CBI Scene Blog

Are Grey Areas In The Sunshine Act Leaving Manufacturers in a Fog?

Posted by Alice Dong on Apr 24, 2014 2:34:00 PM

Sunshine Act resized 600

While some areas of the U.S. Sunshine law are “clear as daylight," after a glance, and then a nice, long, hard stare, other areas of the law may leave manufacturers wandering in the dark. Through organizing teleconferences and issuing FAQs and updates, Centers for Medicare & Medicaid Services (CMS) has attempted to narrow the gaps between the law and real-life practices, but even with the combination of the statute, final regulation and its preamble, and CMS guidance (collectively, what we can term the “solid ground”), significant areas of vagueness remain, including the identification of teaching hospitals and whether to report certain indirect payments. These outstanding gaps seem hardly fair as manufacturers face significant monetary penalties for failure to report accurately. So, what are some methods for how manufacturers can leverage “solid ground” resources to develop a reasoned approach in addressing such gap areas?

First, We Need Tools

In these grey areas, manufacturers must bridge the gap between “solid ground” and the activity in question. The tools available to manufacturers include the spirit of the U.S. Sunshine law and the use of analogies between real-life activities and scenarios illustrated in the guidance documents.

Spirit of the U.S. Sunshine Law

Few laws can directly address every scenario that falls within their purview. To address the unknown scenarios, legislators and regulators can at best communicate the general theory of applicability to such scenarios through the law’s text, legislative history and other guidance. In reading the U.S. Sunshine law and guidance, several themes emerge. A non-exhaustive, general list includes the importance of:

  • Transparency in relationships that may create conflicts of interest in research, education, and clinical decision-making
  • Balancing transparency and:
    • Non-duplicative reporting
    • Practicality
    • Attenuation of influence
    • Consistency
    • Flexibility for rational interpretation by applicable manufacturers

Within the more discrete portions of the law, additional themes may emerge based on the specific language used therein. These themes will help manufacturers consider which reporting option to choose.

Use of Analogies

In addition to the spirit of the law, use of analogies between the “gap” activity and the laws and guidance can help manufacturers ensure that the path they choose in reporting on such activities aligns as closely as possible with the Sunshine law. Examples of clearly reportable and exempt payments / transfers of value (“TOV”) are found in the preamble to the Final Regulation and in the Open Payments FAQs. Drawing strong commonalities between a gap activity and either category of payments / TOV will help guide manufacturers to an approach that is reasonable and consistent with the Sunshine law.

Bridging the Gaps

To help illustrate the use of these tools, we can look at possible analyses of two highly debated reporting issues under the Sunshine law.

Indirect Payments

Manufacturers provide indirect payments to Covered Recipients in many scenarios, with one of the most common being the provision of non-CME grant funds to health-related associations. Indirect payments and TOV are reportable under U.S. Sunshine unless, as per the final regulation, the manufacturer is unaware of the identity of the Covered Recipient. Being “unaware” generally means that the manufacturer neither has actual knowledge of nor is acting in deliberate ignorance or reckless disregard of the truth. Whether manufacturers satisfy this standard in indirect spend scenarios often relies on a certain degree of subjective determination.

The preamble to the final regulation and an Open Payments FAQ seek to provide guidance on this issue. The preamble sets forth two scenarios: 1) the manufacturer provides an unrestricted donation to a physician association and the association subsequently uses such donation to provide grants to physicians and 2) the manufacturer provides funds to a physician association which are earmarked for providing grants to physicians. The first scenario falls within the category of payments/TOV which are excluded from reporting while the latter one is subject to reporting requirements. Additionally, the FAQ states that where a manufacturer provides funds to an association to support the provision of awards, to Covered Recipients, such manufacturer (using the manufacturer’s name) would be acting in deliberate ignorance if it did not seek to obtain the identities of the recipients.

Based on the preamble and FAQ, manufacturers can draw similarities between their indirect spend activities and either of the preamble scenarios or the FAQ. Common examples of indirect spend activities that fall within a grey area include grants to support non-CME related events such as patient education events.

This grey area around grants for non-CME events raises a number of questions. For instance, if the subject matter  in the event relates to an in-depth discussion of treatment options for a serious, chronic condition, is the manufacturer charged with the knowledge that the program will in all likelihood be led by a physician and thus that its grant funds would flow to the physician? In this case, the manufacturer could reason that because this educational event requires a highly specialized degree of expertise to lead, that physicians are necessarily involved as speakers. This view would be most likened to the earmarking scenario outlined in the preamble as the specific purpose would be to support an event that would involve payments to physician speakers.

In a similar scenario, where the patient program focuses on providing advice on daily living with the chronic condition, manufacturers could instead liken the scenario to a general donation, as supporting the event does not necessitate indirect payments to physicians.  Rather, various types of health care professionals could lead the event.

As with all determinations, manufacturers should ensure a consistent approach is taken and documented.

Teaching Hospitals

Under the Sunshine law, Teaching Hospitals, along with physicians, are considered “Covered Recipients” for the purposes of reporting payments and TOV. In instructing manufacturers on how to identify an entity as a “Teaching Hospital”, the preamble to the final regulation states that manufacturers can rely on an annual CMS-produced list of Teaching Hospitals, where such list will include “hospital [Tax Identification Numbers] to provide more specific information on hospitals with complex corporate identities.” Additionally, an Open Payments FAQ states that manufacturers who believe an entity is affiliated with a Teaching Hospital “should collect the TIN [from the entity] . . . in order to correctly identify the teaching hospital’s name and address from the list.”

Two approaches have emerged in the industry in determining whether an entity qualifies as a “Teaching Hospital”. The preamble and the CMS FAQ support both approaches. In one approach, supported by the preamble, the entity only qualifies where the entity’s TIN, name and address match an entity included on the CMS list. In the other, supported by the FAQ, an entity that shares the same TIN as one included on the list would qualify as a Teaching Hospital, even if the entity’s name and address do not match the Teaching Hospital listed. In sum, the preamble points to the TIN as a method of differentiating among entities sharing the same name, while the FAQ points to the TIN as a method of affiliating entities with different names.

Neither the preamble nor the FAQclearly states which approach should be followed. The TIN-only approach covers a larger number of recipients and thus emphasizes the importance of transparency. The TIN-in-addition-to name and address approach looks to balance transparency with the more narrow purpose of looking at relationships that may create conflicts of interest in research and education.

Each approach represents a rational interpretation of the law, because each is tied to “solid” ground (in this case the statute, FAQ and preamble), and each looks to the spirit of the Sunshine law where those resources end. Manufacturers should focus on the approach that comports most with its decisions on other gap areas to ensure a consistent approach to reporting. Its analysis should also be documented in an internally-kept or submitted assumptions document. 

The Sunshine law and its accompanying guidance documents cannot provide clear direction on all scenarios. Consequently, many manufacturers will face difficult determinations on how to apply the reporting requirements to various company activities. While manufacturers may come to different determinations on similar “gap” scenarios, the assessment of those determinations should not focus on whether it is “right” or “wrong”, but on whether it is consistent, documented, and in alignment with the laws and its guidance.


(Image courtesy of Aggelos via Flickr)

Alice Dong, Esq. is a Senior Legal Consultant at Polaris, focused on conducting federal, state, and EMEA aggregate spend assessments, state-level aggregate spend reporting and general compliance risk assessments for pharmaceutical, device, and biologics manufacturers. She also conducts Polaris’ internal legal research for state and federal transparency laws.

Topics: Compliance