The Sunshine Act 101

The Sunshine Act sheds light on
payments for physicians

Regardless of where you stand on the political spectrum, from a business perspective, the Affordable Care Act (ACA) is law. This means pharmaceutical and medical device manufacturers need to understand the letter of the law, know how it affects their operations, and ensure they are compliant with it.

One component of the ACA that is of particular interest to our customers is the Physician Payment Sunshine Act (the Sunshine Act). We’re introducing an ongoing blog series on the Sunshine Act to highlight the many implications and facets of the legislation for your business and to help get you thinking about a strategic approach.

Let’s start with the basics of the law. The Sunshine Act requires all manufacturers of drugs and medical devices to annually report on any payments or other “transfers of value” to physicians and teaching hospitals. These payments are commonly known as aggregate spend and comprise a significant portion of a manufacturer’s sales and marketing budget.

This information will then be posted on a public website so that consumers can see exactly how much is being paid to their physician by pharmaceutical and med device companies. This type of legislation already exists in a number of states, such as California and Massachusetts.

So what exactly is meant by “transfers of value?” It can include everything from consulting fees, honoraria, gifts, education, and grants, to clinical research, royalties, charitable contributions, office loaners, samples, and even food and travel reimbursement for speaking at conferences on behalf of the manufacturer. As you can see, it’s a fairly broad term, and consequently a huge undertaking to track and report.

So why is the Sunshine Act needed? The ultimate goal of the Sunshine Act is to promote transparency in healthcare and cut down on corrupting conflicts of interest that can affect prescribing behavior and drive up healthcare costs for consumers.

A roundup published by the Journal of the American Medical Association took a look at multiple studies conducted on the relationship between “transfers of value” and prescribing behavior. Research shows that gifts, meals, and samples do incline medical professionals to recommend particular prescriptions or place a drug on preferred formulary status, which artificially inflates the costs of drugs and devices.

Despite evidence to the contrary, doctors remain surprisingly unaware of how their behavior is being influenced. Studies have also shown that when sales reps share inaccurate information about competitive drugs it can reduce the likelihood of doctors prescribing that drug, further driving up cost.

Then there are the penalties of non-compliance. If a company is found to be out of compliance with the Sunshine Act, it can be fined $10,000 for each transfer of value that is unknowingly not reported, not to exceed $150,000 annually. However, for transfers of value that are knowingly failed to be reported, fines can reach up to $100,000 per infraction, not to exceed $1 million annually.

While some of these fines might not seem prohibitively steep, the more serious consideration for all companies is that non-compliance can subject them to a Corporate Integrity Agreement (CIA). The terms of the CIA are normally negotiated as part of a settlement with the U.S. federal government. Incentives for agreeing to such a settlement are steep: the Office of Inspector General (OIG) might seek to have the provider organization excluded from participation in Medicare, Medicaid, or other federal healthcare programs. Other requirements may include:

• Hiring a compliance officer/appointing a compliance committee
• Developing written standards and policies
• Implementing a comprehensive employee training program
• Retaining an independent review organization to conduct annual reviews
• Establishing a confidential disclosure program
• Restricting employment of ineligible persons
• Reporting overpayments, reportable events, and ongoing investigations/legal proceedings
• Providing an implementation report and annual reports to OIG on the status of the entity's compliance activities

The burden of a CIA has a profound ripple effect across an organization. The cost, inconvenience, and reputational and operational risks it involves make it a serious deterrent for Sunshine Act non-compliance.

Is your organization prepared to remain compliant under the Sunshine Act? What have you done to get ready? Leave your story in a comment and join Revitas and Huron Consulting Group for our upcoming webinar on strategies to prepare for the Sunshine Act.




Read the rest of our series on the Sunshine Act, check out the following posts:

• Part two: Sunshine Act controversy: the great bagel debate
• Part three: The Sunshine Act: penalties of non-compliance
• Part four: Preparing for the Sunshine Act