Shining a Light

Edition: March 2012 - Vol 20 Number 03
Article#: 3937
Author: Repertoire

Manufacturers, distributors, GPOs, medical specialty societies and others have written their various codes of conduct and/or ethics over the years. Now the federal government is about to join them. Only the feds’ version will have more teeth – and monetary penalties for non-compliance.

At press time, the Centers for Medicare & Medicaid Services was reviewing comments to its proposed rule regarding disclosure of payments made by medical products manufacturers to physicians and teaching hospitals. Though the proposed rule is directed at manufacturers, there may be some spillover to distributors. Just how much remains to be seen.

The rule, nicknamed the “Sunshine rule,” was created as part of the 2010 Affordable Care Act, and is intended to increase public awareness of financial relationships between drug and device manufacturers and certain healthcare providers.

“When people are faced with the difficult task of choosing the right doctor, they need all the information they can gather,” said Peter Budetti, MD, CMS deputy administrator for program integrity, when the proposed rule was published Dec. 19, 2011. “If your doctor is taking money from manufacturers of prescription drugs, suppliers of wheelchairs or other devices, you deserve to know about it. Disclosure of these relationships will discourage the inappropriate influence on clinical decision-making that sometimes occurs while still allowing legitimate partnerships.”

The proposed rule would require manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid, or the Children’s Health Insurance Program to report to CMS payments or other transfers of value they make to physicians and teaching hospitals. It would also require manufacturers and group purchasing organizations to disclose to CMS physician ownership or investment interests.

Left unmentioned in the latter provision were physician-owned distributors, that is, companies – primarily in the orthopedics market – that pay physician-investor/owners a percentage of the sale price of the products they use. It was the PODs that generated much bad press over the past several years, and which some observers blame for promulgation of the Sunshine rule. There is a chance that the omission of physician-owned distributors was an oversight or clerical error, and that it will be corrected when the final rule is published later this year, according to those with whom Repertoire spoke.

CMS is proposing that manufacturers and GPOs submit a partial-year report on payments on Mar. 31, 2013. Once the data has been submitted, CMS will aggregate manufacturers’ submissions at the individual physician and teaching hospital level, provide them with a 45-day period to confidentially review and, if necessary, correct the data, and make the data publicly available by Sep. 30, 2013. Manufacturers would be required to report to CMS the amount and nature of payments and other transfers of value in an electronic format on the 90th day of each calendar year thereafter.

What it is

The proposed rule acknowledges that collaboration among physicians, teaching hospitals and manufacturers “may contribute to the design and delivery of life-saving drugs and devices.” What’s more, the feds acknowledge that “financial ties alone do not signify an inappropriate relationship.

“However, while some collaboration is beneficial to the continued innovation and improvement of our health care system, payments from manufacturers to physicians and teaching hospitals can also introduce conflicts of interests that may influence research, education, and clinical decision-making in ways that compromise clinical integrity and patient care, and may lead to increased health care costs,” the proposed rule states.

“[T]ransparency can shed light on the nature and extent of relationships, and may dissuade inappropriate conflicts of interest from developing.”

Manufacturers of devices (including medical supplies) that require premarket approval by or notification to the Food and Drug Administration would be subject to the reporting requirements. That is to say, payments by manufacturers of Class I and some Class II devices would be excluded. “We believe this limitation may be appropriate for applicable manufacturers, because manufacturers that solely produce these exempt products have not been shown to have extensive relationships with covered recipients. Additionally, we believe this limitation might be appropriate because these financial relationships (to the extent they exist) are less likely to influence patient care.”

The types of payment covered in the proposed rule are broad. They include consulting fees, gifts, entertainment, food, and ownership or investment interest. (See related piece.)

Impact on distributors

While squarely pointed at manufacturers, distributors may be affected by the rule as well, according to observers.

It’s possible, for example, that manufacturers will require their distributors to file reports with the manufacturer of any payments those distributors may make to providers, says Mitchell Kramer, senior partner of the law firm Kramer & Kramer LLP, with offices in suburban Philadelphia and Ann Arbor, Mich. He is also legal counsel for IMDA, the association for specialty medical distributors. “I’ve already seen such requests being made,” he says.

There are a couple of reasons why manufacturers might do this, says Kramer. First, distributors may be seen as an arm of the manufacturer. If that’s the case, manufacturers want to make sure they are in compliance with the law. Second, manufacturers may want to make sure they are in compliance with the law’s demand that payments requested by or designated on behalf of a physician or teaching hospital be reported. The rule was constructed in such a way as to prohibit doctors and teaching hospitals from instructing manufacturers to direct payments intended for them to other entities, including, theoretically, distributors.

Though the proposed rule doesn’t specifically address the issue of private labeling, it’s likely that distributors of private-label products would be considered manufacturers under the rule, adds Kramer. In fact, the proposed rule does say that “certain companies which are under ‘common ownership’ with an entity that produces, prepares, propagates, compounds, or converts a covered drug, device, biological, or medical supply are also subject to the reporting requirements under this provision, even though they themselves may not be involved in the ‘manufacturing’ process.”

The issue may be academic, at least for most distributors, because many private label products are either Class 1 or Class II devices, which would be exempt from the reporting requirement.

Physicians react

“We absolutely believe in transparency to patients of the healthcare system in which they are treated,” says Glen Stream, MD, MBI, Rockwood Clinic, Spokane, Wash., and president of the American Academy of Family Physicians. “Patients deserve to know that the treatment recommendations being made by their personal physician are not unduly influenced by commercial interests or individual financial or proprietary interests.

“Our concern is, as so often [is the case] with written regulations, the law of unintended consequences. An interaction that is innocent, understandable and potentially positive gets painted with the same negative brush as those in press reports of rare but egregious forms of conflict of interest. The vast majority of practicing physicians hold their professional ethics in high regard.

“There is synergy between industry and those practicing medicine, which has produced a lot of the advances we enjoy,” continues Stream. “We don’t want to stifle that innovation. Device manufacturers need the input of physicians in evaluating their products; we have to be careful it doesn’t cross that ethical line.

“And having a conflict of interest isn’t always a completely avoidable issue. It’s an issue about sunshine, about transparency. If there’s a potential conflict, it should be disclosed and addressed, especially if it affects the patient’s choice of options or what is being recommended to them.”

Manufacturers react

AdvaMed, the Washington, D.C.-based association representing approximately 400 medical device and diagnostics manufacturers, has long supported legislation calling for manufacturers to report transfers of value to physicians, says Christopher White, executive vice president, general counsel and secretary. “We believe that appropriate disclosure makes sense when the context is explained and the basis of the relationships [between manufacturers and physicians] are made clear and known to the public.”

AdvaMed is pleased that CMS honored its commitment to engage in a public notice and comment process, says White. The association is also pleased that CMS, in its proposed rule, “recognized the challenges industry faces in implementing a rule of this complexity,” by postponing implementation until at least 90 days after publication of the final rule. “Overall, we thought the proposed rules struck a very positive tone,” he adds.

That said, AdvaMed believes CMS left unaddressed some important topics, the most important of which is context. “There should be some context associated with payments, so patients understand why a particular physician was engaged to provide a particular service. Just providing the physician’s name and dollar amount is of very limited value, and it could be detrimental to innovation. Perhaps the manufacturer retains a physician for consulting services; it’s important to note that those consulting services led to a new invention or enhancement of a technology.”

AdvaMed will also seek clarification on that portion of the rule that calls for manufacturers to track and report payments made on behalf of physicians and teaching hospitals, says White. The parameters of industry tracking and reporting obligations in this area are unclear, he says.

“And it’s also unclear who represents the teaching hospital,” he continues. Is it the corporate entity, an officer, materials management? “So we seek further clarity.”

At press time, AdvaMed was also planning to study CMS’s cost estimates for implementing the rule. In its proposed rule, the agency wrote, “The burden associated with these requirements is the time and effort spent by applicable manufacturers and applicable GPOs collecting the data, compiling reports to send to CMS, as well as the processes for registering and submitting the data, and any corrections, if necessary, to CMS.” The agency estimated that on average, smaller manufacturers would have to dedicate 50 percent of a full-time equivalent employee, whereas larger companies would have to dedicate between 5 and 15 FTEs to the process.

“We need to develop a better understanding of the implementation cost beyond the estimates set out in the proposed CMS regulations,” says White. “The topic deserves further analysis.

“The cost is substantial, and it comes at a time when we see other costs [associated with other forms of regulation]. But overall, the industry is committed to ensuring that public policy objectives are enacted. So they’re supportive of the public policy.”

Trouble over a prescription pad

“It strikes me that drawing some bright line between harmless promotion and unethical influence peddling is one of those exercises that always sets off the government-haters,” notes Ted Almon, president and CEO of Claflin Co. “Inevitably the law will over-reach, and some poor slob will end up in trouble over a prescription pad or a logo pen.

“Obviously there has been some out-of-bounds behavior by the drug and device companies that crossed the ethical line, and that should be proscribed. But business lunches, promotional items, sports tickets, and other related stuff creates business and jobs for others in the economy with minimal interference of legitimate commerce.

“I am not an anti-government type, but this is where they always get themselves into trouble.”

Editor’s note: To view the CMS proposed rule, go to

Sidebar 1:

Key Provisions of Sunshine Rule

Answers to key questions… IF the proposed Sunshine rule were to be accepted as written.

Who would have to report?

Manufacturers of devices (including medical supplies) that require premarket approval by or notification to the Food and Drug Administration. (This would exclude many Class I devices and certain Class II devices, which are exempt from premarket notification requirements.)

Any manufacturer that sells or distributes at least one covered drug, device, biological, or medical supply would be considered an applicable manufacturer, and hence, be subject to reporting requirements, even though it may also manufacture products that do not fall within the category (that is, Class I or certain Class II devices). Under the proposed rule, such a manufacturer would have to report all payments or transfers of value to a physician or teaching hospital, regardless of whether the particular payment or other transfer of value is associated with a covered drug, device, biological, or medical supply.

What would have to be reported?

  • Consulting fees.

  • Compensation for services other than consulting.

  • Honoraria.

  • Gifts.

  • Entertainment.

  • Food.

  • Travel (including the specified destinations).

  • Education.

  • Research.

  • Charitable contribution.

  • Royalty or license.

  • Current or prospective ownership or investment interest.

  • Direct compensation for serving as faculty or as a speaker for a medical education program.

  • Grant.

  • Any other nature of the payment or other transfer of value (as defined by the Secretary of Health and Human Services).

The name of the covered drug, device, biological, or medical supply associated with any payment, if the payment is related to the “marketing, education or research” of a particular covered drug, device, biological, or medical supply, would have to be reported. For example, if a sales representative takes a physician to dinner to explain the benefits of the applicable manufacturer's new product, the name of the product would be included. The CMS rule adds, “We are considering, as an alternative, allowing applicable manufacturers to report multiple covered drugs, devices, biologicals, or medical supplies as related to a single payment or other transfer of value.”

What would be excluded?

  • Transfers of value less than $10, unless the aggregate amount transferred to, requested by, or designated on behalf of the covered recipient exceeds $100 in a calendar year.

  • Product samples that are not intended to be sold and are intended for patient use.

  • Educational materials that directly benefit patients or are intended for patient use.

  • The loan of a covered device for a short-term trial period, not to exceed 90 days, to permit evaluation of the covered device by the covered recipient.

  • Items or services provided under a contractual warranty, including the replacement of a covered device, where the terms of the warranty are set forth in the purchase or lease agreement for the covered device.

  • A transfer of anything of value to a covered recipient when the covered recipient is a patient and not acting in the professional capacity of a covered recipient.

  • Discounts, including rebates.

  • In-kind items used for the provision of charity care.

  • A dividend or other profit distribution from, or ownership or investment interest in, a publicly traded security or mutual fund.

  • In the case of an applicable manufacturer who offers a self-insured plan, payments for the provision of health care to employees under the plan.

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

  • In the case of a covered recipient who is a physician, a transfer of anything of value to the covered recipient if the transfer is payment solely for the services of the covered recipient with respect to a civil or criminal action or an administrative proceeding.

  • Transfers of value made indirectly to a covered recipient through a third party in cases when the applicable manufacturer is unaware of the identity of the covered recipient.

To view the CMS proposed rule, go to

Sidebar 2:

What the manufacturers are saying

The Advanced Medical Technology Association, or AdvaMed, represents approximately 400 medical device and diagnostics manufacturers. Its Code of Ethics was revised effective July 1, 2009. Following are some excerpts.

Company-conducted product training and education

  • Programs and events should be conducted in settings that are conducive to the effective transmission of information. These may include clinical, educational, conference, or other settings, such as hotels or other commercially available meeting facilities. In some cases, it may be appropriate for a company representative to provide training and education at the healthcare professional’s location.

  • Programs providing “hands on” training on medical technologies should be held at training facilities, medical institutions, laboratories, or other appropriate facilities. The training staff used by the company should have the proper qualifications and expertise to conduct such training. Training staff may include qualified field sales employees who have the technical expertise necessary to perform the training.

  • Companies may provide healthcare professional attendees with modest meals and refreshments in connection with these programs. Any such meals and refreshments should be modest in value and subordinate in time and focus to the training and/or educational purpose of the meeting.

Prohibition on entertainment and recreation

Company interactions with healthcare professionals should be professional in nature and should facilitate the exchange of medical or scientific information that will benefit patient care. To ensure the appropriate focus on an educational and/or informational exchange and to avoid the appearance of impropriety, a company should not provide or pay for any entertainment or recreational event or activity for any non-employee health care professional.


A company occasionally may provide items to healthcare professionals that benefit patients or serve a genuine educational function for healthcare professionals. Other than medical textbooks or anatomical models used for educational purposes, any such item should have a fair market value of less than $100. A company may not provide items that are capable of use by the healthcare professionals (or his or her family members, office staff or friends) for non-educational or non-patient-related purposes, for example, a DVD player or MP3 player/iPod.

A company may not give healthcare professionals any type of non-educational branded promotional items, even if the item is of minimal value and related to the healthcare professional’s work or for the benefit of patients….

Evaluation and demonstration products

Company products that may be provided to healthcare professionals…may be provided at no charge to allow healthcare professionals to assess the appropriate use and functionality of the product and determine whether and when to use, order, purchase, or recommend the product in the future. Company products provided for evaluation are typically expected to be used in patient care.

  • Single Use/Consumables/Disposables. The number of single-use products provided at no charge should not exceed the amount reasonably necessary for the adequate evaluation of the products under the circumstances.

  • Multiple Use/Capital. Multiple-use products provided without transfer of title for evaluation purposes should be furnished only for a period of time that is reasonable under the circumstances to allow an adequate evaluation.

  • Demonstration. Company demonstration products are typically unsterilized single-use products or mock-ups of such products that are used for healthcare professional and patient awareness, education, and training… Demonstration products also are typically identified as not intended for patient use by use of such designations as “Sample,” “Not for Human Use,” or other suitable designation on the product, the product packaging, and/or documentation that accompanies the product.

To view AdvaMed’s “Code of Ethics On Interactions with Health Care Professionals,” go to

Sidebar 3:

Questions doctors need to ask

The American College of Physicians expanded its treatment of physician-industry relations in the recently published sixth edition of its Ethics Manual.

Specifically, the Manual states: “The acceptance by a physician of gifts, hospitality, trips, and subsidies of all types from the health care industry that might diminish, or appear to others to diminish, the objectivity of professional judgment is strongly discouraged. Even small gifts can affect clinical judgment and heighten the perception and/or reality of a conflict of interest. Physicians must gauge regularly whether any gift relationship is ethically appropriate and evaluate any potential for influence on clinical judgment.”

The Ethics Manual suggests that when making such evaluations, physicians should consider the following:

  • What would the public or my patients think of this arrangement?

  • What is the purpose of the industry offer?

  • What would my colleagues think about this arrangement?

  • What would I think if my own physician accepted this offer?

“In all instances, it is the individual responsibility of each physician to assess any potential relationship with industry to assure that it enhances patient care,” according to the Manual.

Guidance for medical societies

The new edition of the Ethics Manual also calls for medical societies to adhere to the Council of Medical Specialty Societies’ (CMSS) Code for Interactions with Companies, which ACP helped develop and endorsed. The 25-page code includes seven core principles covering the following key areas:

  • Conflicts of interest. The code calls for medical societies to develop and publicly post policies and procedures to disclose and manage conflicts of interest among those who participate in society activities (e.g., medical meetings, clinical practice guidelines, scientific journals).

  • Financial disclosure. Societies should publicly disclose donations and support received from for-profit companies in the health sector, and disclose board members’ financial and uncompensated relationships with companies.

  • Independent program development. Societies should develop and make publicly available policies and procedures that ensure that educational programs, advocacy positions and research grants are developed independent of industry supporters.

  • Independent leadership. Medical societies should prohibit its leaders (presidents, CEOs, and editors-in-chief of society journals) from having direct financial relationships with relevant for-profit companies in the health care sector.

ACP members include 132,000 internal medicine physicians, related subspecialists and medical students.

Editor’s note: To view the Sixth Edition of the American College of Physicians Ethics Manual, go to