Aggregate Spending Rules Arrive, But Industry Is Still Gearing Up

Pharmaceutical CommercePharmaceutical Commerce - January/February 2012

The 'Sunshine Act' provisions of the Affordable Care Act require records to be kept beginning Jan. 1

[Ed.note: After this article went to press, CMS released a draft set of regulations for agg spend reporting, including a proposed delay until later in 2012 for beginning record storage. See here]

With the calendar turning over for the new year, the window is officially open for collecting data on where life sciences companies spend money on healthcare professionals, the “Physicians Payment Sunshine Act” that got incorporated into the Patient Protection and Affordable Care Act of 2010. Discussions with industry managers and vendors show that many of the biggest pharma companies are well along in implementing the reporting systems, but many smaller companies are not—and some are simply going to wait until March 2013, when the data from the full preceding year are to be delivered to the Centers for Medicare and Medicaid Services (CMS).

Payments to physicians have long been under regulatory scrutiny, and many pharma companies operating under Corporate Integrity Agreements have been obliged to report aggregated spending prior to the Sunshine Act provisions. Many of those, however, specifically involved interactions between healthcare professionals (HCPs) and sales and marketing staffs. The new agg spending rules apply across the board to HCP interactions. Arguably, the most friction will be generated initially in collecting data on clinical research, and could involve reporting by CROs to the sponsor companies, direct payments to principal investigators, and an uncertain combination of payments to healthcare facilities (as opposed to the HCPs themselves).

“Some smaller companies with few commercial products are saying that they’ll hire temp staffs to go through financial records for the previous year and reconstruct the spending,” says Animesh Gandhi, an executive at Alliance Life Sciences Consulting Group (, Somerset, NJ), which is advising companies on how to comply. “The risk is that they will find incomplete records, and then possibly subject to the penalties included in the Sunshine Act.”

CMS is not helping matters by mis—sing promised deadlines for providing administrative guidance on how to comply with the Act. Senators Charles Grassley (R-IA) and Herbert Kohl (D-WI) wrote to CMS in October, calling out the agency for its delay in producing this guidance; Donald Berwick, the now-resigned CMS Administrator, wrote back in late October saying only that “CMS staff has been engaged with the Office of Inspector General to gather their input and assistance in developing implementing regulations,” while also noting that the agency was also following President Obama’s Executive Order 13563, “which directs all Federal agencies to reduce regulatory burden.”

Meanwhile, it’s an open question whether CMS would be able to meet its required deadline of September 2013 to make the aggregate spending data from 2012 available to the public, given the scale of the undertaking, even under the best of circumstances. The Sunshine Act calls for life sciences companies to compile the money or “transfers of value” to physicians and other healthcare professionals (a group of people that approaches one million in number). Pharma companies are scrambling to build master data lists so that they can consistently report on the thousands of HCPs each company deals with; then CMS is supposed to be able to compile the data across all companies. Given that the period between March and September 2013 is also a period where HCPs are supposed to review the data individual pharma companies have reported—and potentially dispute them—a massive data-massaging project is looming.

Missing clarity

Without final regulations from CMS, a long list of question marks are on the board for how to handle the detailed reporting. According to John Seus, principal at MedPharma Partners LLC, and actively involved in setting up agg spend systems at medical device companies, the list includes:

>> Teaching hospitals, which have specific guidelines to follow under the Sunshine Act; but there is no unanimity on which of several lists of hospitals CMS will use

>> The $10 limit, below which reporting is unnecessary, except when the total for the year exceeds $100; so will this require every cup of coffee or slice of pizza to be recorded, and then summed at the end of the year?

>> The law applies to “US licensed” HCPs—but what happens when a US-licensed HCP is working abroad, and interacts with a company’s representative there? Likewise, what should happen with expenses incurred by a US HCP who is traveling abroad?

>> Third party payments, by a contractor to a pharma company who is spending money with an HCP. The law specifies that the HCP should be included “if known”—but what if the information is not forwarded by the third party?

>> Instruments and analytical techniques (including software) that are commonly distributed with medical devices such as implants, but which are not included as the cost of the implant.

With many of these, you have to ask yourself, is this what Chuck Grassley intended?” says Seus. Undoubtedly, CMS will provide some clarity on most if not all of these situations, but the problem today is whether a company should approach them conservatively or leave them open to interpretation.

For his part, Alliance Life Sciences Gandhi says that third-party payments are likely to be especially onerous. “Pharma companies should incorporate their own guidance into the contracts with third parties,” he says. “And for a third party who can’t or won’t provide the necessary reporting, it will be time to find a new contractor.”

Agg spend goes global

For a typical pharma company that operates internationally, the coming challenge in Washington is only part of the picture. Similar aggregate-spending rules are appearing in other countries, notably France, which has gone through a Vioxx-scale drug-approval scandal of its own (involving a drug branded as Mediator [benfluorex], and tracing back to 2009), which ultimately resulted in a top-to-bottom revision of its pharmaceutical regulatory processes called the “Reforme du Medicant.” Details are still being worked out, but a part of the new program will require reporting payments to physicians above a certain level (which in turn would require compiling data on most or all such transactions).

The Association of the British Pharma—ceutical Industry has updated its Code of Conduct requiring declarations of financial transactions; similarly, the Medicines Australia Code of Conduct has a reporting requirement. There is also some overlap with various anti-bribe or –kickback rules worldwide.

Cegedim Relationship Management (Bedminster, NJ), which has developed a suite of software tools called AggregateSpend360, did a survey last spring of compliance costs by pharma companies; around 60% were spending under $1 million, but the remainder were spending above that level. Industry sources indicate that a comprehensive, enterprise-wide system operating globally is about 5X the cost of a national system.

Other providers of IT systems and services for agg spend include R-Squared (, Polaris Management Group (, Knowledgent Group (, Porzio Pharma Services ( and Parallax Consulting (

On the flip side of globalization, it’s still true that even with the federal Sunshine Act, state-level rulemaking is still in force. Massachusetts and Vermont are two of the states with their own rules; others have various levels of proposals that could come into force. “Massachusetts requires payments of more than $50 or more to be reported, while the federal limit is $100,” notes MedPharma’s Seus. “So, should you design your system to have a special section for Massachusetts alone, or to collect all data nationally but report the under-$100 data only to that state? These are the kinds of complications that having multiple state rules create.”

Looking far down the road, companies are beginning to think about what will happen when HCP payment data does become public; there have been some rumblings from the physician community that they look on such reporting as an intrusion into their personal business—which implies that there could come a time when the agg spend rules influence the types of interactions physicians will be willing to undertake with pharma companies. (Of course, one could argue that that’s the goal of the reporting requirements in the first place.) At the same time, pharma companies will have the opportunity to look at their interactions with the provider community holistically, deciding that, for example, interactions with nurse practitioners who prescribe are woefully underserved as compared to KOL physicians.

And beyond that, the ultimate arbiter will be patients and their interactions with physicians. The December issue of Health Affairs (Vol. 30 no. 12 2449-2452) featured a “narrative” from such a patient, Maran Wolston, a graduate student with a background in medical ethics, who switched from one doctor to treat her to another out of concerns for the involvement of the first doctor in clinical trials sponsored by Teva Pharmaceuticals, makers of the drug she was using. She was further discomforted by being contacted by a patient-assistance service, from a third party also sponsored by Teva. Ultimately, she chose another physician, saying that “having my doctor not receive industry payments is one of my criteria for choosing” that doctor. Even so, she asked the second doctor whether industry relationships had come up as a question from patients before, and was told, “I was the only one.” PC

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