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Vol. 76 Monday,No. 243 December 19, 2011

Part II

Department of Health and Human Services

Centers for Medicare & Medicaid Services

42 CFR Parts 402 and 403Medicare, Medicaid, Childrens Health Insurance Programs; TransparencyReports and Reporting of Physician Ownership or Investment Interests;Proposed Rule

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78742 Federal Register / Vol. 76, No. 243/ Monday, December 19, 2011/ Proposed Rules

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Centers for Medicare & MedicaidServices

42 CFR Parts 402 and 403

[CMS5060P]

RIN 0938AR33

Medicare, Medicaid, Childrens HealthInsurance Programs; TransparencyReports and Reporting of PhysicianOwnership or Investment Interests

AGENCY: Centers for Medicare &Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

SUMMARY: This proposed rule wouldrequire applicable manufacturers ofdrugs, devices, biologicals, or medicalsupplies covered by Medicare, Medicaidor the Childrens Health Insurance

Program (CHIP) to report annually to theSecretary certain payments or transfersof value provided to physicians orteaching hospitals (coveredrecipients). In addition, applicablemanufacturers and applicable grouppurchasing organizations (GPOs) arerequired to report annually certainphysician ownership or investmentinterests. The Secretary is required topublish applicable manufacturers andapplicable GPOs submitted paymentand ownership information on a publicWeb site.

DATES: To be assured consideration,

comments must be received at one ofthe addresses provided below, no laterthan 5 p.m. Eastern Standard Time onFebruary 17, 2012.

ADDRESSES: In commenting, please referto file code CMS5060P. Because ofstaff and resource limitations, we cannotaccept comments by facsimile (FAX)transmission.

You may submit comments in one offour ways (please choose only one of theways listed):

1. Electronically. You may submitelectronic comments on this regulationto http://www.regulations.gov. Follow

the Submit a comment instructions.2. By regular mail. You may mailwritten comments to the followingaddress only: Centers for Medicare &Medicaid Services, Department ofHealth and Human Services, Attention:CMS5060P, P.O. Box 8013, Baltimore,MD 212448013.

Please allow sufficient time for mailedcomments to be received before theclose of the comment period.

3. By express or overnight mail. Youmay send written comments to thefollowing address only: Centers for

Medicare & Medicaid Services,Department of Health and HumanServices, Attention: CMS5060P, MailStop C42605, 7500 SecurityBoulevard, Baltimore, MD 212441850.

4. By hand or courier. Alternatively,you may deliver (by hand or courier)your written comments only to thefollowing addresses prior to the close of

the comment period:a. For delivery in Washington, DC

Centers for Medicare & MedicaidServices, Department of Health andHuman Services, Room 445G, HubertH. Humphrey Building, 200Independence Avenue SW.,Washington, DC 20201.

(Because access to the interior of theHubert H. Humphrey Building is notreadily available to persons withoutFederal government identification,commenters are encouraged to leavetheir comments in the CMS drop slotslocated in the main lobby of the

building. A stamp-in clock is availablefor persons wishing to retain a proof offiling by stamping in and retaining anextra copy of the comments being filed.)

b. For delivery in Baltimore, MDCenters for Medicare & MedicaidServices, Department of Health andHuman Services, 7500 SecurityBoulevard, Baltimore, MD 212441850.

If you intend to deliver yourcomments to the Baltimore address, calltelephone number (410) 7861066 inadvance to schedule your arrival withone of our staff members.

Comments erroneously mailed to theaddresses indicated as appropriate forhand or courier delivery may be delayedand received after the comment period.

For information on viewing publiccomments, see the beginning of theSUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:Erica Breese (202) 2606079.

SUPPLEMENTARY INFORMATION:Inspection of Public Comments:All

comments received before the close ofthe comment period are available forviewing by the public, including anypersonally identifiable or confidential

business information that is included in

a comment. We post all commentsreceived before the close of thecomment period on the following Website as soon as possible after they have

been received: http://www.regulations.gov. Follow the searchinstructions on that Web site to viewpublic comments.

Comments received timely will alsobe available for public inspection asthey are received, generally beginningapproximately 3 weeks after publicationof a document, at the headquarters ofthe Centers for Medicare & Medicaid

Services, 7500 Security Boulevard,Baltimore, Maryland 21244, Mondaythrough Friday of each week from 8:30a.m. to 4 p.m. To schedule anappointment to view public comments,phone 1(800) 7433951.

I. Background

A. Statutory Background

Section 6002 of the Affordable CareAct added section 1128G to the SocialSecurity Act (the Act), which requiresapplicable manufacturers of drugs,devices, biologicals, or medical suppliescovered under title XVIII of the Act(Medicare) or a State plan under titleXIX (Medicaid) or XXI of the Act (theChildrens Health Insurance Program, orCHIP) to report annually to theSecretary certain payments or othertransfers of value to physicians andteaching hospitals. Section 1128G of theAct also requires applicablemanufacturers and applicable group

purchasing organizations (GPOs) toreport certain information regarding theownership or investment interests held

by physicians or the immediate familymembers of physicians in such entities.

Specifically, manufacturers of covereddrugs, devices, biologicals, and medicalsupplies (applicable manufacturers) arerequired to submit on an annual basisthe information required in section1128G(a)(1) of the Act for certainpayments or other transfers of valuemade to physicians and teachinghospitals (collectively called coveredrecipients) during the course of the

preceding calendar year. Similarly,section 1128G(a)(2) of the Act requiresapplicable manufacturers andapplicable GPOs to disclose anyownership or investment interests insuch entities held by physicians or theirimmediate family members, as well asinformation on any payments or othertransfers of value provided to suchphysicians. Applicable manufacturersmust report the required payment andother transfer of value information toCMS in an electronic format by March31, 2013, and on the 90th day of eachcalendar year thereafter. Applicablemanufacturers and applicable GPOsmust report the required informationabout physician ownership andinvestment interests, including thoseheld by immediate family members, aswell as information on any payments orother transfers of value to suchphysician owners or investors in thesame format, by the same date.Applicable manufacturers andapplicable GPOs are subject to civilmonetary penalties (CMPs) for failing tocomply with the reporting requirementsof the statute. We are required by statute

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78743Federal Register / Vol. 76, No. 243/ Monday, December 19, 2011/ Proposed Rules

to publish the reported data on a publicWeb site. The data must bedownloadable, searchable, and easilyaggregated. In addition, we must submitannual reports to the Congress and eachState summarizing the data reported.Finally, section 1128G of the Actgenerally preempts State laws thatrequire disclosure of the same type of

information by manufacturers.2. Transparency Overview

Collaboration among physicians,teaching hospitals, and industrymanufacturers may contribute to thedesign and delivery of life-saving drugsand devices. However, while somecollaboration is beneficial to thecontinued innovation and improvementof our health care system, paymentsfrom manufacturers to physicians andteaching hospitals can also introduceconflicts of interests that may influenceresearch, education, and clinicaldecision-making in ways thatcompromise clinical integrity andpatient care, and may lead to increasedhealth care costs.

We recognize that disclosure alone isnot sufficient to differentiate beneficial,legitimate financial relationships fromthose that create conflict of interests orare otherwise improper. Moreover,financial ties alone do not signify aninappropriate relationship. However,transparency can shed light on thenature and extent of relationships, andmay dissuade inappropriate conflicts ofinterest from developing. Given theintricacies of disclosure and the

importance of discouraginginappropriate relationships withoutharming beneficial ones, we sought to

better understand the current scope ofthe interactions among physicians,teaching hospitals, and industrymanufacturers. We solicited stakeholderfeedback through a CMS Open DoorForum on March 24, 2011 in order toguide our implementation of section1128G of the Act. The transcript of thisOpen Door Forum can be found on theregulatory docket on Regulations.gov. Inaddition to this feedback, we consultedwith the Inspector General of the

Department of Health and HumanServices (HHS), as required by thestatute.

II. Provisions of the ProposedRegulations

The following sections outline theagencys proposals concerningimplementation of section 1128G of theAct, including clarification of the termsand definitions used in the statute, aswell as proposed procedures for thesubmission, review, and publication ofthe reported data. For terms undefined

by the statute, we sought to provide,where necessary, appropriatedefinitions, and explanations of how wepropose to interpret them. Due to thetiming of the publication of this noticeof proposed rulemaking, a final rule willnot be published in time for applicablemanufacturers and applicable GPOs to

begin collecting the information

required in section 1128G of the Act onJanuary 1, 2012, as indicated in thestatute. We will not require applicablemanufacturers and applicable GPOs to

begin collecting the requiredinformation until after the publicationof the final rule; however, we recognizethat some manufacturers and GPOs may

begin to collect certain data voluntarily.We seek comment on the amount oftime applicable manufacturers andapplicable GPOs will need followingpublication of the final rule in order to

begin complying with the datacollection requirements of section

1128G of the Act. We are considering apreparation period of 90 days, since webelieve that was the time periodintended by Congress based on thetimeline indicated in the statute and arerequesting comments on whether that isa sufficient amount of time. Finally, wealso seek input on specific challengesthat applicable manufacturers andapplicable GPOs may face when settingup the necessary data collection andreporting systems.

We hope to finalize this rule as soonas possible during calendar year (CY)2012 and, depending on the publicationdate of the final rule, we are considering

requiring the collection of data for partof 2012, to be reported to CMS by thestatutory date of March 31, 2013. Weseek comments on the feasibility ofsubmitting the required information forpart of CY 2012 by March 31, 2013.

A. Transparency Reports

Section 1128G(a) of the Act outlinesthe transparency reporting requirementsand consists of two parts. The first part,section 1128G(a)(1) of the Act, outlinesthe required reports from applicablemanufacturers on payments or othertransfers of value to covered recipients.

The second part, section 1128G(a)(2) ofthe Act, outlines the reportingrequirements for applicablemanufacturers and applicable GPOsconcerning ownership and investmentinterests of physicians, and theirimmediate family members, as well asinformation on any payments or othertransfers of value provided to suchphysician owners or investors. Whilethere is some overlap between thesesubmissions, we propose that these twotypes of information be reportedseparately to ensure that the relevant

reporting obligations of applicablemanufacturers and applicable GPOs areclearly distinguished. We seekcomments on this general approach. Wewant to emphasize that compliance withthe reporting requirements of section1128G of the Act does not exemptapplicable manufacturers, applicableGPOs, covered recipients, physician

owners or investors, or anyone else fromany potential liability associated withpayments or other transfers of value, orownership or investment interests (forexample, potential liability under theFederal Anti-Kickback statute or FalseClaims Act).

1. Reports on Payments and OtherTransfers of Value Under Section1128G(a)(1) of the Act

a. Applicable Manufacturers

(1) Manufacturers

Section 1128G(a) of the Act requiresthat applicable manufacturers disclosecertain payments or other transfers ofvalue to covered recipients. In definingapplicable manufacturer, we sought acomprehensive definition to ensure thefull transparency and completereporting envisioned by the statute.Section 1128G(e)(9) of the Act defines amanufacturer of a covered drug,device, biological, or medical supplyas:

Any entity which is engaged in theproduction, preparation, propagation,compounding, or conversion of a covereddrug, device, biological, or medical supply(or any entity under common ownership with

such entity which provides assistance orsupport to such entity with respect to theproduction, preparation, propagation,compounding, conversion, marketing,promotion, sale, or distribution of a covereddrug, device, biological, or medical supply).

Section 1128G(e)(2) of the Act clarifiesthat an applicable manufacturer of acovered drug, device, biological, ormedical supply, is one which isoperating in the United States, or in aterritory, possession, or commonwealthof the United States.

Given these statutory definitions andrelevant considerations, we propose to

interpret applicable manufacturer forthe purposes of this regulation as anentity that is:

(1) Engaged in the production, preparation,propagation, compounding, or conversion ofa covered drug, device, biological, or medicalsupply for sale or distribution in the UnitedStates, or in a territory, possession, orcommonwealth of the United States; or

(2) Under common ownership with anentity in paragraph (1) of this definition,which provides assistance or support to suchentity with respect to the production,preparation, propagation, compounding,conversion, marketing, promotion, sale, or



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distribution of a covered drug, device,biological, or medical supply for sale ordistribution in the United States, or in aterritory, possession, or commonwealth ofthe United States.

We recognize that there are otherdefinitions of manufacture,manufacturer and manufacturingwith which industry may be familiar

(such as those in 21 CFR 207.3, 21 CFR210.3(b)(12), 21 CFR 820.3(o), and 42USC 1396r8(k)(5)). We note that thisproposed definition, which generallytracks the statute, is somewhat morelimited than those definitions.

Under this definition, manufacturersof a covered drug, device, biological, ormedical supply (under either paragraph(1) or paragraph (2) of the definition) aredeemed to be an applicablemanufacturer if their products are soldor distributed in the United States(U.S.), regardless of where the covereddrug, device, biological, or medicalsupply is actually produced or wherethe entity is actually located orincorporated. Given the global nature ofthese industries, we believe that anyentity manufacturing covered drugs,devices, biologicals, or medical suppliesfor sale or distribution in the U.S. (orany entity under common ownershipwhich provides assistance or support inthe production, preparation,propagation, compounding, conversion,marketing, promotion, sale, ordistribution of such items) should besubject to the requirements of section1128G of the Act. The opportunity forundue influence or inappropriate

relationships caused by payments ortransfers of value to covered recipientsis the same for manufacturers of drugs,devices, biologicals, or medical suppliessold or distributed in the United Statesregardless of where the product isactually manufactured, and we,therefore, propose to treat them thesame.

We also seek to clarify that anymanufacturer that meets the definitionof applicable manufacturer by selling ordistributing in the United States at leastone covered drug, device, biological, ormedical supply is considered an

applicable manufacturer, even though itmay also manufacturer products that donot fall within that category (as definedlater in this section). We propose that allpayments or transfers of value made byan applicable manufacturer to a coveredrecipient must be reported as requiredunder section 1128G of the Actregardless of whether the particularpayment or other transfer of value isassociated with a covered drug, device,

biological, or medical supply.Additionally, we seek to clarify that theproposed definition includes entities

that hold Food and Drug Administration(FDA) approval, licensure, or clearancefor a covered drug, device, biological, ormedical supply, even if they contractout the actual physical manufacturing ofthe product to another entity. Weinterpret these entities as beingengaged in the production,preparation, propagation, compounding,

or conversion of a covered drug, device,biological, or medical supply. We seekcomment on this interpretation.

As noted previously, section1128G(e)(9) of the Act states that certaincompanies which are under commonownership with an entity thatproduces, prepares, propagates,compounds, or converts a covered drug,device, biological, or medical supply arealso subject to the reportingrequirements under this provision, eventhough they themselves may not beinvolved in the manufacturingprocess. Specifically, this applies to

entities under common ownershipwith an applicable manufacturer whichprovide assistance or support to theapplicable manufacturer with respect tothe production, preparation,propagation, compounding, conversion,marketing, promotion, sale, ordistribution of a covered drug, device,

biological, or medical supply for sale ordistribution in the U.S., or in a territory,possession, or commonwealth of theU.S. We propose to define commonownership as when the sameindividual, individuals, entity, orentities, directly or indirectly, own anyportion of two or more entities. The

common ownership definition wouldapply to a range of corporatearrangements, including, but not limitedto, parent companies and subsidiariesand brother/sister corporations.

We are also considering an alternateinterpretation that would limit thecommon ownership definition tocircumstances where the sameindividual, individuals, entity, orentities own 5 percent or more of totalownership in two or more entities. Thiswould be subject to the samerequirements as the proposed definitiondescribed previously, but would only

apply to interests of 5 percent of more.We seek comments on our proposeddefinition of common ownership,including, whether a more specificdefinition is needed and, if a minimumpercentage threshold is adopted,whether 5 percent is appropriate. Weintend to finalize the agencys positionon this in the final rule based oncomments received.

If two entities are under commonownership with one another, and bothindividually meet the definition of anapplicable manufacturer under

paragraph (1) of the definition, then wepropose that the entities should reportseparately under section 1128G of theAct. For example, if company A andcompany B are both owned by companyC, and companies A, B and C all meetthe definition of applicablemanufacturer under paragraph (1), thenall three have to report separately.

However, if only one company undercommon ownership meets the definitionof applicable manufacturer underparagraph (1), and the other company isrequired to report under paragraph (2) ofthe definition, then we propose that theaffected entities can choose whether ornot to report together. For example, ifonly company C meets the definition ofapplicable manufacturer underparagraph (1) and companies A and Bmeet the definition of applicablemanufacturer under paragraph (2), thenthe companies can decide whether toreport together. If an applicable

manufacturer under paragraph (1)reports for itself as well as for entitiesunder common ownership that arerequired to report under paragraph (2),the report should clearly name all of theentities that are included in the report.Given the various relationships betweenentities under common ownership, wepropose that if an applicablemanufacturer under paragraph (1)reports for at least one additional entityunder common ownership, theapplicable manufacturer may decidewhether to identify the payments asthose from the entity under commonownership, or whether to combine them

with their payments or other transfers ofvalue.

In addition to payments or othertransfers of value to covered recipientsmade by applicable manufacturersthemselves, applicable manufacturers(under both paragraphs (1) and (2) of thedefinition) are also required by statuteto report payments and other transfersof value provided indirectly to coveredrecipients through third parties, if theapplicable manufacturer is aware of theidentity of the covered recipient. This isaddressed in more detail in thediscussion of third party payments

found later in this preamble.(2) Covered Drug, Device, Biological, orMedical Supply

The reporting requirements arelimited to applicable manufacturers of acovered drug, device, biological, ormedical supply. The phrase covereddrug, device, biological, or medicalsupply is defined in section1128G(e)(5) of the Act as any drug,

biological product, device, or medicalsupply for which payment isavailable under Medicare, Medicaid,



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or CHIP. Many drugs, devices,biological, and medical supplies arereimbursed separately under theseprograms, making payment availabilityclear. However, others are paid for as apart of a composite rate payment, suchas the Medicare hospital inpatientprospective payment system (IPPS), theoutpatient prospective payment system

(OPPS), or the end-stage renal disease(ESRD) prospective payment system.Since payment, while indirect, is still

being provided for the bundled drug,device, biological or medical supply, wepropose that payment is consideredavailable under Medicare, Medicaidor CHIP for items included in acomposite payment rate. Therefore, wepropose that drugs, devices, biologicals,or medical supplies included in acomposite payment rate, as well asthose reimbursed separately, areconsidered to be covered drugs, devices,

biologicals, or medical supplies under

section 1128G of the Act.Given these proposals, we propose todefine covered drug, device, biological,or medical supply as:

Any drug, device, biological, or medicalsupply for which payment is available underTitle XVIII of the Act or under a State planunder Title XIX or XXI (or a waiver of suchplan), either separately, as part of a feeschedule payment, or as part of a compositepayment rate (for example, the hospitalinpatient prospective payment system or thehospital outpatient prospective paymentsystem). With respect to a drug or biological,this definition is limited to those drug and

biological products that, by law, require aprescription to be dispensed. With respect to

a device or medical supply, this definition islimited to those devices (including medicalsupplies) that, by law, require premarketapproval by or premarket notification to theFood and Drug Administration.

We are proposing to limit drugs andbiologicals in the definition of covereddrug, device, biological, and medicalsupply, to drugs and biologicals that,

by law, require a prescription to bedispensed, thus excluding drugs and

biologicals that are considered over-the-counter (OTC). We believe thislimitation will reduce the number ofmanufacturers subject to the reporting

requirements by excluding those thatonly manufacturer OTC drugs orbiologicals. We believe that thisexclusion may be appropriate formanufacturers that manufacture onlythese products (and not also productswhich fall within the proposeddefinition of covered drug, device,

biological, or medical supply), sincephysicians and teaching hospitals haveless influence over patients choice ofOTC products. We seek comments onthe proposal to limit covered drugs and

biologicals to those that require a

prescription to be dispensed. In theevent we adopt this interpretation,applicable manufacturers whomanufacturer only OTC drugs or

biologicals (and not also products whichfall within the proposed definition ofcovered drug, device, biological, ormedical supply), would not berequired to report at all under section

1128G of the Act. However,manufacturers who manufacture bothOTC drugs or biologicals and at leastone product that falls within thedefinition of a covered drug, device,

biological or medical supply would berequired to report all payments ortransfers of value to covered recipientsrequired by section 1128G of the Act(whether or not associated with acovered drug, device, biological, ormedical supply), as previouslyexplained.

Similarly, we are also proposing anadditional limitation to the definition as

it pertains to devices and medicalsupplies, which would limit them tothose devices (including medicalsupplies) that, by law, require premarketapproval by or notification to FDA. Thiswould exclude many Class I devices andcertain Class II devices, which areexempt from premarket notificationrequirements under 21 U.S.C. 360(l) or(m), such as tongue depressors andelastic bandages. Some of these devicesand medical supplies are so routinelyprovided in the course of medical carethat the Congress may not haveintended to capture manufacturers of

such items under these reportingrequirements. We believe this limitationmay be appropriate for applicablemanufacturers, because manufacturersthat solely produce these exemptproducts have not been shown to haveextensive relationships with coveredrecipients. Additionally, we believe thislimitation might be appropriate becausethese financial relationships (to theextent they exist) are less likely toinfluence patient care. However, we arealso concerned that this would be overlylimiting for the definition of applicableGPOs, which also incorporates thephrase covered drug, device,

biological, or medical supply. Wediscuss this more in the applicable GPOdefinition section. We seek comment onthis additional limitation that we areproposing. We note that in the eventthis interpretation is adopted,applicable manufacturers whomanufacture only devices or medicalsupplies that are exempt from premarketnotification requirements (and not alsoproducts which fall within the proposeddefinition of covered drug, device,

biological, or medical supply), would

not be required to report at all undersection 1128G of the Act. However,manufacturers who manufacture bothdevices or medical supplies that areexempt from premarket notificationrequirements and at least one productthat falls within the definition of acovered drug, device, biological ormedical supply would be required to

report allpayments or transfers of valueto covered recipients required bysection 1128G of the Act (whether or notassociated with a covered drug, device,

biological, or medical supply), aspreviously explained.

b. Covered Recipients

Under section 1128G(a)(1) of the Act,applicable manufacturers are required todisclose certain payments or othertransfers of value made to coveredrecipients, or to entities or individualsat the request of, or designated on behalfof, a covered recipient. Section1128G(e)(6) of the Act defines coveredrecipient as: (1) A physician, otherthan a physician who is an employee ofan applicable manufacturer; or (2) ateaching hospital. Section 1128G(e)(11)of the Act defines physician to havethe meaning set forth in section 1861(r)of the Act, which includes doctors ofmedicine and osteopathy, dentists,podiatrists, optometrists and licensedchiropractors. Employee is alsodefined in section 1128G(e)(7) of the Actto have the meaning set forth in section1877(h)(2) of the Act, which is definedas follows: An individual who isconsidered to be employed by or an

employee of an entity if theindividual would be considered to be anemployee of the entity under the usualcommon law rules applicable indetermining the employer-employeerelationship (as applied for purposes ofsection 3121(d)(2) of the InternalRevenue Code of 1986). We note thatthese common law rules are discussedin 20 CFR 404.1007 and 26 CFR31.3121(d) through 1(c).

The term teaching hospital is notexplicitly defined in section 1128G ofthe Act or elsewhere in the Act. Onepossible way to define the term

teaching hospital is by linking it toMedicare graduate medical education(GME). We believe this is an appropriateway to identify teaching hospitals

because GME payments are provided tosupport the training of medicalresidents, and hospitals that receivesuch payments are easily identifiable.Therefore, we propose to define ateaching hospital as any institution thatreceived payments under section1886(d)(5)(B) of the Act (IPPS IndirectMedical Education (IME)), section1886(h) of the Act (direct GME), or



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1NPI Registry can be found at https://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.do.

2Database can be downloaded at http://nppes.viva-it.com/NPI_Files.html.

section 1886(s) of the Act (psychiatrichospitals IME) during the most recentyear for which such information isavailable. While we recognize that thisdefinition may not capture hospitalswith accredited resident programs thatdo not receive IME or GME payments,we are unable to include these hospitalssince we cannot readily identify them

based on Medicare payment data. Weseek comment on this proposeddefinition.

c. Identification of Covered Recipients

In order to accurately distinguishcovered recipients, section 1128G of theAct requires that applicablemanufacturers report the coveredrecipients name and business address,and for physician covered recipients,report the physicians National ProviderIdentifier (NPI), and specialty. Thecollection of this information isnecessary for applicable manufacturers,

in order to distinguish individualcovered recipients when reporting toCMS. Similarly, it is also important forCMS when aggregating the data.However, it is not simple given thenumber of covered recipients. In orderto identify physicians coveredrecipients, we suggest that applicablemanufacturers use the National Plan &Provider Enumeration System (NPPES),which CMS currently maintains andupdates on its public Web site. TheNPPES Web site includes a database ofphysician NPIs and has an NPI Registryfunction which allows applicablemanufacturers to look up individualphysicians NPIs.1 Similarly, the fulldatabase can be downloaded from theCMS Web site.2 The NPPES system isupdated frequently and NPIs do notgenerally change over time, so we

believe this is the best source ofinformation for applicablemanufacturers to obtain physician NPIs.We realize that the NPPES system maynot contain NPI information for everyphysician covered recipient as definedin this provision. However, we believethat NPPES represents the mostcomprehensive listing of physiciansavailable. If a physician is not listed in

the NPPES NPI registry, the applicablemanufacturer will be responsible forobtaining the physicians individual NPIdirectly from the physician, to theextent that the physician has an NPI.

We are also considering whether weshould require, under the authoritygranted in section 1128G(a)(1)(A)(viii) ofthe Act, that applicable manufacturers

report another unique identifier, such asState license number, for physicianswho are identified, but do not have anNPI. We seek comments on what otherunique identifiers could be used,including whether these uniqueidentifiers are readily obtainable byapplicable manufacturers.

With respect to teaching hospitals, we

propose to publish a list of hospitalcovered recipients (that is, thosehospitals that received Medicare director indirect GME) on the CMS Web siteonce per year. We believe publication ofthis list is necessary because it may not

be immediately apparent to applicablemanufacturers whether a particularhospital meets our proposed definitionof a teaching hospital, and there is nocurrently published database thatincludes this information. The list forthe reporting year would include themost recent data available. We proposethat the list of teaching hospital covered

recipients should include the name andaddress of each teaching hospital. Weseek comments on this proposal.

d. Payments or Other Transfers of Value

Payment or other transfer of valueis defined broadly in section1128G(e)(10)(A) of the Act as a transferof anything of value. This includes allpayments or other transfers of valuegiven to a covered recipient, regardlessof whether the covered recipientspecifically requested the payment orother transfer of value. In addition,payments or transfers of value made toan individual or entity at the request of

or designated on behalf of a coveredrecipient must be reported under thename of the covered recipient. Wepropose that this includes payments orother transfers of value provided to aphysician (or physicians) through aphysician group or practice. We proposethat payments or other transfers of valueprovided through a group or practiceshould be reported individually underthe name(s) of the physician coveredrecipient(s).

In addition, there may be othersituations when a covered recipient mayrequest that a payment or other transfer

of value be transferred by the applicablemanufacturer to another individual orentity instead of being provided directlyto himself/herself or the hospital itself.As required in section 1128G(a)(1)(A) ofthe Act, these payments should bereported under the name of the coveredrecipient since they are made at therequest of, or designated on behalf of, acovered recipient. Additionally, wepropose that applicable manufacturersreport the name of the entity orindividual that received the payment atthe request of or designated on behalf of

the covered recipient. Reporting theentity or individual paid will maximizetransparency about the details of thepayment or other transfer of value, byallowing end users to discern whether acovered recipient actually received thepayment, and if not, where the paymentwent. We do not believe it is feasible toprovide a review period for these

entities or individuals before the data ismade publicly available on the CMSWeb site. Instead, we believe thatreview by the covered recipient issufficient. We welcome comment onthis approach. We believe that thecollection of this information is withinthe discretion provided in section1128G(a)(1)(A)(viii) of the Act to requirereporting of additional categories ofinformation regarding a payment orother transfer of value.

e. Payment and Other Transfer of ValueReport Content

The specific categories of informationrequired to be reported for eachpayment or transfer of value provided toa covered recipient are set forth insection 1128G(a)(1)(A) of the Act. Wehave provided the followingexplanations and details on how wepropose that applicable manufacturersreport some of this information to CMS.

(1) Name

When reporting the name of physiciancovered recipients, we proposereporting the first name, last name, andmiddle initial for physician coveredrecipients.

(2) Business Address

We propose that applicablemanufacturers report the full streetaddress. For teaching hospital coveredrecipients, we propose using only theaddress included in the CMS-publishedlist of teaching hospitals. For physiciancovered recipients, we propose thatapplicable manufacturers report thephysicians primary practice locationaddress since this is more easilyrecognizable to end users of the data.The practice location can be found inNPPES as the provider business

practice location.(3) Specialty and NPI

Applicable manufacturers are alsorequired to report specialty and NPI forphysician covered recipients. If usingNPPES, we suggest using the providertaxonomy field when reporting thephysician specialty. We propose thatapplicable manufacturers only report asingle specialty for each physiciancovered recipient. We propose thatapplicable manufacturers use only thespecialties available for the provider

https://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.dohttps://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.dohttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttp://nppes.viva-it.com/NPI_Files.htmlhttps://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.dohttps://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.do


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3Health care provider taxonomy codes areavailable through a link on the NPPES Web site:https://nppes.cms.hhs.gov/NPPES/StaticForward.do?forward=static.instructions.

taxonomy field in NPPES; details onthese terms are available online.3 Asexplained previously, for NPI, wepropose that applicable manufacturersreport the physicians individual NPI,rather than any group NPI, with whichthe physician may be associated.

(4) Date of Payment

Applicable manufacturers mustprovide the date upon which a paymentor transfer of value was provided to thecovered recipient. Some payments ortransfers of value may be provided overmultiple dates, such as a consultingagreement with monthly payments. Wepropose that applicable manufacturersuse their discretion over whether toreport the total payment on the date ofthe first payment as a single line item,or to report each individual payment asa separate line item. Under thisproposal, either approach wouldcomply with these regulations. We are

also considering requiringmanufacturers to report multiplepayments in a single consistent manner.We seek comments on these proposals.

(5) Associated Covered Drug, Device,Biological, or Medical Supply

Section 1128G(a)(1)(A)(vii) of the Actrequires applicable manufacturers toreport the name of the covered drug,device, biological, or medical supplyassociated with that payment, if thepayment is related to marketing,education, or research of a particularcovered drug, device, biological, ormedical supply. We realize that notevery financial relationship between anapplicable manufacturer and a coveredrecipient is explicitly linked to aparticular covered drug, device,

biological, or medical supply. However,in cases when a payment or othertransfer of value is reasonablyassociated with a specific drug, device,

biological, or medical supply, the nameof the specific product must be reported.For example, if a sales representativetakes a physician to dinner to explainthe benefits of the applicablemanufacturers new product, the nameof the product must be included since

it was associated with the dinner. Wepropose that the applicablemanufacturer should report a relatedcovered drug, device, biological, ormedical supply (if there is one) usingthe name under which the product ismarketed, since this name is probablymost recognizable to the consumer. Inthe event that a covered drug, device,

biological or medical supply does notyet have a market name, the applicablemanufacturer should report thescientific name. Additionally, wepropose that applicable manufacturersreport only one covered drug, device,

biological, or medical supply as relatedto a payment or other transfer of value,even though there arguably may be

multiple products related to thepayment. We are considering, as analternative, allowing applicablemanufacturers to report multiplecovered drugs, devices, biologicals, ormedical supplies as related to a singlepayment or other transfer of value.Allowing the reporting of multiplecovered drugs, devices, biologicals andmedical supplies may be easier forapplicable manufacturers since manyfinancial relationships are not specificto one product only, but would makeaggregating payments by productdifficult. We seek comment on this

approach. Finally, if an applicablemanufacturer is not reporting the nameof the drug, device, biological, ormedical supply as appropriate, then theapplicable manufacturer may be subjectto penalties under section 1128G(b) ofthe Act.

(6) Form of Payment and Nature ofPayment

The statute requires reporting on boththe form of payment and the nature ofpayment for each payment or transfer ofvalue made by an applicablemanufacturer to a covered recipient.The statute provides a list of categories

for both the form of payment and natureof payment and gives the Secretarydiscretion to define additionalcategories, if necessary. These categoriesare described in more detail later in thissection.

We propose that the categories withinboth the form of payment and the natureof payment should be defined asdistinct from one another. We believethat any overlap among the categorieswill decrease the overall utility of theinformation submitted to CMS. Forexample, a payment for activities underthe nature of payment category

education should be separate fromactivities under the nature of paymentcategory research. If a payment orother transfer of value for an activity isassociated with multiple categories,such as travel to a meeting under aconsulting contract, we propose that thetravel expenses should remain distinctfrom the consulting fee expenses and

both categories would need to bereported to accurately describe therelationship. However, we believe thatreporting multiple categories to describea single payment or transfer of value

may be confusing for end users, so wepropose that for each payment or othertransfer of value reported, applicablemanufacturers may only report a singlenature of payment and a single form ofpayment. For example, if a physicianreceived meals and travel in associationwith a consulting fee, we propose thateach segregable payment be reported

separately in the appropriate category.The applicable manufacturer wouldhave to report three separate line items,one for consulting fees, one for mealsand one for travel. The amount of thepayment would be based on the amountof the consulting fee, and the paymentsfor the meals and travel. For these lumpsum payments or other transfers ofvalue, we propose that the applicablemanufacturer break out the disparateaspects of the payment that fall intomultiple categories for both form ofpayment and nature of payment. Thisapproach should be easier for users to

understand since they will know thetotals for each form of payment, andeach nature of payment, rather thantotals for various combinations ofcategories, which may differ acrossapplicable manufacturers. In addition,this should lead to greater consistencywithin the database because applicablemanufacturers will separate allpayments, rather than each applicablemanufacturer combining paymentsdifferently. We seek comment on theproposal to require reporting paymentsunder a single form of payment andnature of payment. We welcomecomments about the usefulness of thisdata as well as any operational issuesthat applicable manufacturers mightface in reporting it.

We also solicit comment on analternative approach of allowing apayment or other transfer of value for anactivity that is associated with multiplesegregable categories to be reported as asingle lump sum, rather than separately

by each segregable category. Thisapproach may be more compatible withexisting business processes, but it mightalso make the public disclosuredatabase more confusing for end users.We welcome comment on the costs and

relative advantages and disadvantages ofthis approach.

f. Forms of Payments

Section 1128G(a)(1)(A)(v) of the Actlists the following forms of payment thatapplicable manufacturers must use todescribe payments or other transfers ofvalue: Cash or a cash equivalent. In-kind items or services. Stock, a stock option, or any other

ownership interest, dividend, profit, orother return on investment.

https://nppes.cms.hhs.gov/NPPES/StaticForward.do?forward=static.instructionshttps://nppes.cms.hhs.gov/NPPES/StaticForward.do?forward=static.instructionshttps://nppes.cms.hhs.gov/NPPES/StaticForward.do?forward=static.instructionshttps://nppes.cms.hhs.gov/NPPES/StaticForward.do?forward=static.instructions


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Any other form of paymentdetermined by the Secretary.

We do not propose to add any formsof payment beyond those outlined in thestatute because we believe what isprovided in the statute is sufficient todescribe payments and other transfers ofvalue. We seek comments on whetherother categories are necessary or would

be helpful. Additionally, we believe thatthese terms are understandable aswritten and propose that each form ofpayment be defined by the termsdictionary definition. Applicablemanufacturers must assign eachindividual payment or other transfer ofvalue, or separate parts of a payment, toone and only one of these categories.

g. Nature of Payment

Section 1128G(a)(1)(A)(vi) of the Actlists the categories for the nature ofpayment or other transfer of value thatapplicable manufacturers must use to

describe each payment. As explainedpreviously, we propose that each ofthese categories should be distinct andthat only one nature of payment can beindicated for each individual paymentor other transfer of value reported.When selecting natures of payment, weencourage applicable manufacturers toconsider the purpose and the manner ofthe payment or other transfer of value.If a payment could conceivably fall intomore than one category, we askapplicable manufacturers to makereasonable determinations about thenature of payment reported for thepayment or transfer of value. Section1128G(a)(1)(A)(vi) of the Act lists thefollowing categories for nature ofpayment: Consulting fees. Compensation for services other

than consulting. Honoraria. Gift. Entertainment. Food. Travel (including the specified

destinations). Education. Research. Charitable contribution.

Royalty or license. Current or prospective ownershipor investment interest. Direct compensation for serving as

faculty or as a speaker for a medicaleducation program. Grant. Any other nature of the payment or

other transfer of value (as defined by theSecretary).

We believe that these terms havemeanings to the general public that arefamiliar to the industry and proposedefining each nature of payment

category by its dictionary definition. Toensure consistency in the reporting andselection of categories, we will allowapplicable manufacturers to submit withtheir data a document describing theassumptions used when categorizing thenatures of payments. Submission of theassumptions document will not bemandatory, but we believe that

applicable manufacturers may want toexplain the reasoning behind theircategories. Additionally, we believe thatthe information may be useful for CMSto monitor how applicablemanufacturers are reporting data andwhether significant differences amongapplicable manufacturers exist. Theassumptions documents will not beposted on the public Web site becausethey may contain informationapplicable manufacturers wouldconsider proprietary. However, based onour review and assessment of theseassumptions, we may choose to offer

further guidance to applicablemanufacturers regarding how natures ofpayment should be classified. Werecognize that many of these categoriesare similar, so the assumptionsdocument can also help us understandthe assumptions made by applicablemanufacturers when classifyingpayments or other transfers of value. Weseek comment on this proposal,including whether we should makesubmission of the assumptionsdocument mandatory instead ofvoluntary.

We are providing some explanation ofthe following categories to provideadditional context: Charitablecontribution, food, research, and directcompensation for serving as faculty oras a speaker for a medical educationprogram. These explanations are notexhaustive (unless specified as such),

but rather are intended to provideguidance to applicable manufacturerswhen they are categorizing payments.

(1) Charitable Contributions

Charitable contributions to, at therequest of, or on behalf of coveredrecipients by applicable manufacturersmust be reported. For purposes of thereporting requirement, a charitablecontribution is any payment or transferof value made to an organization withtax-exempt status under the InternalRevenue Code of 1986 that is not morespecifically described by one of theother nature or payment categories.Payments that do not meet thisrequirement made to, at the request of,or designated on behalf of a coveredrecipient must be reported in anotherappropriate category.

(2) Food and Beverage

We propose that applicablemanufacturers should report the valueof any food or beverage items providedto covered recipients, subject to theminimum threshold as discussed inmore detail in section II.A.1.h.(1). of thisproposed rule. This would be more

straightforward in circumstances wherecovered recipients who partake in themeal are easily identifiable (forexample, when a sales representativetakes a specific number of physiciancovered recipients to a restaurant).However, we recognize that in instanceswhere group meals are being providedin group settings (for example, buffet-style food in a physicians office), it may

be more difficult to keep track of whichcovered recipients are partaking in thefood and beverage. We propose that inthis type of scenario, applicablemanufacturers should report the cost

per covered recipient receiving the meal(even if the covered recipient does notactually partake of the meal). Forexample, if once during the calendaryear, a sales representative from anapplicable manufacturer brings $25worth of bagels and coffee to a solophysicians office for a morningmeeting, regardless of the number ofindividuals who partake (such as non-covered recipient staff members), theper covered recipient cost is $25. Sincethis falls above the $10 minimumthreshold for reporting a payment orother transfer of value, which is

statutorily required and discussed indetail in section II.A.1.h.(1). of thisproposed rule, this meal must bereported. However, if the practice groupincludes five physicians, then the per-covered recipient cost is $5 (regardlessof whether all five physicians actuallyconsumed any of the food provided), sothe payment would not need to bereported. We recognize that this may bedifficult for large group practices orhospital-based physicians, where anapplicable manufacturer may be

bringing bagels for a meeting with twospecialists. We are considering whetherto adopt a different approach for thesesituations, such as counting the numberof physicians by department. We seekcomment on these proposals andwhether there is a more equitable, butnot overly burdensome, way to reportthese payments or other transfers ofvalue. Additionally, we propose thatapplicable manufacturers do not need toreport any offerings of buffet meals,snacks or coffee at booths at conferencesor other similar events where it would

be difficult for applicable manufacturersto definitively establish the identities of



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the individuals who accept theofferings.

(3) Research

We seek to limit the research categoryto bona fide research activities,including clinical investigations that aresubject to both a written agreement orcontract between the applicable

manufacturer and the organizationconducting the research, as well as aresearch protocol. We propose to usethis method to distinguish the researchnature of payment category from othernatures of payment categories becausethis method is also used to identifypayments or other transfers of valueeligible for delayed publication toprotect the proprietary interests ofapplicable manufacturers. More detailsand an explanation of the writtenagreement and research protocol, aswell as a definition of clinicalinvestigation, are discussed more fullyin the section of this preamble regardingdelayed publication.

We recognize that reporting paymentsor other transfers of value for researchactivities may be complicated, sincemany research activities include largepayment amounts which are spreadacross numerous activities and parties.Additionally, the payments are often notprovided directly to a covered recipient,

but to a clinic, hospital, or institutionadministering the research that is oftenled by a physician-covered recipient(s)as the principal investigator(s). Thissituation is further complicated becausemany applicable manufacturers use

contract research organizations (CROs),as defined in 21 CFR 312.3(b), or othersimilar entities, such as sitemanagement organizations (SMOs) tomanage their clinical research activities.Due to the complexities in the flow ofresearch payments, we have outlined aproposed method for reporting researchpayments. However, we requestcomment on whether our proposedmethod is viable and not overly

burdensome, and whether an alternativemethod would be preferable.

We propose to separate theclassification of research payments to

clarify whether the payment or othertransfer of value went indirectly ordirectly to the covered recipient.Indirect research would be used when aresearch payment is made to a clinic,hospital (other than a teaching hospital),or institution conducting the research(either by an applicable manufacturer ora CRO entity) and that organization inturn pays the physician coveredrecipient (or multiple physician coveredrecipients) serving as a principalinvestigator(s). Conversely, directresearch would be used when a research

payment or other transfer of value wasprovided directly to a physician coveredrecipient or teaching hospital coveredrecipient by an applicable manufactureror CRO entity. When reportingpayments or other transfers of valuedesignated as research, we propose thatapplicable manufacturers must reportthe payment or other transfer of value as

either indirect research or directresearch.

When reporting indirect or directresearch, we propose that the paymentor other transfer of value should bereported individually under the namesand NPIs of physician coveredrecipients serving as principalinvestigators. For indirect payments,this includes the physician coveredrecipient(s) serving as principalinvestigator(s) who would ultimatelyreceive payments from the clinic,hospital, or other research institution,assuming the applicable manufacturer is

aware of the identity of the principalinvestigator(s). This is consistent withsection 1128G(a)(1)(B) of the Act, whichrequires payments to an entity orindividual at the request of ordesignated on behalf of a coveredrecipient to be disclosed under thename of the covered recipient. Paymentsor other transfers of value reported asindirect research should also includethe name of the entity or individual thatreceived the payment or other transferof value.

Teaching hospitals are also defined ascovered recipients, and may conductresearch led by a physician covered

recipient(s) acting as (a) principalinvestigator(s). While these paymentscould be reported as direct research tothe teaching hospital covered recipient,we do not want to establish differentreporting requirements for physiciancovered recipients acting as principalinvestigators at teaching hospitalsversus other research institutions. Tomaintain consistency, we propose thatresearch payments provided to teachinghospitals and ultimately to physiciancovered recipients must be reported for

both the teaching hospital coveredrecipient, and the physician covered

recipient(s). The payment or othertransfer of value to the teaching hospitalcovered recipient should be reported asa direct research payment; whereas thepayment or other transfer of value forthe principal investigator(s) (physiciancovered recipient(s)) should be reportedas indirect research.

We understand that reporting theamount of the payment or other transferof value may be difficult because neitherthe applicable manufacturer nor theCRO generally know how the researchpayment is distributed because the

payment includes all items andactivities associated with the researchproject, not only the physicians timeand services. This is particularlyimportant for indirect research, since aprincipal investigator(s) may bereceiving his/her usual salary from theinstitution for conducting the study.Additionally, we do not believe the total

costs should be attributed personally tothe principal investigator(s). However,we do believe it would be burdensomefor applicable manufacturers toaccurately determine the exact amounta physician covered recipient received.Finally, we also believe that reportingthe total research payment amountprovides additional transparency to endusers about the applicablemanufacturers total research payments.

Based on these considerations, wepropose that for both direct and indirectresearch, applicable manufacturers mustreport the entire payment amount for

each research payment (whether to thecovered recipient or researchinstitution), rather than the specificamount that was provided to thecovered recipient. However, we proposethat on the public Web site, we wouldreport the payment amount separatelyand would not aggregate it into the totalfor physician covered recipients. Forteaching hospitals, we believe end userswould understand that the researchpayment covered all aspects of theresearch, so we believe it is appropriateto aggregate this into the teachinghospitals total payment amount.However, for physician covered

recipients we believe attributing the fullresearch payment to the physician could

be misleading, due to the nature ofresearch payments as described. Weseek comment on these proposals.

We are also considering attributingthe total payment to the coveredrecipient for direct research. We believethis may be necessary because in directresearch, the covered recipient isindividually receiving the payment, sothe specific amount the coveredrecipient is receiving is clearly definedand available to the applicablemanufacturer.

We recognize that the proposedreporting requirements for researchpayments and transfers of value may notcover all circumstances in whichapplicable manufacturers makepayments or other transfers of value tocovered recipients for research-relatedactivities (for example, post-marketingresearch or other research or studies notconducted pursuant to a writtencontract between the applicablemanufacturer and the organizationconducting the research, and thosestudies without a research protocol). We



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solicit comments about which existingnature of payment category (previouslydescribed) would apply to these othertypes of research, whether the scope ofthe research nature of paymentshould be broadened, and/or whetheranother nature of payment categoryshould be added to address suchresearch. Finally, we note that some of

the reporting requirement will duplicaterequirements already required underFDA regulations at 21 CFR part 54.

(4) Direct Compensation for Serving asa Faculty or as a Speaker for a MedicalEducation Program

We propose that this category beinterpreted broadly to encompass allinstances in which applicablemanufacturers pay physicians to serveas speakers, and not just those situationsinvolving medical educationprograms. We believe that thisinterpretation is consistent with theauthority granted in section1128G(a)(1)(A)(vi)(XV) of the Act to addadditional nature of payment categories.Alternatively, we are consideringadding another nature of paymentcategory to describe situations when acovered recipient provides speakingservices that are outside of medicaleducation programs; however we

believe that fewer categories for natureof payment is preferable. Additionally,it is simpler to only have one categoryfor speaker fees to minimize potentialinconsistencies in how applicablemanufacturers categorize payments. Wewelcome comment on this proposal and

the appropriate distinction between thisnature of payment category and othercategories, such as honoraria.

We realize that this interpretationdoes not allow for differentiation

between continuing medical education(CME) accredited speakingengagements, and all other speakingengagements. We are considering, andwelcome comments on, whether to limitthis category to CME-accreditedspeaking engagements and report otherspeaking engagements in anothercategory, such as compensation forservices other than consulting, or

additional category.(5) Other

Under the Act, all payments ortransfers of value from applicablemanufacturers to covered recipients(other than those excluded undersection 1128G(e)(10)(B) of the Act) must

be reported. For simplicity, and underthe discretion provided in section1128G(a)(1)(A)(vi)(XV) of the Act, wepropose the addition of a nature ofpayment category to serve as a catch allfor all payments or other transfers of

value that do not fit into one of thelisted natures of payment. Anypayments or transfers of value that arenot specifically excluded, and do not fitinto another category should be reportedwith a nature of payment of other.

h. Exclusions

Section 1128G(e)(10)(B) of the Act

excludes the following types ofpayments and other transfers of valuefrom the reporting requirements: Transfers of value less than $10,

unless the aggregate amount transferredto, requested by, or designated on behalfof the covered recipient exceeds $100 ina calendar year. Product samples that are not

intended to be sold and are intended forpatient use. Educational materials that directly

benefit patients or are intended forpatient use. The loan of a covered device for a

short-term trial period, not to exceed 90days, to permit evaluation of thecovered device by the covered recipient. Items or services provided under a

contractual warranty, including thereplacement of a covered device, wherethe terms of the warranty are set forthin the purchase or lease agreement forthe covered device. A transfer of anything of value to a

covered recipient when the coveredrecipient is a patient and not acting inthe professional capacity of a coveredrecipient. Discounts, including rebates.

In-kind items used for the provisionof charity care. A dividend or other profit

distribution from, or ownership orinvestment interest in, a publicly tradedsecurity or mutual fund. In the case of an applicable

manufacturer who offers a self-insuredplan, payments for the provision ofhealth care to employees under theplan. In the case of a covered recipient

who is a licensed non-medicalprofessional, a transfer of anything ofvalue to the covered recipient if thetransfer is payment solely for the non-medical professional services of thelicensed non-medical professional. In the case of a covered recipient

who is a physician, a transfer ofanything of value to the coveredrecipient if the transfer is paymentsolely for the services of the coveredrecipient with respect to a civil orcriminal action or an administrativeproceeding. Transfers of value made indirectly

to a covered recipient through a thirdparty in cases when the applicable

manufacturer is unaware of the identityof the covered recipient.

We anticipate that the public mayinquire about the treatment of paymentsor other transfers of value betweenindividuals who happen to haveexisting personal relationships. It is notour intent to capture purely personaltransfers of value (for example, if one

spouse, who works for an applicablemanufacturer, gives a present to theother spouse who is a coveredrecipient). We welcome suggestions onhow to incorporate this into the codifiedlanguage of the final rule.

We propose that applicablemanufacturers use the dictionarydefinitions for the exclusions. However,we are providing some clarification onhow we propose applying the followingtypes of exclusions:

(1) Transfers of Value Less Than $10

Small payments, which the statute

defines as payments or other transfers ofvalue less than $10, do not need to bereported, except when the total annualvalue of payments or other transfers ofvalue provided to a covered recipientexceeds $100. As defined in section1128G of the Act for subsequentcalendar years the dollar amountsspecified will be increased by the samepercentage as the percentage increase inthe consumer price index for all urbanconsumers (all items; U.S. city average)for the 12-month period ending with

June of the previous year. We proposeto publish the updated thresholdamounts annually on the CMS Web site.

We propose that applicablemanufacturers should not report to CMSany payments or other transfers of valueless than $10 individually and all smallpayments or transfers of value in thesame nature of payment category should

be reported as one total amount for thatcategory. This would simplify reportingfor applicable manufacturers andprevent the reporting of payments lessthan $10 individually. We haveprovided a few examples to ensure thatthis exclusion is applied consistently.

Example 1:An applicable manufacturertakes a physician out to lunch four times

during the year and each lunch costs $9. Theapplicable manufacturer has no otherrelationships with the physician. Since theaggregate cost of the four meals is $36 for theyear, these payments would not need to bereported. Example 2:An applicable manufacturer

provides a physician with five meals, eachworth $9, a speaker fee of $150, and pensworth $5. The aggregate amount is greaterthan $100 so all the payments need to bereported. The speaker fee should be reportedas $150 under direct compensation forserving as faculty or as a speaker for amedical education programs, the meals



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would be reported together as food for $45,and the pens would be reported as gifts for$5.

(2) Educational Materials That DirectlyBenefit Patients or Are Intended forPatient Use

Educational materials must consist ofmaterials (such as pamphlets) that

directly benefit patients or are intendedfor patient use. We want to clarify thatthis exclusion is limited to materials(including, but not limited to, written orelectronic materials) and does notinclude services or other items. We areconsidering whether certain materialsprovided by applicable manufacturers tocovered recipients to educate thecovered recipients themselves, butwhich are not actually given to patients(for example, medical textbooks),should be interpreted as educationalmaterials that directly benefitpatients. We seek comments onwhether such materials should beincluded in this exclusion and, if so,which types of educational materialsprovided to covered recipients should

be deemed to directly benefitpatients. We intend to finalize theagencys position on this in the finalrule based on comments received.

(3) Discounts and Rebates

Discounts and rebates for covereddrugs, devices, biologicals, and medicalsupplies provided by applicablemanufacturers to covered recipients areexcluded from reporting under section1128G(e)(10)(B)(vii) of the Act.

Discounts and rebates are common inthe industry and may be beneficial topayers (including Federal health careprograms) and beneficiaries. We remindmanufacturers of their obligations toappropriately report discounts andrebates for purposes of the Medicare andMedicaid programs and to comply withfraud and abuse laws, including theFederal Anti-Kickback statute.

(4) In-Kind Items for the Provision ofCharity Care

We recognize the extensivephilanthropic activities of many

applicable manufacturers, such as theprovision of supplies (both in the U.S.and abroad) to provide care for thosewho are unable to pay. We proposedefining charity care as itemsprovided to a covered recipient for oneor more patients who cannot pay, wherethe covered recipient neither receives,nor expects to receive, payment becauseof the patients inability to pay. Anyitems provided by the applicablemanufacturer to a covered recipient thatmeet the definition of charity care, areexcluded from reporting. This does not

include the provision of in-kind items toa covered recipient, even if the coveredrecipient is a charitable organization, forthe care of all of the covered recipientspatients (both those who can and cannotpay). For example, the donation of animaging machine to a covered recipientthat would be for the use of both payingand non-paying patients would not beexcluded under this category, even ifthe covered recipient is a charitableorganization. If a payment or othertransfer of value is not an in-kind itemand/or not for the provision of charitycare, as defined, then the payment must

be reported as required under section1128G of the Act.

(5) Indirect Payments Through a ThirdParty

Section 1128G(e)(10)(A) of the Actalso excludes the reporting of paymentsor other transfers of value that an

applicable manufacturer makesindirectly to a covered recipient througha third party when the applicablemanufacturer is unaware of the identityof the covered recipient. However, anypayment or other transfer of valueprovided to a covered recipient througha third party, whether or not the thirdparty is under common ownership withan applicable manufacturer or operatingin the U.S., must be reported, if theapplicable manufacturer is aware of thecovered recipients identity.

This exclusion hinges on whether anapplicable manufacturer is unaware

of the identity of the covered recipient.To ensure that payments via thirdparties are reported, where appropriate,we propose that an applicablemanufacturer is aware of the identity ofa covered recipient if the applicablemanufacturer has actual knowledge of,or acts in deliberate ignorance orreckless disregard of, the identity of thecovered recipient. For example, if anapplicable manufacturer provides apayment through a third party to thedepartment chairs at a specific hospital,this payment would need to be reported

because even though the applicable

manufacturer did not name therecipients, their identities are publiclyavailable. This standard is consistentwith the knowledge standard set forth inmany fraud and abuse laws, includingthe False Claims Act, and we believe itis one with which applicablemanufacturers are already familiar. Inaddition, we propose that awareness ofthe identity of the covered recipient byan agent of the applicable manufacturerwill be attributed to the applicablemanufacturer.

2. Reports on Physician Ownership andInvestment Interests Under Section1128G(a)(2) of the Act

Section 1128G(a)(2) of the Actrequires applicable manufacturers, aswell as applicable GPOs, to report to theSecretary, in electronic form, certaininformation concerning ownership andinvestment interests held by physiciansor their immediate family members insuch applicable manufacturers andapplicable GPOs, and payments or othertransfers of value to such physicianowners or investors. There is significantoverlap between the requirements undersection 1128G(a)(1) and (a)(2) of the Act.We note the areas of overlap and, whennecessary, refer to the sections of thisproposed rule that apply.

a. Reporting Entities

(1) Applicable Manufacturers

Section 1128G(a)(2) of the Actincludes applicable manufacturers as

defined for section 1128G(a)(1) of theAct, as entities subject to the reportingrequirements in section 1128G(a)(2) ofthe Act.

(2) Applicable Group PurchasingOrganizations

Section 1128G(a)(2) of the Act alsoincludes applicable GPOs as entitiesrequired to submit reports on physicianownership or investment interests; thesereports are required to include anypayments or other transfers of valueprovided to the applicable GPOsphysician owners or investors. Section

1128G(e)(1) of the Act definesapplicable group purchasingorganization as a group purchasingorganization (as defined by theSecretary) that purchases, arranges foror negotiates the purchase of a covereddrug, device, biological, or medicalsupply, which is operating in the UnitedStates, or in a territory, commonwealthor possession of the United States.Many hospitals and other types ofhealth care providers rely on GPOs tolower their acquisition costs forsupplies, devices, and services. We notethat Congress gave the Secretaryauthority to define a GPO for purposesof reporting under section 1128G of theAct, and also specified that suchorganizations would includeorganizations that purchase covereddrugs, devices, biologicals, and medicalsupplies, as well as organizations thatarrange for or negotiate the purchase ofcovered drugs, devices, biologicals, andmedical supplies. We thus interpret thestatute to encompass not only moretraditional GPOs that negotiate contractsfor their members, but also entities thatpurchase covered drugs, devices,



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biologicals, and medical supplies forresale or distribution to groups ofindividuals or entities. This wouldinclude, for example, physician owneddistributors (PODs) of covered drugs,devices, biologicals, and medicalsupplies. We propose to defineapplicable GPOs as

An entity that (1) operates in the UnitedStates, or in a territory, possession orcommonwealth of the United States, and (2)purchases, arranges for or negotiates thepurchase of a covered drug, device,

biological, or medical supply for a group ofindividuals or entities, and not solely for use

by the entity itself.

We propose that the definition willnot include entities that buy covereddrugs, devices, biologicals, or medicalsupplies solely for their own use, suchas some large practices or hospitals(including those owned by physicians).Rather, it is our intent to capture entities(including physician-owned entities)that purchase covered drugs, devices,

biologicals, or medical supplies forresale or distribution to others. Wesolicit comments on this proposal.

As discussed in the section oncovered drug, device, biological, andmedical supply, we are proposinglimiting the definition to only thosedrugs and biologicals that, by law,require a prescription to be dispensedand to only those devices (includingmedical supplies) that requirepremarket approval by or notification toFDA. We believe the device limitationmay be appropriate for defining theuniverse of applicable manufacturers,

but are considering that it may be overlylimiting for the definition of applicableGPOs, since GPOs often purchase,arrange for, or negotiate the purchase ofroutine devices and medical supplies.We seek comment on whether toinclude the proposed limitation ondevices and medical supplies in thedefinition of covered drug, device,

biological, or medical supply.

b. Physicians

Section 1128G(a)(2) of the Act differsfrom section 1128G(a)(1) of the Act inthat section 1128G(a)(2) of the Act does

not use the term covered recipient asdefined in 1128G(e)(6) of the Act, whichexplicitly excludes payments or othertransfers of value to employees of anapplicable manufacturer from thereporting requirements. Instead, section1128G(a)(2) of the Act uses the termphysician as defined in section1861(r) of the Act. Based on thisdefinition of physician, therequirement to report physicianownership and investment interestsincludes any physician, regardless ofwhether the physician is an employee of

the applicable manufacturer orapplicable GPO. Similarly, ownershipand investment interests of immediatefamily members of physicians must also

be reported under this provision. Asrequired by section 1128G(a)(2) of theAct, we propose to define immediatefamily member as it relates to a personas one of the following (as defined for

purposes of section 1877(a) of the Act at42 CFR 411.351): Spouse. Natural or adoptive parent, child, or

sibling. Stepparent, stepchild, stepbrother,

or stepsister. Father-, mother-, daughter-, son-,

brother-, or sister-in-law. Grandparent or grandchild. Spouse of a grandparent or

grandchild.

c. Ownership or Investment Interests

We propose to define an ownership or

investment interest in an applicablemanufacturer or applicable GPO in asimilar manner as in the physician self-referral regulation (42 CFR 411.354(b)).Specifically, we propose to define anownership or investment interest as onethat may be direct or indirect, andthrough debt, equity, or other means.Ownership or investment interestincludes, but is not limited to, stock,stock options (other than those receivedas compensation, until they areexercised), partnership shares, limitedliability company memberships, as wellas loans, bonds, or other financialinstruments that are secured with anentitys property or revenue or a portionof that property or revenue. As required

by statute, an ownership or investmentinterest shall not include an ownershipor investment interest in a publiclytraded security or mutual fund, asdescribed in section 1877(c) of the Act.Additionally, ownership or investmentinterest shall not include the following:

(i) An interest in an applicablemanufacturer or applicable GPO that arisesfrom a retirement plan offered by thatapplicable manufacturer or applicable GPOto the physician (or a member of his or herimmediate family) through the physicians

(or immediate family members) employmentwith that applicable manufacturer orapplicable GPO;

(ii) Stock options and convertible securitiesreceived as compensation, until the stockoptions are exercised or the convertiblesecurities are converted to equity;

(iii) An unsecured loan subordinated to acredit facility.

We also note that ownership andinvestment interests is listed in section1128G(a)(1)(A)(vi)(XII) of the Act as anature of payment for transparencyreports on payments and other transfers

of value. We would like to clarify thatany payments or other transfers of valueof an ownership or investment interestmade to a covered recipient (as defined)must be reported under section1128G(a)(1) of the Act. Additionally, allownership and investment interestsheld by a physician must also bereported under section 1128G(a)(2) of

the Act, which also requires reporting ofpayments or other transfers of value tophysician owners or investors. In orderto prevent the duplicative reporting, wepropose that if an ownership orinvestment interest is required to bereported under section 1128G(a)(1) ofthe Act and under section 1128G(a)(2) ofthe Act, then the applicablemanufacturer need only to report undersection 1128G(a)(1) and should not re-report the provision of the ownership orinvestment interest under the reportingrequirements in section 1128G(a)(2)(C)of the Act.

d. Physician Ownership or InvestmentReport Content

Under section 1128G(a)(2) of the Act,applicable manufacturers andapplicable GPOs are required to reportinformation about each ownership orinvestment interest held by physicianowners or investors (or their immediatefamily member(s)). We propose that theapplicable manufacturer or applicableGPOs should report the name, address,NPI, and specialty of the physicianowner or investor, as required in section1128G(a)(2) of the Act. In cases whenthe ownership or investment interest is

held by an immediate family member ofa physician, we propose that applicablemanufactures and applicable GPOsshould report not only the requiredinformation for the physician, but alsothat the ownership or investmentinterest is held by an immediate familymember of the physician. We areconsidering whether to require thereporting of the immediate familymembers relationship to the physician,as well as the immediate familymembers name, in order to bringadditional transparency to the nature ofthe relationship. We believe this would

provide additional details on the natureof the relationship; however, we wonderwhether this information is worth theadditional collection of information,particularly since we believe, due toprivacy concerns, that the name of theimmediate family member should not bemade public. We seek comment onwhether to report the relationship and/or the name of the immediate familymember holding the ownership andinvestment interest.

Section 1128G(a)(2)(C) of the Actrequires the reporting of [a]ny payment



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or other transfer of value provided to aphysician holding such an ownership orinvestment interest (or to an entity orindividual at the request of ordesignated on behalf of a physicianholding such an ownership interest)Applicable manufacturers andapplicable GPOs must report all theinformation required in section1128G(a)(1)(A) of the Act for thosephysicians who hold ownership orinvestment interests in such entity.With regard to reporting payments andtransfers of value to physician owners orinvestors, we propose that applicablemanufacturers and applicable GPOsfollow the procedures outlined in thispreamble for reporting payments andother transfers of value. Given thisoverlap, we are concerned aboutduplicative reporting, since applicablemanufacturers must submit both reportsand there may be overlap betweenphysicians holding an ownership orinvestment interest and physicians

being considered covered recipients forthe purposes of reporting payments ortransfers of value. We propose thatapplicable manufacturers submit onefile for all their payments and othertransfers of value and another for alltheir physician ownership orinvestment interests. To comply withsection 1128G(a)(2)(C) of the Act, wepropose that applicable manufacturersreport the payments or other transfers ofvalue to physician owners or investors(regardless of whether the physicianowner is a covered recipient) in the

section for all payments and othertransfers of value, but should note thatthe covered recipient receiving thepayment or other transfers of value is aphysician owner or investor. Thiswould prevent double counting ofpayments or other transfers of value tophysicians that meet the definition of acovered recipient and are a physicianowner or investor of the applicablemanufacturer.

Since applicable GPOs are not subjectto the reporting requirements in section1128G(a)(1) of the Act, we propose thatapplicable GPOs are only required tosubmit a report on physician ownershipor investment interests. However, in theevent that an applicable GPO haspayments or other transfers of value toreport for their physician owners orinvestors, we propose that applicableGPOs use the data elements outlined inthe preamble section on payments andother transfers of value report contentsfor payments or other transfers of value,

but that they would only be required toreport payments to physician owners orinvestors.

B. Report Submission and Correction

The statute requires the Secretary toestablish procedures for applicablemanufacturers and applicable GPOs tosubmit the required information. Werecognize that these regulations wouldrequire applicable manufacturers andapplicable GPOs to collect and submit

large amounts of new data, so we striveto be as flexible as possible about thedata collection and submissionmethods. However, we believe that wealso need standardization to ensure thatwe can aggregate the data correctly andefficiently to make it publicly available.Given these considerations, we plan towork with applicable manufacturers andapplicable GPOs to create the bestsystem for all parties involved. Based onour stakeholder outreach and analysis ofthe data systems available, we areproposing a potential system for thesubmission of data to CMS. We seekcomments on the proposed approach

and whether an alternative systemwould be preferable.

1. Prior to Submission

We are considering ways to ease thepost-submission review process of thisinformation and facilitate earlyresolution of conflicts betweenapplicable manufacturers, applicableGPOs, covered recipients and physicianowners or investors. We seek commentson a way for applicable manufacturersand applicable GPOs to make necessarycorrections prior to submission to CMS,thus lessening potential changes during

the statutory review and correctionperiod, and thereby strengthening theaccuracy of the data. One way toachieve this is for applicablemanufacturers, prior to submitting datato CMS, to provide each coveredrecipient with information regarding thepayments or other transfers of value thatthe applicable manufacturer plans toreport to CMS as having made to thecovered recipient. Similarly, applicablemanufacturers and applicable GPOscould provide to each physician owneror investor the information they plan toreport regarding the

2011-32244 federal register 12-19-2011transparency reports and reporting of physician

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