Health Care Alert
May 2010
Authors:
Health Care Reform Client Alert Series
Mary Beth Johnston
marybeth.johnston@klgates.com
919.466.1181
Richard P. Church
richard.church@klgates.com
919.466.1187
Stephanie D. Wall
stephanie.wall@klgates.com
412.355.8364
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
On March 23, 2010, President Obama signed into law the comprehensive health care
overhaul known as the Patient Protection and Affordable Care Act (“PPACA”), Pub.
Law 111-148. 1 This wide-ranging law has far-reaching implications on the
financing and delivery of health care in the United States. In addition, it contains
substantial changes to federal health care program requirements, including health
care fraud and abuse provisions. The following K&L Gates LLP client alert is one in
a series of alerts directed to the health care provider and supplier community that are
focused on particular implications of PPACA as to the payment and regulation of
health care providers and suppliers.
New Disclosure and Reporting Requirements
Related to Manufacturers and GPOs
Payments to Teaching Hospitals and
Physicians
Introduction
PPACA institutes a new disclosure and reporting law for manufacturers and group
purchasing organizations (“GPOs”) related to payments and “transfers of value” to
teaching hospitals and physicians. While several states have enacted their own
disclosure laws, PPACA is the first attempt to require transparency in the
pharmaceutical and medical supplier industry at the federal level. Identification of
potential fraudulent, excessive, and conflicted arrangements is undoubtedly the
purpose behind the new requirements. 2
Pursuant to a newly enacted Section 1128G of the Social Security Act (42 U.S.C. §
1320a-7g), entitled “Transparency Reports and Reporting of Physician Ownership or
Investment Interests,” the first required disclosures will be due on March 31, 2013,
for the preceding calendar year. Accordingly, manufacturers and GPOs will need to
start tracking the necessary information during calendar year 2012. 3 By September
30, 2013 and on June 30 of each calendar year thereafter, the submitted information
will be made available to the public through an Internet website. 4
1
On March 30, 2010, President Obama signed the reconciliation bill (H.R. 4872, the "Health Care
and Education Reconciliation Act of 2010" or "Reconciliation Bill"), which amended PPACA.
2
The provisions outlined herein are just one of several significant reporting requirements instituted by
PPACA. For example, many drug manufacturers covered by the reporting requirements outlined
herein will also be subject to the drug sample reporting requirements found in PPACA § 6004. Under
that provision, beginning April 1, 2012, drug manufacturers and authorized distributors, as defined in
21 U.S.C. § 353, must report to the Secretary on the request and distribution of prescription drug
samples, to the extent payment is available for such drug under Medicare or Medicaid or the
Children’s Health Insurance Program state plans (or waivers of such plans), to practitioners or those
acting on their behalf.
3
See PPACA § 6002.
4
See PPACA § 6002 (c).
Health Care Alert
While the Secretary of Health and Human Services
(the “Secretary”) will be establishing procedures
regarding the new disclosure and reporting
requirements and also developing regulations to
further define and expand on the requirements, this
alert outlines the requirements of the new statutory
provision in PPACA. 5
Who is Covered?
The new statutory provision applies to applicable
manufacturers and applicable GPOs.
Applicable Manufacturers are defined to include
any entity which is engaged in the production,
preparation, propagation, compounding, or
conversion of a covered drug, device, biological, or
medical supply. The definition also includes any
entity under common ownership with such entity
which provides assistance or support with respect to
the production, preparation, propagation,
compounding, conversion, marketing, promotion,
sale, or distribution of a covered drug, device,
biological, or medical supply. The statute, however,
only applies to manufacturers operating in the
United States, or in a territory, possession, or
commonwealth of the United States. 6
Covered drug, device, biological, or medical
supply includes any drug, device, biological, or
medical supply for which payment is available under
Medicare or Medicaid or the Children’s Health
Insurance Program state plans (or waivers of such
plans). 7 Medical devices, for example, can range
from cardiac or orthopedic implants to dental floss
and toothbrushes. 8
Applicable GPOs is defined to include any GPO (as
defined by the Secretary) that purchases, arranges
for, or negotiates the purchase of a covered drug,
device, biological, or medical supply which is
operating in the United States, or in a territory,
possession, or commonwealth of the United States. 9
Disclosure of Payments and Transfers
of Value
Effective March 31, 2013, and on the 90th day of
each calendar year thereafter, any applicable
manufacturer that provides a “payment or other
transfer of value” to a “covered recipient” (or to an
entity or individual at the request of or designated
on behalf of a covered recipient) must submit to the
Secretary (in an electronic form as the Secretary
will require) certain information with respect to the
preceding calendar year (e.g., calendar year 2012). 10
The Secretary is then directed to make such
information available to the public at large.
Covered Recipients is defined to include teaching
hospitals and physicians and their immediate family
members (other than a physician who is employed
by an applicable manufacturer). Physicians
generally include a doctor of medicine or
osteopathy, a doctor of dental surgery or of dental
medicine, a doctor of podiatric medicine, a doctor of
optometry, or a chiropractor. 11 Significantly,
teaching hospital is not defined.
Payments or Transfers of Value is defined
broadly to mean a “transfer of anything of value.”
This includes not only payments for services
provided (such as consulting fees, research, and
speaking engagements) and returns on investment
(e.g., profit distributions, dividends and option
grants), but also gifts, meals and travel. 12
Recognizing the potentially broad scope of this
definition, certain transfers of value are excluded,
including:

5
Not later than October 1, 2011, the Secretary is required to
establish procedures for applicable organizations to submit the
required information.
6
See PPACA § 6002(e)(2) and (9).
7
See PPACA § 6002(e)(5).
8
www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/
Overview/ClassifyYourDevice/default.htm
Transfers made indirectly to a covered recipient
through a third party in connection with an
activity or service in the case where the
applicable manufacturer is unaware of the
identity of the covered recipient.
9
See PPACA § 6002(e)(1).
See PPACA § 6002(a).
11
See PPACA § 6002(e)(11); 42 U.S.C. § 1395x(r).
12
See PPACA § 6002(a) and (e)(10)(A).
10
May 2010
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Health Care Alert

Transfers valued at less than $10, with an
aggregate calendar year limit of $100 (with price
index increases effective 2012).

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.

Loans 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.

Transfers 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 and mutual fund.

Payments for the provision of health care to
employees under a self-insured plan offered by
an applicable manufacturer.

Transfers to a licensed non-medical professional
solely for the non-medical professional services
of such individual.

Transfers to a physician in payment for services
with respect to a civil or criminal action or an
administrative proceeding. 13
Disclosures. The applicable manufacturer must
disclose a variety of information, including, for
example, the name and business address of the
covered recipient; if the covered recipient is a
physician, his or her specialty and NPI; and a
description of the type and amount of the payment
or transfer of value. If the payment or other transfer
of value is related to marketing, education, or
research, then the applicable manufacturer must
disclose the name of the specific covered drug,
device, biological or medical supply. 14 In addition,
if an applicable manufacturer provides a payment or
other transfer of value “at the request of or
designated on behalf of” a covered recipient, then
the manufacturer must disclose the information
under the name of the covered recipient. 15
Delayed Public Disclosure for Product Research
and Clinical Investigations. The statute does
provide for delayed public disclosure by the
Secretary with respect to payments or other
transfers of value made to covered recipients
pursuant to:

A product research or development agreement
for services furnished in connection with
research on a potential new medical technology
or a new application of an existing medical
technology or the development of a new drug,
device, biological, or medical supply; or

A clinical investigation of a new drug, device,
biological, or medical supply. 16
In such instances, the disclosed information will not
be made available to the public until the earlier of
(1) the date of the approval or clearance of the
covered drug, device, biological, or medical supply
by the Food and Drug Administration, or (2) four
calendar years after the date such payment or other
transfer of value was made. 17 This information is
considered confidential and not subject to disclosure
under the Freedom of Information Act or any other
similar federal, state or local law until such times as
14
See PPACA § 6002(a)(1)(A).
See PPACA § 6002(a)(1)(B).
16
See PPACA § 6002(c)(1)(E)(i).
17
See id.
15
13
See PPACA § 6002(e)(10)(B).
May 2010
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Health Care Alert
the information is made available to the public under
this new statutory provision. 18
Disclosure of Physician Ownership
Effective March 31, 2013, and on the 90th day of
each calendar year thereafter, applicable
manufacturers and applicable GPOs must submit
to the Secretary (in such electronic form as the
Secretary will require) information regarding any
“ownership or investment interest” held by a
physician (or an immediate family member of a
physician) in such organization during the preceding
year (e.g., calendar year 2012). 19
Disclosures. An applicable manufacturer or GPO
must disclose a variety of information, including, for
example, the dollar amount invested and the value
and terms of each ownership or investment interest.
In addition, the same disclosure requirements noted
above apply to an applicable GPO if there is a
payment or other transfer of value to an
owner/investor physician (or to any entity or
individual at the request of or designated on behalf
of an owner/investor physician). 20
Ownership or Investment Interest. While this
term is not defined in PPACA, the statute carves out
ownership or investment interests in a publicly
traded security and mutual funds as defined under
Stark suggesting that federal regulators will likely
look to the Stark definition for purposes of
rulemaking or enforcement. 21
Penalties for Non-Compliance
An applicable manufacturer or applicable GPO that
fails to submit information within the required
deadlines is subject to a civil money penalty of not
18
See PPACA § 6002(c)(1)(E)(ii).
See PPACA § 6002(a)(2). Immediate family members of a
physician has the same meaning as under the federal
physician self-referral law (“Stark”) and include husband or
wife; birth or adoptive parent, child, or sibling; stepparent,
stepchild, stepbrother or stepsister; father-in-law, mother-inlaw, son-in-law, daughter-in-law, brother-in-law, or sister-inlaw; grandparent or grandchild; and spouse of a grandparent
or grandchild. See id.; 42 U.S.C. § 1395nn(a) and 42 CFR §
411.351.
20
See PPACA § 6002(a)(2).
21
See PPACA § 6002(a)(2); 42 U.S.C. § 1395nn(c).
19
less than $1,000 but no more than $10,000 for each
payment or other transfer of value or ownership or
investment interest not reported. There is a cap on
the penalty of $150,000 applicable to each annual
submission. 22 If, however, there is a “knowing”
failure to submit information within the required
deadlines, then the applicable organization is
subject to a civil money penalty of not less than
$10,000 but no more than $100,000 for each
payment or other transfer of value or ownership or
investment interest not reported. There is an annual
cap on this penalty of $1,000,000. 23
State Laws
While the applicable manufacturers will need to
comply with this new federal provision, there is
some reprieve from duplicative state requirements.
PPACA preempts any state law that requires
disclosure of the same information for any
payments or transfers of value on or after January 1,
2012. However, any state law requiring disclosure
or reporting of different types of information or by
persons or entities other than applicable
manufacturers or to persons or entities other than
covered recipients as defined by PPACA is not
preempted.
Recommendations
Given the breadth and scope of the disclosure
requirements, and the increased scrutiny by the
Office of Inspector General regarding their financial
arrangements with teaching hospitals and
physicians, covered manufacturers and GPOs
should begin taking action to comply with
PPACA’s requirements now. Teaching hospitals
and physicians should also review their
relationships, particularly with manufacturers, to
assess the likely content of any reporting. It is
important to note that while a particular hospital
may not be a teaching hospital under this new law,
hospitals that employ physicians within their
systems should also review these relationships as
covered manufacturers and GPOs will be reporting
information about their employed physicians.
22
23
See PPACA § 6002(b)(1).
See PPACA § 6002(b)(2).
May 2010
4
Health Care Alert



Information Gathering Systems: Applicable
manufacturers and GPOs should develop the
internal systems necessary to gather and report
the information required under PPACA.
Policies and protocols should be drafted or
reviewed and amended to include the policies
and procedures necessary to address the new
federal requirements.
Training: Staff should be trained on the scope
and parameters of the new federal statute to
insure that all reportable relationships are
accurately identified and disclosed.
Compliance Reviews: The gathering and/or
disclosure of such information will inevitably
trigger reviews of such arrangements, including
potentially by federal regulators. Applicable
manufacturers and GPOs as well as physicians
and teaching hospitals should review each
arrangement that will be subject to disclosure to
confirm its compliance with the applicable
regulatory requirements (such as Stark and the
federal Anti-Kickback Statute) and company
conflict of interest policies and other applicable
policies of the organization. To the extent not
already explicitly covered, the corporate
compliance programs of teaching hospitals
should require the reporting and approval of
gifts and other financial relationships with
manufacturers and GPOs as well as regular
audits of these relationships. Additionally, such
arrangements may merit public relations review
to estimate the community and market reaction
such disclosures required by this new law may
trigger. In addition, as noted above non-teaching
hospitals that employ physicians within their
systems should be engaging in the same reviews
of arrangements, policies and programs.
For additional information, please contact:
Boston
Paul W. Shaw
paul.shaw@klgates.com
617.261.3111
Harrisburg
Ruth E. Granfors
ruth.granfors@klgates.com
717.231.5835
Miami
William J. Spratt
william.spratt@klgates.com
305.539.3320
Newark
Stephen A. Timoni
stephen.timoni@klgates.com
973.848.4020
Pittsburgh
Edward V. Weisgerber
ed.weisgerber@klgates.com
412.355.8980
Stephanie D. Wall
stephanie.wall@klgates.com
412.355.8364
Research Triangle Park
Mary Beth Johnston
marybeth.johnston@klgates.com
919.466.1181
Richard P. Church
richard.church@klgates.com
919.466.1187
May 2010
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Health Care Alert
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participants and public sector entities. For more information, visit www.klgates.com.
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©2010 K&L Gates LLP. All Rights Reserved.
May 2010
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