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Sunshine Act requirements bring new scrutiny to physicians’ relationships with pharmaceutical companies

While the new National Physician Payment Transparency Program, established as part of the Patient Protection and Affordable Care Act (ACA), puts the onus for payment tracking on industry, dermatologists would be wise to track payments they receive from pharmaceutical companies, as their reputation could be at stake.

On Feb. 1, the Centers for Medicare and Medicaid Services (CMS) announced a final rule for what was previously known as the Sunshine Act, designed to create greater transparency around the financial relationships between drug and device manufacturers and certain health care providers, namely physicians and teaching hospitals. Specifically, manufacturers of drugs, devices, biologics, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program will be required to report to CMS any payments or other transfers of value they make to such providers. Manufacturers and group purchasing organizations must also disclose physician ownership or investment interests. In turn, CMS will post this information on a public website beginning in September 2014. Those who do not comply can face penalties upwards of one million dollars. 

COI spurs legislation

“It’s largely about strengthening transparency with regard to physician and industry relationships,” noted Richard Martin, JD, assistant director for regulatory policy at the American Academy of Dermatology Association (AADA). “It will likely deter physicians from accepting large payments from industry. Those who do will be seen as outliers and perceived negatively.” [pagebreak]

This legislation was prompted by several high profile reports of physicians being paid large sums of money by companies where conflict of interest (COI) appeared to affect the physicians’ judgment, noted William James, MD, former AAD president. “Our patients and Congress felt transparency was needed,” he said.

As part of the ACA, the Sunshine Act is the federal government’s attempt to show it is concerned about health care issues such as cost and access, added Stephen Webster, MD, chair of the AAD’s Ethics Committee. The government wants to assure patients that there won’t be a COI for physicians who serve as consultants for pharmaceutical companies or device manufacturers. “However, the vast majority of physicians do what is best for their patients and do not think about their own income or benefits,” he said.

Dr. Webster is quick to point out that these concerns date back to the 1700s, prompting English physician Thomas Percival to write a treatise on medical ethics in 1803. Society has granted medicine, as a profession, the authority to be autonomous and self-regulating. As such, it is responsible for enforcing medical ethics. Medical specialty societies, including the AAD, have addressed these issues under the umbrella of professionalism. To that end, the Council of Medical Specialty Societies drafted the Code for Interactions with Companies in April 2010. The AAD was among the first societies to adopt the Code, which is designed to ensure that interactions with companies are independent and transparent, and advance medical care for the benefit of patients and populations. The AAD’s Board of Directors saw the value of the Code to patients and signed it, said Dr. James, who was president at the time. Since then, the Academy has updated this Code as well as its Code of Medical Ethics for Dermatologists. “The dermatology community will continue to emphasize doing the right thing because it’s our responsibility to patients to improve the science of medicine,” Dr. Webster added. [pagebreak]

Payments rendered

Typical scenarios in which physicians receive “payments” from industry include consultation, lectures, research, education, honoraria, gifts, entertainment, food and beverages (could be sales-related), travel and lodging, charitable contributions, royalties/licenses, current or prospective ownership or investment interest, grants and compensation for serving as faculty or a speaker for an unaccredited and non-certified continuing education (CME) program (or an accredited or certified CME program under certain circumstances), and grants.

Exemptions include the following:

  • a transfer of value less than $10, unless the aggregated amount transferred exceeds $100 annually;
  • product samples intended for patient use;
  • patient educational materials that directly benefit patients;
  • the loan of a device for a trial period not to exceed 90 days for the purpose of evaluation;
  • items or services provided under a contractual warrant, where the terms of the warranty are set forth in the purchase or lease agreement;
  • discounts including rebates; and
  • in-kind items used for the provision of charity care. [pagebreak]

The final rule included an important exemption for CME activities, offered by Accreditation Council for Continuing Medical Education-accredited providers that comply fully with ACCME’s standards for commercial support, that meet the definition of “indirect payments,” Martin said. The term refers to when a physician receives payment or something of value from a CME provider that has 100 percent control over who speaks about what topics at a meeting, but has received financial support from industry. Many CME organizations were concerned that they would no longer be able to obtain quality speakers because just showing up at a meeting would affiliate the speakers with an organization that they had nothing to do with, Martin said, adding that the AADA advocated for this change along with ACCME and other groups.

This exemption was welcome news to the Pharmaceutical Research and Manufacturers of America (PhRMA), according to Marjorie E. Powell, PhRMA’s senior assistant general counsel.

Easily misinterpreted

Information is lacking regarding just how CMS plans to “reveal the nature and extent of relationships.” PhRMA is hopeful that when CMS posts this information it will do so with contextual explanations because otherwise it can be easily misinterpreted, Powell noted. [pagebreak]

For example, a dermatologist could receive a significant payment for conducting research, but it may cover only the lab expenses. Without that explanation, the payment could be misconstrued. “It’s the perception of impropriety,” Dr. Webster said, where there is none, that makes the way information is presented so important.

“This is where the context of the data is critical,” Martin added. “It is essential for the public to understand the importance of collaborative relationships between physicians and industry in developing new therapies.”

Once in the public domain, this information can be used freely, and perhaps out-of-context, by political figures, advocacy organizations, media, and others to present misleading or sensational conclusions, Martin said. Disclosure of industry payments to physicians may spur investigations into potential violations of federal and applicable state laws, including the anti-kickback statutes, False Claims Act, and the Stark law. Anti-kickback laws bar payments to an individual and/or entity for referral of goods and/or services from federal health care programs. The False Claims Act addresses billing irregularities that call into question the medical necessity of treatments. The Stark law prohibits physicians from referring Medicare beneficiaries to entities in which they or family members have a financial interest. A physician who shows high utilization of certain procedures or medications, or has a large investment in a pharmaceutical or device company, could trigger a CMS audit. “Even a hint of inappropriateness could be a problem for physicians,” Martin warned. [pagebreak]

Protecting oneself

Even though the responsibility for compliance is placed on industry, it would behoove dermatologists to track payments made to them. “It’s very important that dermatologists take this reporting seriously,” Martin advised. Beginning this August, dermatologists should keep a list of all payments they receive, which companies they receive them from, and for what services, he said. CMS deems physician record-keeping so important that it is considering developing an app to assist physicians, Martin added. The agency has already established a helpdesk for physician inquiries. Physicians may send their questions to

Although Powell agrees that physicians should keep their own records, she points out that it is not always a straightforward task. For example, if a manufacturer’s representative brings donuts into the office, the dermatologist probably doesn’t know what those donuts cost. If the rep brings donuts in once a month, spending less than $100 a year, then that amount is exempt from reporting. But if the dermatologist is paid $100 to serve on an advisory panel for the same company that paid for the donuts, then both the donuts and the consulting fee must be reported.

In January 2014, dermatologists should register with CMS to review their payment data for accuracy. Check for registration instructions. Collecting the required data and reporting it accurately is a big undertaking with ample opportunity for mistakes, Martin noted. Therefore, dermatologists should anticipate that there will be discrepancies. [pagebreak]

Starting in April 2014, physicians will have a 45-day period in which to review the data before it goes public and dispute any claims they think are inaccurate. Although physicians may have an additional opportunity to dispute the data after that point, it will already be out there as undisputed, Martin cautioned.

One reason for discrepancies is that companies must report payments using the physician’s name and specialty associated with his or her National Provider Identifier stored on the National Plan and Provider Enumeration System (NPPES) website. After obtaining a license, physicians may change and/or add specialties or change their name when they get married, but don’t necessarily update their listing, Powell said. Consequently, CMS could potentially be using outdated information. She advised dermatologists to make sure their information in NPPES is current to ensure they are identified correctly. Information about Medicare enrollment and documentation is available at

In addition, different companies may report their data differently. According to Martin, some companies plan to report payments and transfers of value in ranges, perhaps reporting what a physician received as “$10—$1,000.” Others have set up systems that will produce more specific reports, listing the doctor, what he or she received, and its exact value. Additionally, Martin said, some companies will count only the value of items provided directly to and accepted by a physician; others may count the value of lunch for the entire office staff and report it as being provided to the physician. [pagebreak]

“This is a work in progress,” Martin said. “CMS has said they intend to work out kinks as the process moves forward and is seeking input from stakeholders.” The AADA, he noted, is actively engaged in working with CMS to streamline and standardize the process.

Despite these issues, dermatologists should be prepared to answer any questions their patients may have regarding their relationships with pharmaceutical and device companies should they arise, Powell said.

Unintended consequences

Physicians and industry alike are concerned about potential unintended consequences of this legislation on research, education, and other scientific activities. Twenty-four percent of clinical researchers in the United States would be less likely to participate in research if their gross revenues were disclosed, according to a 2010 survey conducted by the Association of Clinical Research Organizations. Losing one-quarter of the nation’s clinical investigators could slow innovation and delay the delivery of needed treatments, the association noted. “Physicians need to continue to be involved in research because that’s how health care moves forward,” Powell added. Similarly, physicians may be reluctant to present at meetings about new developments for fear of being considered biased because of their research. In addition, some physicians don’t want their patients to see that they served as a consultant with a pharmaceutical company because it could be negatively construed, Dr. Webster said. [pagebreak]

In fact, relationships between physicians and industry have led to the development of new drugs and innovative medical devices used to diagnose and treat diseases, including dermatologic ones. When Dr. Webster graduated from medical school in the 1960s, dermatologists were treating the symptoms of psoriasis. “Now with biologics, we are treating the causes of the disease,” he said. Treatment advances like that have resulted from the collaboration between dermatologists and pharmaceutical companies, he said.

Physicians are the link between the bench and bedside, and many play a key role in developing effective treatments and devices, Martin added. These are appropriate relationships and physicians should be paid for their efforts. Still, all stakeholders need to be aware of the potential for commercial bias resulting from COI and take steps to guard against it. With regard to the public reporting of such payments, he said, dermatologists should focus on the accuracy and context of the reporting, and should avoid even the perception of wrongdoing. 

Reporting timeline

Data collection begins Aug. 1, 2013
Sign up for new CMS website, January 2014
Data (from August-December 2013) due to CMS from pharmaceutical companies March 31, 2014
CMS makes data public Sept. 30, 2014



Reporting timeline