Sunshine Act and Beyond: Improving Compliance

As global legislative and enforcement bodies increase regulation, investigation and prosecution of medical device companies, it has become critical for these entities to improve compliance strategies to meet enhanced expectations for an effective corporate compliance program. Government scrutiny and enforcement have largely focused on arrangements and interactions with healthcare professionals (HCPs), as public and private concern about industry influence over medical decision-making grows. The orthopaedic sector in particular has received a great deal of attention on this issue, having seen several multi-national firms agreeing to government settlements and penalties based upon alleged inappropriate financial relationships with HCPs. A crucial component of this new regulatory environment is adherence to the Physician Payment Sunshine Act (now referred to as Open Payments), requiring applicable manufacturers of drugs, devices and medical supplies to report payments or transfers of value made to HCPs and teaching hospitals.1,2

Deadlines for submitting required data pursuant to Open Payments will have likely passed by the time this article is published; however, companies continue to struggle with designing or enhancing their reporting processes and systems in preparation for future submission dates due to ambiguity and evolution in guidance, as well as technical challenges. Further, concerns linger regarding impact on customer relationships and other downstream compliance issues arising from the disclosure of required data, e.g., the Anti-Kickback Statute.3 This article will provide an overview of current challenges and key strategies for enhancing compliance with Open Payments and other implicated regulations governing interactions with HCPs.

Data Capture, Reporting and Other Compliance Challenges

I. Defining Who Must Report
Medical device companies and their business partners are continually challenged with interpreting Open Payments’ complex regulatory framework, and defining reporting rules based on their unique structure and business model. It is particularly troublesome for entities that did not submit Open Payments data initially, but may be reexamining their obligation to do so for future deadlines. While the law has received the most attention from firms that manufacture and market their own products, many other “peripheral” or downstream entities will also be required to comply, including distributors and other contracted service providers.

Open Payments generally defines an “Applicable Manufacturer” (i.e., a company required to comply with Open Payments disclosure requirements) as any entity “engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological or medical supply [(hereinafter “Covered Products”)]4 …” Distributors of Covered Products, including repackagers, relabelers and kit assemblers that hold title to such items are also considered Applicable Manufacturers under Open Payments.5 CMS has recently published updated guidance addressing the meaning of “hold title” in determining whether a distributor is an Applicable Manufacturer. The agency clarified that a distributor “holds title” to a Covered Product when it possesses the right to re-sell, and is not conditioned on holding FDA approval, licensure or clearance. Distributors that do not hold title to Covered Products may still be contractually obligated to report required data back to associated Applicable Manufacturers.

Manufacturers and some contract manufacturers need to comply with Open Payments. Mr. Minassian covered best practices for capturing, tracking and recording data during his OMTEC 2014 presentation.

OMTEC-2014-Presenter-Badge Web

Additionally, CMS stated in its final rule that entities only involved in manufacturing raw materials and components do not meet the definition of Applicable Manufacturer.6 However, firms that are contracted to manufacture Covered Products are Applicable Manufacturers and required to report transfers of value “related to the Covered Product,”7 regardless of whether that firm actually holds FDA approval, licensure or clearance for the product. Thus, contract manufacturers, distributors and other entities that assist with commercializing medical devices must thoroughly examine their business practices and product portfolios to determine whether they design, develop or “hold title” to Covered Products, and are therefore Applicable Manufacturers. It is likely that many companies are in fact obligated to comply with Open Payments (perhaps contrary to determinations prior to the initial Open Payments submission deadline) and will require effort to design technical and administrative processes in time for subsequent reporting cycles.


In the same vein, Applicable Manufacturers may have difficulty determining, or have incorrectly determined, whether they are eligible (or ineligible) for limited reporting based on earning less than ten percent of global gross revenue from Covered Products due to inadequate product analysis—a prevalent issue for companies with extensive and diverse portfolios. Companies with less than ten percent domestic and global gross revenue attributed to Covered Products are only required to report transfers of value specifically related to Covered Products.8Moreover, some companies that have correctly determined that they are eligible for limited reporting, and only have to report transfers related to Covered Products, struggle with developing consistent or defensible methods for distinguishing reportable transfers that are “related to a Covered Product” from those that are not. 

Further, certain complex corporate entities with several companies potentially under “common ownership” may have difficulty determining, or have incorrectly determined, whether such companies are Applicable Manufacturers and must submit required data. Companies are considered Applicable Manufacturers if they are under common ownership with another Applicable Manufacturer, and “provide assistance or support to [that Applicable Manufacturer] with respect to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a [Covered Product].”9,10 “Assistance or support” is defined as “conduct that is necessary or integral to the production, preparation, propagation, compounding, conversion, marketing, promotion, sale, or distribution of a [Covered Product].”11 Importantly, CMS has published updated guidance providing examples of activities that may constitute necessary or integral assistance or support. One instance includes entities that produce active ingredients used to develop Covered Products.12 Further, an entity that leases a device to an Applicable Manufacturer that could not otherwise produce one of its products will be considered providing necessary or integral assistance or support.13 Thus, it appears that any entity under common ownership with an Applicable Manufacturer that provides materials, components or devices to the Applicable Manufacturer for the purposes of producing, promoting or distributing its products will be required to capture and report relevant transfers of value. In certain instances, parent companies may have omitted, or will omitt, identifying all companies that are directly or indirectly under “common ownership.” Further, the clarified guidance above has now appeared to substantially broaden the scope of whether an entity provides “necessary or integral assistance or support.” What may once have been an afterthought due to ambiguity may result in increased reporting responsibilities, not only involving determinations of whether or not an entity is an Applicable Manufacturer, but also whether reporting will be consolidated amongst commonly owned companies.

II. Defining What Must Be Reported
Applicable Manufacturers must identify all possible instances of reportable and non-reportable spend, and develop or improve processes for capturing required data—no easy feat, considering certain ambiguities and periodic shifts in guidance. Applicable Manufacturers are responsible for reporting transfers of value made directly to HCPs and teaching hospitals, as well as indirect transfers of value to HCPs and teaching hospitals so long as (i) the Applicable Manufacturer requires, instructs directs or otherwise causes the intermediary to provide the transfer and (ii) the Applicable Manufacturer is “aware” of the identity of the HCP recipient.14,15 In this context, CMS has published updated guidance stating that transfers of value provided indirectly by an Applicable Manufacturer’s distributor are reportable, even if the transfer is from the distributors own resources, so long as the Applicable Manufacturer instructs, directs or otherwise causes the distributor to provide the transfer.16 Additionally, indirect payments made by Applicable Manufacturers through intermediaries such as fellowshipsand specialty societies provided to HCPs may be reportable if the Applicable Manufacturer is “aware” of the HCP’s identity.17,18 Applicable Manufacturers are challenged with developing clear, standardized definitions or for activities where they are “unaware” of a HCPs identity, and otherwise preparing effective methodologies for capturing and tracking data for transfers of value through third parties. Significant issues with this requirement remain, such as how an Applicable Manufacturer will effectively and efficiently collect the required data related to indirect transactions determined to be reportable (particularly those not paid through a commercial or clinical vendor), and what potential backlash it will face from HCPs that may have not expected public disclosure of payments under such loose affiliations.

Further, Applicable Manufacturers are not required to report the loan of covered devices for the purposes of evaluation and training, including limited quantities of disposable items, so long as the items are returned or consumed within a 90-day period.19,20 CMS has stated that the 90-day exclusion period begins when the device is provided to the Covered Recipient, not when it is first used by the Covered Recipient.21 With regard to single-use or disposable products, the “loaner” exclusion applies to quantities of such items that patients would be expected to use during a 90-day period.22 Furthermore, the 90-day loan exclusion applies on a per-covered recipient basis, e.g., each loan of a covered device to separate Covered Recipients, regardless of whether they are the same Covered Device, will be separately eligible for exclusion from reporting so long as they are returned or consumed within 90 days. Additionally, CMS has provided recent updates to Open Payments, stating that the following circumstances are reportable transfers of value: (i) debt forgiveness related to a covered device owned by an HCP, and (ii) free repairs, services and/or additional training offered by Applicable Manufacturers that are not included in a respective contractual warranty.23,24 These nuances in reporting may raise operational and contractual challenges for many Applicable Manufacturers trying to improve Open Payments compliance, or who are beginning to build reporting systems, prior to the next submission deadline. For example, it appears that “loaner” devices or supplies not returned or consumed within 90 days will become a reportable transfer of value, but how would such a transaction be characterized by Open Payments’ limited “nature of payment” categories? Would this transfer be considered a gift? What value should a company allocate to this transfer? What policies or processes will the company use to facilitate the return of “loaner” equipment? What steps have Applicable Manufacturers taken in configuring loan or purchase agreements to ensure exemption or proper reporting under Open Payments, e.g., provisions regarding potential disclosure or rental charges for un-returned equipment?

III. Third Party Vendor Data Quality
Essential to compliance with Open Payments reporting is the capture and maintenance of quality data, including customer demographics and transactional data. Companies receiving or storing data that is incomplete or inaccurate may trigger regulatory penalties, as well as negatively impact business relationships with customers and partners. Ensuring quality data is a difficult task that is magnified when transactional data is required to be collected from third-party vendors and other intermediaries that indirectly transfer payments to HCPs. This issue is prevalent in the medical device industry, as third party vendors are heavily relied upon for distribution and development of products, as well as training of HCPs. Third-party vendors involved with sales, marketing and distribution of products may have reliable systems for reporting certain traditional transactional data, but may not have reliable methods for capturing all data fields required for Open Payments reporting which could lead to incorrect or incomplete submissions. More, vendors involved with clinical research (e.g., CROs, CMOs etc.) may not even have reliable systems for submitting transactional data back to Applicable Manufacturers. As such, many Applicable Manufacturers have received incomplete or inaccurate data from third-party vendors for the first Open Payments deadline and are struggling to improve processes and oversight in time for subsequent deadlines.

IV. Physician Owned Distributors (PODs)
On March 26, 2013, the Office of Inspector General (OIG) released a Special Fraud Alert regarding PODs, which raised the level of scrutiny on these entities and their business partners. 25 The OIG defined PODs broadly as any physician-owned distributors that “derives revenue from selling, or arranging for the sale of, implantable medical devices and includes physician- owned entities that purport to design or manufacture, typically under contractual arrangements, their own medical devices or instrumentation.”26 Practically speaking, PODs are any company with at least one physician having ownership interest that develops, distributes or arranges for the sale of medical devices. The OIG has had longstanding concern with PODs, as they may exhibit features of unlawful joint ventures with physicians designed to induce referrals of products, namely selecting and rewarding physician-investors based on their ability to generate referrals for the POD.27,28 The Special Fraud Alert concluded that PODs are “inherently suspect” and will no doubt be the focus of government investigators and prosecutors.

Adding to the opportunity for government scrutiny of PODs is the application of Open Payments and the detailed disclosure of physician-owner relationships. Indeed, PODs falling under the definition of Applicable Manufacturer must report distributions paid to physician-owners and other transfers of value made to HCPs.29 PODs may be considered Applicable Manufacturers, and therefore required to submit data pursuant to Open Payments, if they hold title to and distribute Covered Products. PODs may also be considered Applicable Manufacturers because of their activities as a Group Purchasing Organization (GPO). Open Payments defines GPO as any entity that (1) operates in the U.S., or a territory or commonwealth of the U.S.; and (2) “purchases, arranges for or negotiates the purchase of a covered drug, device, biological, or medical supply (“Covered Products”) for a group of individuals or entities, and not solely for use by the entity itself.”30 Additionally, PODs may qualify as Applicable Manufacturers under the “common ownership” rule, i.e., a POD providing “necessary or integral” support to an Applicable Manufacturer. With the arrival of Open Payments, details of arrangements between PODs and their physician-investors will be readily available for government enforcement agencies already on high-alert. PODs must not only concern themselves with assessing and developing their Open Payments reporting process, but also ensuring that their overall business and compliance framework (e.g., policies, agreements, etc.) demonstrate legitimate, bona fide activities upon government inquiry or at least address the concerns listed in the Special Fraud Alert. More, the opportunity to pinpoint PODs using Open Payments data will potentially expose other Applicable Manufacturers to government scrutiny regarding the propriety of their distribution agreements or other contracts with PODs.

V. Physician Data Disputes
Public disclosure of Open Payments data may impact relationships between the medical device industry and their HCP customers. CMS has provided educational materials and web training to the physician community, however, many physicians will still lack an adequate conceptual understanding of Open Payments and its requirements.31 As a result of not having an adequate understanding of Open Payments or transparency initiatives generally, HCPs’ expectations for reportable transactions and amounts will likely greatly differ from what is actually reported. This appears to be a potential issue for the orthopaedic industry. A recent study examined discrepancies between conflict of interest disclosures by spinal surgeons and voluntary disclosures by spinal companies on their websites.32 The study found that almost half of HCP conflict of interest disclosures conflicted with spinal company voluntary disclosures, with discrepancies more likely to occur for payments <$100,000.33 This type of discrepancy could signal a significant gap in industry-HCP expectations of what will be reported for Open Payments and at what value. In the long term, HCPs may become more wary of, or outright refuse, certain transactions such as gifts, entertainment and travel, as these items may be negatively received by the public. In the short term, such outcomes may lead a heavy volume of post-submission data disputes by HCPs. Applicable Manufacturers are challenged on how to improve upon effectively and efficiently preventing or responding to these disputes so that their customer relationships are not affected.

Key Strategies for Enhancing Compliance

I. Assumptions/Methodology Document and Pre-Submission Checklist

In its Final Rule comments, CMS recognized that certain manufacturers may need flexibility in how certain data is collected and reported, e.g., defining nature of payment categories, value, etc.34 As a result, specific business decisions need to be made in order to standardize the process across each individual organization. CMS allows reporting companies to submit additional documentation, along with their required data reports in compliance with Open Payments, explaining the reasonable assumptions and determinations made and methodologies used when capturing, tracking and disclosing required information. Importantly, the assumptions documents will not be made available to the public.35 CMS has stated that, while these materials are not intended for prosecution, other government agencies may request access as part of audits or investigations. As such, the decision to submit these materials, and the substance within, should be reviewed in coordination with a company’s legal representative. 

Regardless of whether these materials are ultimately submitted, creating a comprehensive assumptions and methodology document is extremely useful for designing and improving a company’s Open Payments reporting program. By addressing in detail the underlying logic and analysis for each key decision point regarding data capture and reporting, Applicable Manufacturers will often uncover areas for improvement or enhancement in their Open Payments process.

For instance, companies that did not submit data for the first Open Payments deadline, or are part of a complex corporate structure, may realize that their initial analysis of business model (e.g., do we provide “integral support,” “hold title”) and product portfolio (which of our products are “Covered”?) was not sufficiently detailed, or substantively incorrect, to support their “we are/aren’t an Applicable Manufacturer” assumption. Similarly, a comprehensive assumptions document will typically require an Applicable Manufacturer to record critical standard definitions for topics such as transfers “Related to a Covered Product,” and value of goods and services including non-exempt “loaner” equipment. More, a comprehensive assumptions document will typically require Applicable Manufacturers to list all identified reportable transfers of value with their appropriate Open Payments ”nature of payment” categories, as well as provide defensible logic for exempt transfers of value (e.g., indirect transfers where the Applicable Manufacturer is “unaware” of the HCPs identity).

Also of value is that the assumptions document may be used as a management tool to ensure a sound reporting process prior to submitting data. Open Payments requires that an Applicable Manufacturer attest to the accuracy of data reported and, implicitly, data determined to be exempt from reporting. Thus, it is critical that the designated report attester have visibility into the decision making process and methodologies supporting the capture, tracking and reporting of required data. Applicable Manufacturers can incorporate checklists within the assumptions document to verify that each key decision point has undergone the proper analysis by relevant departments (e.g., “covered product” determinations will typically require analysis from regulatory).

II. Open Payments Data Monitoring and Trending
Aside from submitting to CMS to avoid penalties, Applicable Manufacturers have the opportunity to use their collected data, as well as data submitted by others in the industry, to provide valuable additional insights to the company. Applicable Manufacturers can use the wealth of enriched customer and transactional information to identify and analyze key performance indicators regarding (i) the operational effectiveness of their Open Payments program, (ii) compliance with certain relevant state and Federal laws and (iii) promotional and non-promotional activity effectiveness and adherence to company processes.

For instance, Applicable Manufacturers are able to monitor transactions governed by the AdvaMed Code of Ethics on Interactions with Healthcare Professionals, as well as those occurring in states with compliance obligations, meal limitations or gift bans (e.g., MA, VT, CA, NV). More, Applicable Manufacturers may use such data to review HCP consultant payments to ensure proper adherence to company policy and contractual language, e.g., payment of fair market value, travel and expense limitations, etc. Additionally, Applicable Manufacturers may use HCP identifier data (i.e., HCP specialty) to “red flag” potential off-label interactions. Enriched transactional data regarding educational and research grants may bring opportunities for meaningful analysis of funding for health care institutions and associations.

Finally, Applicable Manufacturers may wish to monitor payments made through third-party vendors to verify that such payments were made in compliance with regulatory guidance and contractual terms. Third-party vendor data monitoring is also essential for ensuring accuracy and completeness of required data; consistent errors in third-party vendor data may indicate that enhanced reporting templates and/or validation systems are necessary.

III. Enhanced Compliance Processes Governing Interactions with HCPs
With the disclosure of detailed transactional data pursuant to Open Payments, government enforcement agencies will have unprecedented insight into industry interactions with HCPs. CMS has not stated how the data will be used for investigation or targeting, but there are presumably several “nature of payment” categories that enforcement agencies will be closely monitoring as potential for unlawful inducement per the Anti-Kickback Statute—namely, gifts and entertainment, travel/lodging and HCP consulting relationships. As such, Applicable Manufacturers must ensure that compliance controls governing these areas (but preferably all “nature of payment” categories) demonstrate alignment with regulatory and industry guidance, where applicable, in the event of government investigation or audit. Applicable Manufacturer policies related to gifts, entertainment, travel and lodging should align with parameters outlined by the AdvaMed Code.

Applicable Manufacturers should also be able to demonstrate the legitimacy of their HCP consulting relationships. This includes a formal process for documenting (i) a business need for HCP consultant services, (ii) the selected HCP consultant qualifications align with business need, (iii) the HCP consultant is paid at fair market value and (iv) HCP consultant actually performed the services requested. With regard to POEs, such companies should ensure that all agreements with physician-owners align with the Anti-Kickback Safe Harbor regarding investment interests, and otherwise refrain from using the offer of investment opportunities or increased distributions as an inducement or reward for referrals.

IV. Enhanced Dispute Resolution Process with HCP Customers
Physician disputes regarding published Open Payments data will be an ongoing issue for Applicable Manufacturers. CMS has provided a secure website for physicians to assess reported transactions prior to publication; however, any disputes arising from viewing may still be made public if not resolved within a 60-day review period. As such, many Applicable Manufacturers are seeking to enhance their HCP dispute resolution processes in order to mitigate any negative regulatory or business impacts. Companies may wish to independently allow HCPs to review associated transactions prior to the review period provided by CMS to ensure that any potential disputes are fully resolved well before regulatory deadlines. Applicable Manufacturers offering pre-submission reviews may want to limit the scope of HCPs permitted to review pre-submitted data, due to a high volume of transactions or other factors. In the long term, companies may be able to track trends related to physician dispute data for the purposes of improving their dispute process, public relations or reporting process generally.

As evidenced above, Open Payments reporting systems and processes must be thoughtfully crafted, well informed and responsive to a variety of internal and external pressures, e.g., changes in guidance, evolution of business practices, customer feedback, government enforcement focus, etc. An effective data reporting program should be closely monitored and improved as needed to ensure proper compliance with Open Payments substantive requirements. Moreover, available data from effective reporting programs should also provide Applicable Manufacturers with opportunities to proactively detect and prevent other potential violations of state and Federal law, as well as key business and operational insights into certain promotional and non-promotional activities. In short, with the right analysis, design and oversight, an Open Payments program will not only prevent government penalties, but also foster opportunities to enhance corporate compliance and business as a whole.

1. Cash or in-kind payments, transfers or ownership interest, discussed further in subsequent section.
2. Open Payments requires reporting of transfers of value made to “Covered Recipients” – i.e., Doctor of Medicine, Doctor
    of Osteopathy, Doctor of Dentistry, Doctor of Dental Surgery, Doctor of Podiatry, Doctor of Optometry, Doctor of
    Chiropractic Medicine and Teaching Hospitals (42 CFR §403.902.).
3. Prohibits paying or receiving remuneration with the intent of inducing referrals paid for by Federal Healthcare Programs. 42 U.S.     Code § 1320a–7b.
4. For the purposes of medical devices, Covered Products are both subject to FDA pre-market registration, and reimbursable by a     Federal healthcare program (42 CFR §403.902).
5. Id. at §403.902
6. Transparency Reports and Reporting of Physician Ownership or Investment Interests; Final Rule, 78. Fed. Reg. 27 (Feb. 28,           2013) p. 9461.
7. Id.
8. CMS FAQ 8163.
9. CMS considers “common ownership” to mean where an entity directly or indirectly owns five percent or more total ownership
    of at least two entities – e.g., parent corporations, direct and indirect subsidiaries and brother-sister corporations (CMS FAQ           8270).
10. Id. at §403.902
11. Id.
12. CMS FAQ 8990.
13. Id.
14. Id. at §403.902
15. Id. at § 403.904(i)(1). Applicable Manufacturers are “aware” if they have actual knowledge the of recipients identity, or
     act in reckless disregard of the information.
16. CMS FAQ 8976
17. Fellows are within the definition of reportable HCPs (CMS FAQ 8372)
18. CMS FAQ 9004
19. CMS FAQ 9154
20. Id. at § 403.904(i)(5)
21. CMS FAQ 8956
22. CMS FAQ 8358
23. CMS FAQ 8962
24. CMS FAQ 8960
25. OIG, “Special Fraud Alert, Physician-Owned Entities” (March 26, 2013), available at
26. Id.
27. “Examining the Relationship Between the Medical Device Industry and Physicians,” hearing before the U.S. Senate
     Special Committee on Aging (February 27, 2008), available at:        
28. Id. at Special Fraud Alert
29. CMS FAQ 8974
30. Id. §403.902
32. See
33. Id.
34. Final Rule 9474, 9481.
35. Id. at § 403.908(f)


Vahan Minassian, Manager, Compliance & Ethics at Compliance Implementation Services, is a licensed attorney with experience advising pharmaceutical and medical device manufacturers on legal and operational issues related to the Physician Payment Sunshine Act and state aggregate spend laws, lobbying disclosure laws, the Anti-Kickback Statute, the False Claims Act, off-label promotion, the Foreign Corrupt Practices Act and the U.K. Anti-Bribery Act of 2010. Mr. Minassian can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

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