The Sunshine Act: Understanding the Essentials of Compliance

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The Sunshine Act: Understanding the Essentials of
Compliance
A Tutorial – June 26, 2016
Michael A. Swit, Esq. FDACounsel

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The views and opinions expressed in the following PowerPoint
slides are those of the individual presenter and should not be
attributed to Drug Information Association, Inc. (“DIA”) or his law
firm, its clients, or any other organization with which the presenter
is employed or affiliated.
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their respective owners.
Disclaimer

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This presentation supports an oral briefing and should not be relied
upon solely on its own to support any conclusion of law or fact.
These slides are intended to provide general educational
information and are not intended to convey legal advice.
Disclaimer

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What We Will Cover
Statutory Provisions
The Regulations
How CMS Is Construing Sunshine – Selected Q&A

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Enactment
Section 6002 of the Affordable Care Act (ACA) of 2010 – March 23, 2010
– P.L. 111-148
Added Section 1128G – Transparency Reports and Reporting of
Physician Ownership or Investment Reports – to the Social Security Act
(42 U.S.C. 1301, et seq.)
History – bills involving “sunshine” had been introduced in Congress several
times in prior years
CMS – refers to this as “Open Payments”

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Transparency Reports – 1128G(a)
Payments or Other Transfers of Value – 1128G(a)(1)
– Due – March 31 annually (starting 2013; but changed to 2014,
with tracking as of Aug. 1, 2013)
– Who files – “any applicable manufacturer” (“AM”) that
provides a “a payment or other transfer of value” to a “covered
recipient” (“CR”) (or to someone designated by the covered
recipient)
– What filed – for the prior calendar year:
➢ Name of CR
➢ Business address of CR
➢ Amount of payment or value transfer to CR
➢ Date(s) payment or value transfer made

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Transparency Reports – 1128G(a) …
Payments or Other Transfers of Value – 1128G(a)(1) …
– What filed …
➢ Form of payment or value transfer (e.g., cash, stock, stock option, in-kind items)
➢ Nature of payment (e.g., consulting fees, entertainment, honoraria, food, travel,
royalty, CME speaker, research, etc.)
➢ Name, if applicable, of specific drug, device, biological or other medical supply –
if the payment relates to that product
➢ Other information – that Secretary (of HHS) may require
– Special rule – if the payment is made to a person designated by or on behalf
of a CR, the CR’s name is still listed

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Excluded TOV’s
Not included: Transfer of Value (TOV) made by a 3rd
Party if AM is unaware of identity of CR -
1128G(e)(10)(A)
Exclusions: 1128G(e)(10)(B)
– TOV less than $10 or $100 in aggregate (as of 2012; adjusted
for inflation afterwards)
– Product samples
– Educational materials that directly benefit patients or intended
for patient use
– Loan of a covered device for less than 90 days for evaluation
– Items provided under warranty, including replacing a covered
device

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Excluded TOV’s
Exclusions: 1128G(e)(10)(B) …
➢ Discounts, including rebates
– In-kind items used for/to provide charity care
– Dividend or profit distribution from public security or mutual
fund
– PMTs by AM to its employees under a self-insurance health plan
– If a CR is also a licensed non-medical professional (e.g., atty.),
TOVs to the CR for the non-medical professional services
– TOVs to a CR where solely for “services of the CR with respect
to a civil or criminal action or an administrative proceeding” –
e.g., expert witness services

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Transparency Reports – 1128G(a) …
Physician Ownership – 1128G(a)(2) …
– Who must file –
➢ AM
➢ Applicable group purchasing organization (“AGPO”)
– What must be filed – info on “any ownership or investment
interest” held by a physician (or immediate family) in the AM or
AGPO during prior year [exception: N/A to public security or
mutual fund ownership by physician or immediate family]
➢ Dollar amount invested
➢ Value and terms of the investment interest
➢ Any payment of other value transfer provided to physician
w/ownership interest

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Key Definitions – 1128G(e)
Applicable Manufacturer (AM) – manufacturer of a
covered drug, device, biological, or medical supply (“covered
product” [my term]), operating in the U.S., etc. [1128G(e)(2)]
Manufacturer – any entity engaged in production,
preparation, propagation, compounding, or conversion of a
covered product
– or a person under common ownership with the mfr. who “provides
assistance or support to such entity with respect to the production,
preparation, propagation, compounding, conversion, marketing,
promotion, sale or distribution of a covered” product
– [1128G(e)(9)]

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Applicable Group Purchasing Organization (AGPO)
– a GPO that purchases, arranges for, or negotiates the
purchase of a covered drug, device, biological, or medical
supply, which is operating in the U.S. or a territory,
possession or commonwealth of the U.S. [1128G(e)(1)]
Covered Recipient -- [1128G(e)(6)]
– Physician – as defined in Section 1861(r) of SSAct
➢ Six types: (1) M.D. (2) D.D.S or D.D.M. (3) D. Podiatry,
(4) D. Chiro., (5) D. Optometry, (6) D. Osteopathy
➢ Excludes physicians who are employees of an AM that must
submit info under the Sunshine Act
– Teaching hospital

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Covered Drug, Device, Biological or Medical Supply – any
for which payment is available under title XVIII (Medicare),
or a state plan under title XIX (Medicaid) or Title XXI (CHIP),
or a plan waiver – [1128G(e)(5)]
– But, what does “payment is available” mean?
➢ Not defined
▪ Does it mean that the device could be eligible for reimbursement, but
has not yet been processed for a coverage determination? OR
▪ Does it mean that the device is, in fact, approved for reimbursement.
➢ Problem – what does “payment is available” relative to newly cleared
products for which a coverage decision has not been made?
➢ CMS – in September 2013, I asked to clarify; no reply

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Public Availability of Information
Public website -- contents and functionality – Section 1128G(c)(1)(C)
– Searchable in a format that is “clear and understandable”
– Contents:
➢ Name of AM or AGPO
➢ Name, biz address, and specialty of CR
➢ Payment or other transfer of value (TOV)
▪ Value of PMT or TOV
▪ Form
▪ Date
▪ Form (e.g., cash, stock, in-kind)
▪ Nature (e.g., consulting fee, honorarium)

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Public Availability of Information …
Public website -- contents and functionality …
– Info must be “easily aggregated and downloaded”
– Any enforcement action under Section 1128G
– Background info on industry-physician relationships
– Separately lists info on clinical research payments
– Excluded info – National Provider Identifier of the CR
– Gives 45 days for the AM, AGPO, or CR to review the submitted info and make
corrections

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Delayed Publication for R&D Payments
Section 1128G(c)(1)(E) –
– If PMT of TOV made by an AM (not AGPO) pursuant to a
product research or development agreement for services in
connection with “research” on:
➢ A potential new medical technology or a new application of an
existing medical technology;
➢ Development of a new drug, device, biological, or medical supply;
or
➢ Clinical investigation regarding a new drug, device, biological or
medical supply
– Can delay until next due date for information that is the earlier of:
➢ Date of approval of drug, device, biological, or medical supply; or
➢ Four years after the date of PMT or TOV

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Penalties for NonCompliance
AM or AGPO failure to report (not knowingly):
– Civil money penalty of not less than $1,000 or more than
$10,000 per each failure
– Total CMP per calendar year -- $150,000
– Source: Section 1128G(b)(1)
AM or AGPO knowingly fails to make a report:
– Civil money penalty of not less than $10,000 or more than
$100,000 per each failure
– Total CMP per calendar year -- $1,000,000
– Source: Section 1128G(b)(2)
Process – under Section 1128A of SSAct

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Annual Reports
To Congress – by April 1:
– The information submitted the prior year (which would be for the year before that) --
aggregated by AM and AGPO
– Enforcement actions taken, including penalties, during the prior calendar year

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Regulatory History
Proposed Rule
– December 19, 2011
– 76 Fed. Reg. 78741 [HOT LINK]
Final Rule
– February 8, 2013
– 78 Fed. Reg. 9457 [HOT LINK]
– Effective Dates:
➢ April 9, 2013 -- regulations
➢ Collection of PMT and TOV info – beginning as of Aug. 1, 2013
➢ First report date: March 31, 2014
– Promulgates 42 C.FR. Part 403, Subpart I

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Regulation Titles
403.900 -- Purpose and scope.
403.902 -- Definitions.
403.904 -- Reports of payments or other transfers of value.
403.906 -- Reports of physician ownership and investment
interests.
403.908 -- Procedures for electronic submission of
reports.
403.910 -- Delayed publication for payments made under
product research or development agreements and clinical
investigations.
403.912 -- Penalties for failure to report.
403.914 -- Preemption of State laws.

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Definitions -- Refinements
Applicable Manufacturer
– Basic definition – repeated from Act – An entity that is engaged in the production,
preparation, propagation, compounding, or conversion of a covered drug, device,
biological, or medical supply
– Refinements
➢ Makes clear does not include distributors, wholesalers, repackagers, relabelers and kit
assemblers that do not hold title to any Covered Product (remember – my collective term for
a covered drug, device, biological, or medical supply)

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Definitions – Refinements …
Applicable Manufacturer
– Refinements
➢ Entity under common control with the AM is also an AM if:
▪ Provides “assistance or support” to the AM with respect to the following relative to a Covered
Product:
» Production, preparation, propagation, compounding or conversion
» OR marketing, promotion, sale or distribution of a Covered Product
▪ Assistance or Support – “providing a services or services that are integral to” the functions
described in prior sub-bullets
Covered Product
– In addition to being CMS covered if “payment is available,” also clarified that this includes
both payments made separately or as part of a “bundled payment” – e.g., prospective payment
systems

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Covered Drugs or Biologics – must be via prescription
Covered Devices – limited to devices approved/cleared via:
– Premarket Approval Application – PMA
– Premarket Notification Submission – 510(k)
Teaching Hospitals – are those that get payments under SSAct sections as
follows:
– 1886(d)(5)(B) – indirect costs of medical education
– 1886(h) – direct graduate medical education
– 1886(s) – psychiatric hospitals

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Immediate Family Member – relative to ownership
interest reporting
– Spouse
– Natural or adoptive parent, child or sibling
– Stepparent, stepchild, stepbrother or step sister
– In laws – father, mother, daughter, son, brother, sister
– Grandparent or grandchild -- and their spouses
Indirect payments or TOV – made by AM or AGPO:
– Through a third party, where the AM or AGPO “requires,
instructs, directs, or otherwise causes the third party to provide
the PMT or TOV, in whole or in part, to a CR” (or a physician
owner or investor – if relating to ownership interests)

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Ownership or Investment Interest – direct or indirect
and can be via debt, equity or other means, such as:
– Stock, stock options
– Partnership shares
– Limited liability company memberships
– Loans, bond or other instruments secured with any part of an
entity’s revenue or property
– Exceptions:
➢ Interest in a public security or mutual fund
➢ Interest arising under a retirement plan offered by AM or AGPO
to a physician via employment with the AM or AGPO

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Ownership or Investment Interest …
– Exceptions: …
➢ Unexercised stock options and convertible securities received as
compensation until they are exercised (then become a TOV)
➢ Unsecured loans subordinated to credit facilities
➢ Any ownership ship interest the AM or AGPO did not know about
“Know, knowing or knowingly” -- any of:
– Actual knowledge;
– Act in deliberate ignorance of the truth or falsity of info.; or
– Act in reckless disregard of the truth or falsity of info.
➢ [note: no intent to defraud required under standard]

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Reports of PMTs or TOVs -- Refinements
Limitations on reporting:
– “Under 10% Gross Revenue Rule” – if, in the fiscal year prior to
the reporting year, AM has revenue from Covered Products that
was less than 10% of total gross revenues, AM only has to report
PMTs or TOVs relating to the specific Covered Products.
➢ “Related to” – means the PMT or TOV is made “in reference to or
in connection with one or more” Covered Product.

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Limitations on reporting: ...
– “Common Control AMs” – those that have AM status because
of being under common control and proving assistance or
support -- as in paragraph (2) of AM definition under 403.902
➢ Only have to report those PMTs or TOVs that relate to a product
for which they provided assistance or support to the related AM
– Separate Operating Divisions – if they do not manufacture a
Covered Product – only have to report a PMT or TOV if it is
related to a Covered Product (presumably of the related AM, but
regulation wording is not clear, but only way it makes sense)

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Limitations on reporting: …
– “Contract Manufacturers” --
➢ If you meet the following:
▪ Have a written agreement to manufacture a Covered Product for
another entity;
▪ Do not hold FDA approval or clearance for the Covered Product;
and
▪ Are not involved in sale, marketing or distribution of the product
➢ Only required to report PMTs or TOVs that relate to one or more
Covered Products (presumably made by you for you and not under
contract; although regulation is a tad unclear in its wording)

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Required Report Info on PMTs & TOVs
For each PMT or TOV, 403.903(c) requires:
(1) Name of CR – if a physician, must be same as in the National Plan & Provider
Enumeration System (NPPES) [HOT LINK]
-- which is the standard identified required under HIPAA
(2) Address of CR – “primary business address” – street (no provision for using a P.O.
Box]
(3) Identifiers for Physicians – specialty and National Provider Identifier (if applicable
and as listed in NPPES) and state professional license number(s) and state(s) in which
held
(4) Amount of PMT or TOV – if to a group of CRs, should be “distributed
appropriately”

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Required Report Info on PMTs & TOVs ...
For each PMT or TOV, 403.903(c) requires: ...
5) Date of Payment –
i. Multiple payments or TOVs to same CR – option to handle
a. Each payment or TOV separately; or
b. Aggregate, but payment date is date of first payment or TOV
ii. “Small payments or other TOV reported as a single line item” – AMs must report
date the first bundled payment made
6) Payment Form – as per 403.903(d):
i. Cash or cash equivalent
ii. In-kind items or services
iii. Stock, stock option, or any other ownership interest
iv. Dividend, profit, or other return on investment

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7) Nature -- as per 403.903(e) – categories below are mutually exclusive. If payment might
fall into more than one, AM should select category “that it deems to most accurately
describe the nature” of PMT or TOV:
(i) Consulting fee.
(ii) Compensation for services other than consulting, including serving as faculty or as a
speaker at an event other than a continuing education program.
(iii) Honoraria.
(iv) Gift.
(v) Entertainment.
(vi) Food and beverage.

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7) Nature -- as per 403.903(e) – categories ....
(vii) Travel and lodging (including the specified destinations).
(viii) Education.
(ix) Research.
(x) Charitable contribution.
(xii) Royalty or license.
(xiii) Current or prospective ownership or investment interest.
(xiv) Compensation for serving as faculty or as a speaker for an unaccredited and non-certified
continuing education program.
(xv) Compensation for serving as faculty or as a speaker for an accredited or certified
continuing education program.

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7) Nature -- as per 403.903(e) – categories ....
(xvi) Grant.
(xvii) Space rental or facility fees (teaching hospital only).
8) “Related” Covered Product – must report name of the related
Covered Product
i. Can report up to five (5) such Covered Product for each PMT
ii. If PMT relates to more than 5 such Covered Products, AM should
report the 5 Covered Products “that were most closely related to
the PMT or TOV.”
iii. Drugs and Biologicals:
a. Name under which markets and NDC #
b. If not marketed, name registered on ClinicalTrials.gov

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8) “Related” Covered Product – must report name of the related
Covered Product
iv. Devices and medical supply –
a. Name under which marketed; and
b. Therapeutic area or category
v. If not related to a Covered Product, but is related to a specific
non-Covered Product, label as “non-covered product.”
vi. If not related to any product, label as “none”
vii. If related to a mix of Covered Product and non-covered product,
then must report name of Covered Product and may include
“non-covered product” in addition

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9) Delayed payment publication – must state if the PMT or TOV
meets 403.910
10) Payments to third parties –
a. If made at request of a CR, reported in the name of the requesting
CR
b. Also include the actual third party recipient
11) If to physician owners or investors, must say if the PMT or
TOV was provided to a physician or immediate family member
who holds an ownership or investment interest in the AM
12) Context – you may provide a “statement with additional context
for” the PMT or TOV

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Research PMTs – Special Rules
If subject to a written agreement, research protocol, or both, must
report under 403.904(f)
– Research-related payments are reported separately from other payments – to any
CR (physician or teaching hospital)
➢ Note 1: logically, if an AM has less than 10% revenue from Covered Products, it
only has to report PMTs with respect to Covered Products (i.e., those that are
approved or cleared). Thus, no duty to report research payments unless for new use
of a Covered Product.
➢ Note 2: if, however, AM has 10% or more revenue from Covered Products, has to
report all research payments covered by the regs., even for uncovered products

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Research PMTs – Special Rules ...
Info to report – 403.904(f)(1)
– Name -- of research institution, individual or entity receiving PMT or TOV
➢ If to physician:
▪ Name as in NPPES
▪ National Provider Identifier
▪ State professional license number for at least one state in which licensed
▪ Specialty
▪ Primary business address
➢ If to teaching hospital – name and primary business address
➢ If paid to a non-covered recipient (e.g., a non-teaching hospital or clinic) – name and
primary business address of entity

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Info to report – 403.904(f)(1) …
– Total amount of research payment -- including all research-related costs for activities
outlined in a written agreement, research protocol, or both
– Name of research study
– Names of any related Covered Products – handled as covered previously on how to
provide name for PMT and TOV reports
– Principal investigator – if a CR, the same info as earlier required for physician
– Optional info –
➢ Context of study
➢ Clinicaltrails.gov identifier

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Info to report – 403.904(f)(1)
– Preclinical studies – just report
➢ Research entity name
➢ Total amount of PMT
➢ Principal investigator

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Continuing Education – Special Rules
403.904(g)
– Old Rule:
➢ Do NOT have to report PMTs or TOVs for compensation for speaking at a
continuing ed. program if ALL of following met:
▪ Event meets accreditation standards of:
» ACCME
» Amer. Academy of Family Physicians
» ADA’s Continuing Education Recognition Program
» AMA
» America Osteopathic Assn.
▪ AM does not pay speaker directly
▪ AM does not select CR speaker or provide a third party (e.g., CME vendor)
with identifiable set of names to consider as speakers
– New Rule (Nov. 2014) – regardless of whether you meet the above, now
have to report if you learn the identity of your speaker during the
reporting year or by end of 2nd Quarter of following year

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Continuing Education – Special Rules
403.904(g)
– Reportable payments (i.e., don’t meet all requirements on slide 44)
requirements:
➢ If did meet accreditation requirement, list as “Compensation for
serving on faculty or as speaker for an accredited or certified continuing
education program”
➢ If did not meet accreditation requirement, list as “Compensation for
serving on faculty or as speaker for an unaccredited or non-certified
continuing education program”
➢ If a payment is made for speaking at an event that is not related to
medical education, list as “Compensation for services other than
consulting, including serving as a speaker at an event other than a
continuing education program”

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How to Report Food & Beverage
Group settings -- If cost of each CR’s meal is not separately identifiable (e.g.,
platter or pizzas), must allocate by total cost of food/beverage divided by
number present (which can include non-CRs such as physician staff)
– Only have to report the CR’s payment and value
Large Scale conferences or events – AM does not have to report or track
buffet meals, snacks, soft drinks or coffee generally available to all participants

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Exclusions from Reporting -- Refinements
Large scale conferences -- $10 (as adjusted annually) or less PMTs
or TOVs
Product samples – also includes vouchers and coupons
Educational materials – also excluded is the value of AM’s services
to educate patients
TOVs to a physician CR if the physician is a patient, research
subject, or participant in data collection for research
PMT or TOV is made “solely in the context of a personal, non-
business relationship.”
– My advice – report as these are likely to be scrutinized strictly if not reported
and later become public

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Reports of Ownership or Investment Interests
403.906 – applicable to physicians only (not teaching hospitals)
– General Rule – each AM or AGPO must report any Ownership or Investment
Interest (“OOII” – my term) annually if held by a physician or to immediate
family member (“IFM” – my term) of physician during the prior year (for CY
2013, only if held on or after 8/1)
– Identifying information –
➢ Name of physician (as listed in NPPES) and whether OOII held by physician or
IFM
➢ Primary business street address
➢ Dollar amount
➢ Value and terms
➢ Nature of ownership (added by Nov. 2014 Revised Rule) – e.g., stock, stock
option, warrants, or other ownership interests

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Electronic Reporting Procedures – 403.908
403.908(a) – specifies that reports have to be submitted in
electronic format annually
No need to report -- 403.908(b)
– AM -- if no PMTs or TOVs to CRs or OOII to physicians or IFM
– AGPO – if no OOII
Registration
– AM – if have any reports to file, must register with CMS within 90 days of
end of CY for which report is required
– AGPO – if has to report, also must register
– Two points of contact to be named

49
Electronic Reporting Procedures ...
Consolidated reports – if under common ownership with another AM
(i.e., one that has to report), may, but not required, to file a consolidated
report
– Common ownership – under 403.902 – where same individual, individuals,
entity, or entities directly or indirectly own 5 percent or more total ownership
of two entities. This includes, but is not limited to, parent corporations, direct
and indirect subsidiaries, and brother or sister corporations
– Option applies regardless of whether the AM under common ownership is one
that is an AM because it provides assistance – a “paragraph (2)” AM or is
directly an AM under “paragraph (1) of the AM definition, but under common
ownership with another “paragraph (1)” AM

50
Consolidated reports …
– If used, report must include name of all AMs covered by the
report
– If used, must be sure you don’t have duplicative payments in the
report
– Downside – under 403.908(d)(1)(v) – if you do file a
consolidated report, the AM who submits it is liable for any civil
money penalty that might attach to any failure by any of the
AMs covered by the consolidated report

51
Joint Ventures
– PMT or TOV must be reported by the AM who actually furnished it,
unless agreement between venturers requires otherwise
– Must avoid duplicative reports
Attestation – each report, including corrections to a filed report,
must be attested:
– By CEO, CFO, Chief Compliance Officer, or other Officer of AM or
AGPO
– “that the information reported is timely, accurate, and complete to the
best of his or her knowledge and belief.”
– If for consolidated report, the attestation extends to all AMs covered by
report

52
Assumptions Document – AM or AGPO may submit an
“assumptions document” explaining reasonable
assumptions made and methodologies used when
reporting PMTs or TOVs or OOIIs
– Not available to CRs, physician owners or investors, or public

53
45-Day Review and Correction Period – 403.908(g)
– General rule – given to review and submit corrections to information
included in reports due on 3/31 before CMS makes public
– Notification – CMS notifies AMs, AGPOs, CRs and Physician
Owners when information is ready for review
➢ AMs and APGOs – notified via their designated contacts
➢ Physician owners and teach hospitals – via online postings and CMX list
servs
▪ Can register with CMS

54
45-Day Review and Correction Period …
– Process – for AMs, AGPOs, CRs, physician owners or investors
➢ Log into secure website
➢ Review data just about themselves
➢ If you agree, you “may certify” (but regulation does not bind you to) that
the information is accurate
➢ If a CR or physician owner or investor disagrees, can initiate a dispute at
any time by end of calendar year in which report made
– Data Disputes – 403.908(g)(4)
➢ AMs and AGPOs – if you want to correct before publication to public,
must notify CMS of resolved disputes by 15 days after then end of the 45-
day review period

55
45-Day Review and Correction Period …
– Data Disputes – 403.908(g)(4) ...
➢ If not resolved by end of 15 days (after 45 days), can still be resolved,
but any changes have to wait until the next time the data is “refreshed”
(not defined; although later, CMS says, in 403.908(h)(2), that it will
update the site at least annually with corrected info)
➢ If not resolved timely, CMS will publish the AM or AGPO’s view of the
data, but will mark it as disputed
Errors or Omissions – 403.908(h)
– If AM or AGPO discovers, must submit corrected info “immediately
upon confirmation”
– CMS will notify the affected CR or physician owner or investor of the
new info

56
Delayed Publication – 403.910
General Rule – certain research PMTs or TOVs made to a CR by an AM
under a product research or development agreement – may be delayed
publication if the PMT or TOV was made in connection with:
– R or D of:
➢ a “new drug, device, biological, or medical supply”
➢ Or a new application of an existing drug, device, biological, or medical supply
– Clinical investigations:
➢ a “new drug, device, biological, or medical supply”
➢ NOT – however, for a new application of an existing drug, device ...

57
Delayed Publication – 403.910
R or D Agreement – must include a written agreement, a
research protocol, or both between AM and CR
Date of Delayed Publication (DP) – (same as statute) – on
the first annual publication date after the earlier of:
– Approval/clearance date
– Four years from payment -- assumes no or significantly delayed
approval – reporting then will be “automatic” (my words)
Notification of DP – info is confidential while in DP mode
– AM – have to indicate on research payments report if PMT or TOV is
eligible for DP and annually thereafter so long as eligible
– AM – must report, in next annual, if approved; failure can lead to civil
money penalties

58
Penalties for Failure to Report – 403.912
Failure to Report (unknowing) – penalties same as in statute –
– $1,000 to $10,000 per “failed” PMT or TOV;
– Aggregate of $150,000 per annual submission
Knowing Failure to Report – again, same as statute –
– $10,000 to $100,000 per “failed” PMT or TOV;
– Aggregate of $1,000,000 per annual submission
Single organization – could have both Unknowing and Knowing
aggregated for same reporting year
– $1,150,000 annually

59
Penalties for Failure to Report ...
Factors in determining CMP amounts – 403.912(d)
– Length of time AM or AGPO failed to report, including the length of time
they knew of the payment or other transfer of value, or ownership or
investment interest;
– Amount failed to report;
– Level of culpability (no factors presented as to how assessed);
– Nature and amount of information reported in error; and
– Degree of diligence exercised in correcting wrongly reported info
Use of CMP funds – must be used to implement regulations –
403.912(f)
Due process – CMP is subject to notice, hearing opportunity,
appeals procedures, and collection

60
Record Retention & Audits – 403.912(e)
Record Retention
– Length -- Five years from date the PMT or TOV is published publicly on the Web site
– What to keep – “all books, contracts, records, documents, and other evidence
sufficient to enable the audit, evaluation, and inspection” of the AM’s or APGO’s
compliance
Audits
– By: HHS, CMS, OIG or their designees
– Power: to “audit, inspect, investigate, and evaluate”
– What is subject to audit: any books, contracts, records, documents, and other
evidence that “pertain to” compliance by AM or AGPO with Sunshine requirements

61
Preemption of State Laws – 403.914
“In the case of ...” a PMT or TOV by an AM to a CR, this subpart (the
Sunshine regs.) preempt “any statute or regulation of a State or political
subdivision of a State that requires” an AM to disclose or report, in any
format, the type of information regarding the PMT or TOV required to be
reported under the regs.
– Note – not applicable to ownership or investment interests

62
CMS – Key Q&As on Open Payments
62

63
AM Definition
Is leasing included in the actions that constitute
“assistance or support” to determine if an entity is
considered an applicable manufacturer under prong 2 of
the definition for an applicable manufacturer at 42 C.F.R
§ 403.902?
– Assistance or support, as defined at 42 C.F.R § 403.902, is conduct
that is necessary or integral to the production, preparation,
propagation, compounding, conversion, marketing, promotion, sale,
or distribution of a covered product. A case-by-case analysis is
necessary; ... [h]owever, leasing a device may constitute assistance or
support if supplying the device would be necessary or integral to the
applicable manufacturer who could not produce the product without
the leased device.

64
AM Definition
The definition of an applicable manufacturer excludes
distributors or wholesalers that do not hold title to any
covered drug, device, biological or medical supply. What
is the meaning of “hold title” in this context?
– A distributor holds title to products once it takes ownership of a
particular inventory of products from the seller and possesses the
right to re-sell the inventory of the products that it has purchased.
Holding title to a covered product in this context is distinct from
holding FDA approval, licensure or clearance for a covered product.
Distributors and wholesalers (which include repackagers, relabelers,
and kit assemblers) that hold title to a covered drug, device,
biological or medical supply meets the definition of an applicable
manufacturer.

65
AM Definition
Does Open Payments require an entity to report
payments or other transfers of value provided to
covered recipients or physician owners or investors
retroactively once the entity becomes an applicable
manufacturer, once the entity has a least one covered
drug, biological, device or medical supply?
– No, Open Payments does not require retroactive reporting. Entities
determined to be applicable manufacturers because they have least
one product that became a covered drug, have a grace period of
180 days following a drug, device, biological or medical supply
becoming covered to begin complying with the data collection and
reporting requirements.

66
Teaching Hospitals
Is a hospital that is not listed on the Open Payments teaching
hospital list considered a teaching hospital covered recipient for
purposes of Open Payments?
– No. A teaching hospital covered recipient for the purposes of Open Payments is
defined at 42 C.F.R. § 403.902 as any institution that received a payment under
1886(d)(5)(B), 1886(h), or 1886(s) of the Social Security Act during the last
calendar year for which such information is available. The teaching hospital list
posted at http://go.cms.gov/openpayments is the final list of all teaching
hospital covered recipients for the purposes of Open Payments for the reporting
year specified on the list, and the list will be refreshed every year.

67
“10% Gross Revenues” Rule
AMs with less than 10% total (gross) revenue from Covered Product
have limited reporting requirements regarding payments or other
transfers of value provided to covered recipients. Does total (gross)
revenue include both domestic sales and global sales, or only domestic
sales?
– Both domestic and global sales are included
– But, AMs with less than 10 percent of total gross revenue from covered products
during the previous year must register with CMS and attest that less than 10 percent of
total (gross) revenues are from covered products, along with their attestation of the
submitted data.

68
Nature of Payment
Are applicable manufacturers required to report uncollected payments
for a covered device owed by a covered recipient to an applicable
manufacturer as a payment or other transfer of value?
– Yes, debt forgiveness by an applicable manufacturer for the remaining balance of a
covered drug, biological, device or medical supply purchased by a covered recipient is
considered a payment or transfer of value and reportable for purposes of Open
Payments.

69
Nature of Payment ...
Are Federal, state, and local taxes withheld from a physician owner or
investor considered reportable payments or other transfers of value?
– No, Federal, state, and local taxes withheld from a physician owner or investor are not
considered reportable payments or other transfer of value.
What do you think?

70
Value of Payment
Are tax and payments for shipping and handling including in
calculating value for a payment or other transfer of value?
– Yes, tax and payments for shipping and handling are included in the total payment or
other transfer of value for Open Payments.

71
Loans of Medical Devices
Is the loan of a covered device by an applicable manufacturer for
training purposes at a CME or non-CME event considered a payment
or other transfer of value to covered recipients?
– No. A loan of a covered device by an applicable manufacturer for training purposes at
a CME or non-CME event is not considered a payment or other transfer of value
provided to a covered recipient if the device was loaned to the CME vendor for
training covered recipients at a CME event and the covered recipient did not take
possession of the covered device.

72
Physicians Located Outside U.S.
Is a physician located outside of the United States
considered a physician covered recipient for purposes of
Open Payments?
– If a physician maintains a current state license to practice medicine in
any state in the United States, the physician will be considered a CR for
purposes of Open Payments.
– A current state license would render the physician “legally authorized”
to practice medicine, regardless of whether they do so. Therefore, a
physician who maintains an active license to practice in the United
States would be considered a covered recipient, and payments made to
such a person would have to be reported, even for services rendered
(such as speaking at a public seminar) outside of the U.S.

73
Continuing Education
Are payments for travel, lodging and meals to speakers and
faculty of accredited or certified CME events that meet all
three conditions established in the final rule included in the
total compensations that are exempt from reporting?
– Yes. Lodging, travel and meals for speakers of an accredited or certified
CME event meeting all three requirements in 42 CFR 403.904(g)(1) will
be included in the total speaker compensation and, therefore, exempt
from reporting under Open Payments.
– However, travel, lodging and meals and all other natures of payments
provided to physician attendees, in conjunction with the accredited or
certified CME event will need to be reported

74
Exempt Educational Materials
What items or materials are considered education materials
and are not reportable transfers of value?
– Education materials and items that directly benefit patients or are intended
to be used by or with patients are not reportable transfers of value.
– Additionally, the value of an applicable manufacturer’s services to educate
patients regarding a covered drug, device, biological, or medical supply are
not reportable transfers of value.
➢ For example, overhead expense, such as printing and time development of
educational materials, which directly benefit patients or are intended for
patient use are not reportable transfers of value.

75
Research Payments
Is study equipment, implantable devices, instru-mentation, or
other supplies provided to a covered recipient by an applicable
manufacturer in connection with a FDA approved clinical trial
for use solely in a research project considered a transfer of
value?
– Yes, payments or other transfers of value made in connection with an
activity that meets the definition of research and that are subject to a
written agreement, a research protocol or both should be included in the
total amount of the research payment. Payments or other transfers of value
that are not included in the written agreement or research protocol should
be reported separately in the appropriate nature of payment category.

76
Research Payments ...
What value should an applicable manufacturer assign to clinical study
drugs that are provided to principal investigators as part of the research
agreement?
– Applicable manufacturers are not required to assign a specific value to clinical study
drugs that are provided to principal investigators, rather applicable manufacturers
should report the total amount of the research payment, including all research-related
costs for activities outlined in a written agreement, research protocol or both, as
specified in 42 C.F.R. § 403.904(f)(1)(ii).

77
Research Payments ...
Are payments for medical research writing and/or publication included
in reporting research payments?
– Under Open Payments, a payment reported as research falls within a research payment
category if it is subject to either: 1) a written agreement; 2) a contract; or 3) a research
protocol. Payments for medical research writing and/or publication would be included
in the research payment, if the activity (here, medical research writing/publication) was
included in the written agreement or research protocol and paid as a part of the
research payment.

78
Data Corrections
Are AMs or APGOs expected to resubmit an entire report
with corrections and/or updates or should a resubmitted
report only reflect the changes from the originally
submitted report?
➢ AMs and APGOs will have the ability to retract and resubmit an entire
report, submit corrections to a group of records, retract a group of
records, or append a group of records that were omitted from the
original report submission.
➢ AMs and APGOS will be able to make corrections and additions after
the data submission deadline; however, they may be subject to penalties
for submitting data after the deadline.
➢ Therefore, applicable manufacturers should register and submit data
early to ensure correction activities are completed prior to the deadline.

79
Disputes
Do covered recipients have two years from the date the review and
correction period begins to initiate a dispute?
– No, covered recipients have only until the end of the calendar year to initiate a dispute.
(42 CFR 403.908(g)(3)(v)) For example, if an applicable manufacturer reports to CMS
on March 31, 2014 all reportable payments or other transfers it provided to covered
recipients during the previous year, covered recipients only have until December 31,
2014 to initiate a dispute.

81
What Hath This All Wrought?

82
What Hath This All Wrought? …

83
What Does An Entry Look Like?

84
www.OpenPaymentsData.CMS.gov

85

86
What Hath This Wrought? …

87

88

89
Resources
The Sunshine Act – Statutory Language –[HOT LINK]
The Final Regulations -- Feb. 2013 Federal Register Pub. [HOT
LINK]
Final Rule -- Minor Changes – November 2014 –
– http://www.cms.gov/OpenPayments/Downloads/Open-Payments-Revision-
Nov-2014.pdf -- [HOT LINK]
CMS “Open Payments User Guide” – Published in June 2014 –
[HOT LINK]
Open Payments – Link to Q&A -- [HOT LINK]
Open Payments – CMS -- access the website at
http://go.cms.gov/openpayments -- [HOT LINK]
CMS -- Open Payments Public Use Files: Methodology Overview
& Data Dictionary -- [HOT LINK]

90
Call, e-mail or fax:
Michael A. Swit, Esq.
Senior Director, Legal
Illumina, Inc.
San Diego, California
direct: 858-736-3811
mswit@illumina.com
Follow me on:
– LinkedIn: http://www.linkedin.com/in/michaelswit
– Twitter: https://twitter.com/FDACounsel
Questions?

91
Michael A. Swit, Esq., has been addressing critical FDA legal and regulatory issues since 1984. Before
returning to private practice in November 2017, he was the chief regulatory lawyer at a major
diagnostics and research tools maker in for 3 years and, before that, was a special counsel at the global
law firm of Duane Morris LLP in its San Diego office.
Prior to going to Duane Morris in March 2012, Swit served for seven years as a vice president at The
Weinberg Group Inc., a preeminent scientific and regulatory consulting firm in the Life Sciences. His
expertise includes product development, compliance and enforcement, recalls and crisis management,
submissions and related traditional FDA regulatory activities, labeling and advertising, and clinical
research efforts for all types of life sciences companies, with a particular emphasis on drugs, biologics
and therapeutic biotech products.
Mr. Swit has been addressing vital FDA legal and regulatory issues since 1984, both in private practice
with McKenna & Cuneo and Heller Ehrman, and as vice president, general counsel and secretary of
Par Pharmaceutical, a top public generic and specialty drug firm. He also was, from 1994 to 1998, CEO
of FDANews.com, a premier publisher of regulatory newsletters and other specialty information
products for FDA-regulated firms. He has taught and written on many topics relating to FDA
regulation and associated commercial activities and is a past member of the Food & Drug Law Journal
Editorial Board. He earned his A.B., magna cum laude, with high honors in history, at Bowdoin
College, and his law degree at Emory University.
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