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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.