Hospitals, Physicians Face Increased Scrutiny as Enforcement of Physician Sunshine Law Rolls Out

This article includes contributions from Paul Clark.

Hospitals and physicians will be under increased risk of federal sanctions in the coming years related to payments and transfers they receive from drug and medical device manufacturers, according to Andrew Ruskin, partner in Morgan Lewis’s FDA and Healthcare Practice and a member of the WK Health Law Advisory Board. The risk is a result of implementation of the Physician Sunshine law, which was part of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148).

Background. PPACA sec. 6002, codified at Social Security Act sec. 1128G, requires any manufacturer of a covered drug, device, biological, or medical supply that provides a payment or other transfer of value to a physician or teaching hospital to submit to the Secretary of HHS information regarding the recipient; the amount, date of, form, and nature of the payment or transfer; and any other information the Secretary deems appropriate.  In February 2013, HHS issued a Final rule including regulations based on the statute (Final rule, 78 FR 9458, February 8, 2013).

The first report to HHS will be due March 31, 2014, and will cover all payments and transfers of value from August 1, 2013, to December 31, 2013. Reports will be due on March 31 of subsequent years for all payments and transfers made during the previous year. A covered drug, device, biological or medical supply includes (1) one that is covered by Medicare, Medicaid or CHIP; (2) a drug or biological that requires a prescription; and (3) a device or medical supply that has a pre-market approval by the Food and Drug Administration (FDA) or a pre-market notification to the FDA. Physicians and teaching hospitals will have 45 days to review the reports and, if necessary, challenge any information before the information is made publicly available on a CMS website.

At a presentation at the American Health Lawyers Association annual meeting in San Diego on July 1, Ruskin noted the form of the payment that must be reported by the manufacturer must fall into one of the following categories: cash or cash equivalent; in-kind item or services; ownership interest, including stock; or return on investment. In his presentation, Ruskin said that the purpose of the payment that must be reported must fall into one of 16 categories, as deemed most appropriate by the manufacturer: consulting fee; fee for other type of service; honoraria; gift; entertainment; food and beverage; travel and lodging; education; research; charitable contribution; royalty or license; ownership interest; compensation for speaking at a non-certified continuing education program; compensation for speaking at a certified continued education program; grant; or space rental or facility fees.

Expanding regulations. Ruskin later told Health Law Daily that over the next several years, use of the data submitted by manufacturers and GPOs to detect and act on potentially impermissible relationships will expand. Hospitals are most at risk under the new law and regulations, Ruskin said, because the federal government will hold the hospital responsible for not having taking steps to prevent their physicians from having entered into improper relationships, or for not having taken prompt action to cause these relationships to end once they’re discovered through a review of the manufacturer and GPO disclosures. If those relationships are truly unlawful, the hospitals’ claims to Medicare and Medicaid would be tainted, and since hospitals have deeper pockets than physicians, they make better targets.

Ruskin said that hospitals have to be pay close attention to three particular conflicts of interest:

(1)   Physician-owned distributors (PODs), which are physician-owned entities that derive revenue from selling implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers. This is a large conflict of interest because physicians are essentially double-dipping, Ruskin said, by getting revenue from performing the service, as well as by selling the hospital the item used in the service.

(2)   Researchers (in a hospital) who fail to disclose to their hospitals that they are doing research on an approved product, perhaps to look for potential new indications, and possibly with free drugs or devices to be used in the research. There are many steps that need to occur before bills for care rendered in a research setting can be submitted, and in some cases, there’s no way to fix a problem by taking those steps after the bills have already been submitted.  If the hospital was previously unaware of the clinical trial until seeing on manufacturer disclosure statements that its medical staff have been receiving research payments, Ruskin said, it may find that it has engaged in billing non-compliance.

(3)   Meals provided by a manufacturer. When a group meal is furnished, the value of the meal needs to be divided only among individuals actually partaking. Buffets at large-scale events, however, can be disregarded.  The problem is that if the meal needs to be disclosed, the general public may not understand why a manufacturer is furnishing these meals to their physicians.

Similar to claims audits and the implementation of health reform, Ruskin said, the health care industry tends to wait until the regulations impact them, meaning that some hospitals may not take actions until the first wave of manufacturer and GPO disclosures is released in 2014. The same is true for the Sunshine Act. Further, he said it is conceivable that as the government realizes the extent of violations that are occurring across the country, they may create another entity similar to Recovery Audit Contractors (RACs) to audit providers and manufacturers.

Culture and publicity. Ruskin noted that for a hospital to be successful at implementing a policy of physician disclosures to the hospital, as well as the avoidance of conflicts, the culture must be right. The physicians have to want to do the right thing and the physicians need to trust the hospital administration wants to do the right thing. Ruskin further noted that data provided to HHS under the Sunshine Act regulations will be made public, and so there will be many opportunities for the media to access this data and analyze it and report on the outliers. Fear of reputation being harmed is powerful, Ruskin emphasized.


Andrew Ruskin is a partner in Morgan Lewis’s FDA and Healthcare Practice. Mr. Ruskin’s practice focuses on providing counsel to hospitals and other healthcare service providers on Medicare and Medicaid regulatory issues.  Mr. Ruskin frequently advocates his client’s position to the Centers for Medicare & Medicaid Services and other government agencies.  He has argued matters in front of numerous tribunals, including the Provider Reimbursement Review Board, the Departmental Appeals Board, several ALJs, and Federal court.  These matters have covered graduate medical education reimbursement, provider-based status, Medicare and Medicaid disproportionate share hospital payments.  Mr. Ruskin also furnishes compliance advice on these matters and leads internal investigations in billing issues, including billing for care furnished to clinical trial subjects.  Mr. Ruskin’s practice also includes defending healthcare entities involved in investigations by the U.S. Attorney’s Office or by the Department of Health and Human Services Office of Inspector General.