks and have common ownership with the manufacturer, such as a sister corporation which supplies raw materials. 42 C.F.R. § 403.902.

What payments or transfers of value must be reported?

Both direct and indirect payments and transfers of value must be reported. The final rule limits the definition of "indirect payments or other transfers of value" to those occurring "through a third party, where the applicable manufacturer … requires, instructs, directs, or otherwise causes the third party to provide the payment or transfer of value, in whole or part, to [a recipient physician or teaching hospital]… ." 42 C.F.R. § 403.902. But even where something may be considered an "indirect payment or other transfer of value," it need not be reported if the manufacturer is unaware of the identity of the recipient physician or teaching hospital. 42 C.F.R. § 403.904(i)(1). 

Also covered by the final rule are direct and indirect payments or transfers of value "provided to a third party at the request of or designated by the applicable manufacturer on behalf of" a physician or teaching hospital. CMS clarified this complex language outside of the regulation itself, in the Federal Register commentary. According to CMS, such payments and transfers occur where a physician or teaching hospital directs a payment or transfer to an entity or individual and the entity or individual receives and keeps it, rather than the physician or teaching hospital eventually receiving the payment or other transfer of value personally. 78 Fed. Reg. 9458, 9470 (Feb 8, 2013). One example could be certain charitable payments. CMS explained that an indirect payment or transfer differs in that it is passed through to the physician or teaching hospital. 78 Fed. Reg. 9458, 9470 (Feb 8, 2013). 

CMS also excluded several categories of direct and indirect payments and transfers of value from the reporting obligation. Among the exclusions are:

  • payments and transfers of less than $10, if the aggregate amount provided to a physician or teaching hospital in a calendar year does not exceed $100;
  • product samples intended for patient use and not intended to be sold;
  • certain educational materials designed for patients;
  • discounts (including rebates);  
  • payments and transfers solely in the context of a personal, non-business-related relationship; and
  • certain other payments and items.  

42 C.F.R. § 403.904(i)(1). One exclusion of interest is indirect payment to Continuing Medical Education (CME) speakers at certain accredited events, where the manufacturer does not select the speaker or identify a distinct set of individuals to be considered as speakers. 42 C.F.R. § 403.904(g)(1). Further, in the Federal Register commentary, CMS announced its intent that subsidies for attendees of accredited CME events provided through a CME organization by an applicable manufacturer would not constitute indirect payments or transfers of value. Yet, any travel or meals provided by an applicable manufacturer to any physician associated with a CME event must be reported. 78 Fed. Reg. 9458, 9481 (Feb 8, 2013). 

Data Collection and Reporting

CMS delayed both the date on which manufacturers and GPOs must begin collecting data and the first deadline for reporting the data. Data collection is only required after August 1, 2013 and the first deadline for reporting is March 31, 2014. Per section 6002 of the ACA, the first report was to be due March 31, 2013. Reporting will occur on a similar schedule each year following 2014.

Not to be lost are the details of what needs to be reported to CMS, particularly with respect to physician payments and transfers of value. 

  • Name (for physician recipients, first and last name plus middle initial);
  • Business address, with full street address and physician primary practice location address;
  • Specialty, NPI (where available), and license number(s) for physician recipients;
  • Amount of payment or transfer;
  • Date of payment or transfer (can report multiple dates if desired);
  • Context of the payment/transfer;
  • For payments and transfers directed by a physician or teaching hospital to a third party, name of the third party if an entity or otherwise simply "individual";
  • For drugs and biologicals associated with a payment or transfer, marketed name and National Drug Code(s), if any;
  • For devices and medical supplies associated with a payment or transfer, marketed name, therapeutic area or product category;
  • Form of payment, using categories (cash or equivalent, in-kind, stock/stock option/other ownership interest, or dividend/profit/other return on investment); and
  • Nature of payment, using categories (for example, consulting fees, gifts, education, honoraria, royalty, current or prospective ownership or investment interest, direct compensation for faculty or speaker for medical education, among others).

Payments to a group or practice (or multiple physicians) should be attributed to the individual physician(s) who requested the payment, on whose behalf the payment was made, or who is/are intended to benefit from the payment or transfer of value. Moreover, where multiple drugs, devices, biologicals or supplies are associated with a payment or transfer of value, a manufacturer may report up to five drugs, etc., for each payment or transfer.

Notably, the regulation does not include any rules for estimating the value of a "transfer of value."  But CMS addressed this issue in the Federal Register, interpreting "value" as "the discernible economic value on the open market in the United States." It added that "all applicable manufacturers must make a reasonable, good faith effort to determine the value of a payment or other transfer of value." 78 Fed. Reg. 9458, 9470 (Feb 8, 2013). Per the regulation, an "assumptions document" may be submitted with each report to CMS, describing calculation and collection methodology. 42 C.F.R. § 403.908(f). 

Following a report, manufacturers, GPOs, physicians, and teaching hospitals will have at least 45 days to review the contents of CMS's publication before it becomes public. Disputes must occur within that 45-day window each year.


As set forth in section 6002 of the ACA, the civil monetary penalty for failure to report will be between $1,000 and $10,000 for each payment or other transfer of value or ownership or investment interest not reported timely, accurately, or completely—not to exceed $150,000 per annual submission. For knowing violations, those figures increase to $10,000, $100,000, and $1,000,000, respectively.  42 C.F.R. § 403.912.


CMS will publish the data by September 30, 2014, and annually thereafter. One exception is that payments or transfers of value made under a product research or development agreement will be delayed, when such payments or transfers of value are made in connection with research on, development of, or clinical investigations regarding a new drug, device, biological, or medical supply (or a new application of an existing drug, etc.). 42 C.F.R. § 403.910. In these cases, publication will occur on the first publication date following approval, licensure, or clearance, or four calendar years after the payment or transfer. 

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