Missing an Opportunity to Protect Patients and Save Dollars

October 18, 2011
Guest Post

By Reuben Guttman and Oderah Nwaeze. Reuben Guttman is a Director at the firm of Grant & Eisenhofer and heads the firm's False Claims Act litigation group. He is a Senior Fellow and Adjunct Professor at the Emory Law School Center of Advocacy and Dispute Resolution. Oderah Nwaeze is member of the Grant & Eisenhofer False Claims Act Litigation Group, and a 2011 graduate of Emory Law School.


Buried in President Obama’s healthcare reform law, the Patient Protection and Affordable Care Act (PPACA), is a measure called the Physician Payments Sunshine Provision or the “Disclosure Law.” This law requires the public disclosure of payments made to doctors by pharmaceutical and medical device manufacturers.  Since even small gifts can compromise a doctor’s objectivity, a patient should know whether his physician has received money and/or gifts from drug or device companies.  Recent civil prosecutions of the pharmaceutical and medical device industries under the False Claims Act (FCA), resulting in pharmaceutical giants paying millions of dollars to resolve allegations that they paid kickbacks in order to induce the writing of prescriptions, demonstrates that the transparency required by this law is long overdue.

The FCA allows private citizens with knowledge of a fraud on the government to bring suit in the name of the government. Whistleblower cases brought under the FCA against some of the world's largest pharmaceutical companies have surfaced allegations and information raising real concerns that illegal marketing schemes including off label marketing -- or marketing a drug for purposes outside its indication -- and kickbacks in form of payments made to doctors under the guise of research studies -- have caused billions of dollars of prescriptions to be written for drugs that are not needed or that may actually cause injury or illness with additional costs for treatment further burdening our nation's health care system. Within the last five years alone, Pfizer, AstraZeneca, Boston Scientific, Eli Lilly, and Biovail paid a combined total of $4.3 billion to settle claims of unlawful marketing.  Although Pfizer's share was a record $2.3 billion, the company posted revenues of more than $171 billion for the drugs that were illegally marketed. To a large degree, these settlements -- even with the huge monetary sanctions -- only serve to highlight problems rather than fully address them.     

Beginning Jan. 1, 2012, manufacturers of drugs, devices, biologics, and medical supplies covered under Medicare, Medicaid, or the State Children’s Health Insurance Program will have to record all transfers of value and submit annual reports to the Department of Health and Human Services (HHS).  In turn, HHS will submit summary reports to Congress and to each state.  Each disclosure in the report must contain the receiving physician’s name, address, national provider identifier, value of transfer, form and nature of the payment, and the date of the payment.  The payments referenced in these reports will include transfers to physicians and teaching hospitals as compensation, food, entertainment, gifts, travel, consulting fees, honoraria, research funding, grants, education or conference funding, stocks or stock options, ownership or investment interest, royalties or license, and charitable contributions.

While there are certain limited exemptions provided by law, the failure to report payments will result in fines of up to $10,000 for each violation, but not to exceed $150,000 annually.  If a company knowingly fails to report payments, each violation will result in a fine of up to $100,000, but not exceeding $1,000,000 annually.

At a time when health care costs are rising and the nation is struggling to remain competitive, unlawful marketing practices of big pharmaceutical companies are a drain on public and private sector health care plans. While the Disclosure Law is a positive step towards the transparency necessary for additional oversight of the pharmaceutical industry; unfortunately, it appears that the Centers for Medicare & Medicaid Services (CMS) does not value this law in the same way that its Capitol Hill supporters did.  The Patient Protection and Affordable Care Act (PPACA) gave CMS the authority to establish policies and procedures for enforcing the Disclosure Law.  With this grant of power, CMS was given a deadline of Oct. 1, 2011 to implement its procedures. That deadline has now come and gone and there are consequences to CMS missing the deadline. After Jan. 1, 2012, the Disclosure Law will preempt all state laws requiring a pharmaceutical or medical device company to disclose payments to physicians.  If CMS does not implement its rules and regulations by Dec. 31, 2011, the 2012 calendar year will likely be filled with serious confusion as to whether pharmaceutical and device manufacturers should follow the yet-to-be-implemented Disclosure Law or state transparency laws that will face preemption challenges. 

Rather than aid in the battle against health care fraud, CMS may be helping industry efforts to conceal payments to health care providers. At the very least, this is unfortunate because CMS is missing an opportunity to protect consumers and save precious health care dollars.  At worst, CMS risks rendering this much needed law ineffective.