Revised Legislation Introduced by Senators Kohl and Grassley Targets Industry Gifts to Physicians: Requires Reporting if Amount Per Year Exceeds $100; Includes Preemption Language; Does Not Exempt Small Companies

January 28, 2009

By Jamie K. Wolszon

On January 22, Senators Herb Kohl (D-WI) and Charles Grassley (R-IA) introduced the Physician Payments Sunshine Act of 2009, which would require drug, biologic, medical device, and other medical supply manufacturers to disclose to the Secretary of Health and Human Services the amount of payments or other transfers of value they provide to physicians.  The reporting requirement would apply to manufacturers of products for which payments are made under Medicare, Medicaid, or the State Children’s Health Insurance Program (“SCHIP”). 

We previously reported on a predecessor of this bill, the Physician Payments Sunshine Act of 2007.  We also previously reported that Representatives Peter DeFazio (D-OR) and Pete Stark (D-CA), Chairman of the Ways and Means Subcommittee, introduced a bill in the House similar to the Senate 2007 version in March of 2008. 

Some of the more significant changes between the 2007 and 2009 versions of the Senate legislation are as follows:
Frequency of Reports; Threshold for Reporting.  Unlike the 2007 legislation, which required quarterly reporting, the 2009 version requires manufacturers to submit the specified information about each transfer or payment to physicians in annual reports.  The annual reporting requirement is triggered by transfers of value or payments of $100 or more per year per “covered recipient.” Covered recipients include a physician, a medical practice or a group practice.  However, if the annual report requirement applies, the manufacturer must report each payment or transfer, regardless of how small the value.  Manufacturers would need to submit their first annual report to the Secretary of HHS on March 31, 2011 under the 2009 legislation.

No Exclusion for Small Businesses.  Whereas the 2007 legislation would have applied only to “an entity with annual gross revenues that exceed $100,000,000,”  the 2009 legislation contains no such annual gross revenue minimum. The Advanced Medical Technology Association (AdvaMed) has issued a statement which identifies the lack of an exemption for small businesses as a possible area of concern:

As we review this legislation, we also will be mindful of the unique needs of medical device companies, many of whom are small businesses that may lack the resources to meet the administrative requirements set forth in the bill, and the need to include physician-owned entities, distributors and a group purchasing organization (GPO) in the compliance requirements set forth in the legislation. 

Disclosure of Ownership Interests.  The 2009 legislation includes a new provision that would require drug, biologic and device manufacturers, and group purchasing organizations that purchase, arrange for, or negotiate the purchase of a covered drug, device, biologic or medical supply, to report information regarding certain ownership interests in the company that a physician or a physician’s immediate family member has in the manufacturer or GPO during that year.  The ownership interests that require reporting do not include interests in certain publicly held securities or mutual funds.

Exclusions.  The list of exclusions from reportable transfers has been considerably expanded in the 2009 bill.  Excluded from the reporting requirements are samples, educational materials for patients, trial loans of devices, items provided under a warranty, discounts and rebates, in-kind charity donations, returns on investments in a publicly traded security or mutual fund; and transfers of value to a physician who is a patient.

Preemption. Several states, including Minnesota, Massachusetts, Vermont, Maine, West Virginia, and the District of Columbia have existing gift disclosure laws.  Unlike the 2007 version, the 2009 legislation includes language, effective January 1, 2010, pre-empting state laws that require reporting of payments or other transfers of value to physicians.  However, the bill would not preempt state requirements for reporting of information not required under the bill.

Federal preemption was an important to concession to industry.  As stated by AdvaMed in its press release: “[I]t is important that any federal disclosure legislation create a uniform national standard to prevent a patchwork approach by all 50 states.”

Penalty Scheme Differentiates between Accidental and “Knowing” Failure to Report.  The 2007 version of the legislation subjected any manufacturer who fails to report to a civil monetary penalty of $10,000 to $100,000 for each offense.  The new legislation, however, levies greater penalties on the “knowing failure” to report.  A failure to report exposes the manufacturer to a civil monetary penalty of not less than $1,000, but not more than $10,000, for each payment or other transfer of value or ownership or investment interest that the manufacturer does not report, with a maximum penalty of $150,000 per annual report. By contrast, a knowing failure to report is subject to a civil monetary penalty of $10,000 to $100,000 for each offense, with up to $1 million in civil monetary penalties per annual report.

Delayed Reporting for Payments Under Product Development Agreements and Clinical Investigations.  The 2007 legislation included a provision that exempted payments made for the general funding of a clinical trial.  The 2009 legislation instead includes a provision that would delay the reporting requirement for payments that manufacturers make under product development agreements and in connection with clinical investigations.  The manufacturer would not have to report those payments until the earlier of: (1) FDA approval or clearance of the product; or (2) two calendar years after the date of the payment.