[Federal Register Volume 76, Number 243 (Monday, December 19, 2011)]
[Proposed Rules]
[Pages 78742-78773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-32244]



[[Page 78741]]

Vol. 76

Monday,

No. 243

December 19, 2011

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services





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42 CFR Parts 402 and 403





Medicare, Medicaid, Children's Health Insurance Programs; Transparency 
Reports and Reporting of Physician Ownership or Investment Interests; 
Proposed Rule

Federal Register / Vol. 76 , No. 243 / Monday, December 19, 2011 / 
Proposed Rules

[[Page 78742]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 402 and 403

[CMS-5060-P]
RIN 0938-AR33


Medicare, Medicaid, Children's Health Insurance Programs; 
Transparency Reports and Reporting of Physician Ownership or Investment 
Interests

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would require applicable manufacturers of 
drugs, devices, biologicals, or medical supplies covered by Medicare, 
Medicaid or the Children's Health Insurance Program (CHIP) to report 
annually to the Secretary certain payments or transfers of value 
provided to physicians or teaching hospitals (``covered recipients''). 
In addition, applicable manufacturers and applicable group purchasing 
organizations (GPOs) are required to report annually certain physician 
ownership or investment interests. The Secretary is required to publish 
applicable manufacturers' and applicable GPOs' submitted payment and 
ownership information on a public Web site.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. Eastern Standard 
Time on February 17, 2012.

ADDRESSES: In commenting, please refer to file code CMS-5060-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-5060-P, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-5060-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments only to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC-- Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-1066 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Erica Breese (202) 260-6079.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-(800) 743-3951.

I. Background

A. Statutory Background

    Section 6002 of the Affordable Care Act added section 1128G to the 
Social Security Act (the Act), which requires applicable manufacturers 
of drugs, devices, biologicals, or medical supplies covered under title 
XVIII of the Act (Medicare) or a State plan under title XIX (Medicaid) 
or XXI of the Act (the Children's Health Insurance Program, or CHIP) to 
report annually to the Secretary certain payments or other transfers of 
value to physicians and teaching hospitals. Section 1128G of the Act 
also requires applicable manufacturers and applicable group purchasing 
organizations (GPOs) to report certain information regarding the 
ownership or investment interests held by physicians or the immediate 
family members of physicians in such entities.
    Specifically, manufacturers of covered drugs, devices, biologicals, 
and medical supplies (applicable manufacturers) are required to submit 
on an annual basis the information required in section 1128G(a)(1) of 
the Act for certain payments or other transfers of value made to 
physicians and teaching hospitals (collectively called covered 
recipients) during the course of the preceding calendar year. 
Similarly, section 1128G(a)(2) of the Act requires applicable 
manufacturers and applicable GPOs to disclose any ownership or 
investment interests in such entities held by physicians or their 
immediate family members, as well as information on any payments or 
other transfers of value provided to such physicians. Applicable 
manufacturers must report the required payment and other transfer of 
value information to CMS in an electronic format by March 31, 2013, and 
on the 90th day of each calendar year thereafter. Applicable 
manufacturers and applicable GPOs must report the required information 
about physician ownership and investment interests, including those 
held by immediate family members, as well as information on any 
payments or other transfers of value to such physician owners or 
investors in the same format, by the same date. Applicable 
manufacturers and applicable GPOs are subject to civil monetary 
penalties (CMPs) for failing to comply with the reporting requirements 
of the statute. We are required by statute

[[Page 78743]]

to publish the reported data on a public Web site. The data must be 
downloadable, searchable, and easily aggregated. In addition, we must 
submit annual reports to the Congress and each State summarizing the 
data reported. Finally, section 1128G of the Act generally preempts 
State laws that require disclosure of the same type of information by 
manufacturers.
2. Transparency Overview
    Collaboration among physicians, teaching hospitals, and industry 
manufacturers may contribute to the design and delivery of life-saving 
drugs and devices. 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.
    We recognize that disclosure alone is not sufficient to 
differentiate beneficial, legitimate financial relationships from those 
that create conflict of interests or are otherwise improper. Moreover, 
financial ties alone do not signify an inappropriate relationship. 
However, transparency can shed light on the nature and extent of 
relationships, and may dissuade inappropriate conflicts of interest 
from developing. Given the intricacies of disclosure and the importance 
of discouraging inappropriate relationships without harming beneficial 
ones, we sought to better understand the current scope of the 
interactions among physicians, teaching hospitals, and industry 
manufacturers. We solicited stakeholder feedback through a CMS Open 
Door Forum on March 24, 2011 in order to guide our implementation of 
section 1128G of the Act. The transcript of this Open Door Forum can be 
found on the regulatory docket on Regulations.gov. In addition to this 
feedback, we consulted with the Inspector General of the Department of 
Health and Human Services (HHS), as required by the statute.

II. Provisions of the Proposed Regulations

    The following sections outline the agency's proposals concerning 
implementation of section 1128G of the Act, including clarification of 
the terms and definitions used in the statute, as well as proposed 
procedures for the submission, review, and publication of the reported 
data. For terms undefined by the statute, we sought to provide, where 
necessary, appropriate definitions, and explanations of how we propose 
to interpret them. Due to the timing of the publication of this notice 
of proposed rulemaking, a final rule will not be published in time for 
applicable manufacturers and applicable GPOs to begin collecting the 
information required in section 1128G of the Act on January 1, 2012, as 
indicated in the statute. We will not require applicable manufacturers 
and applicable GPOs to begin collecting the required information until 
after the publication of the final rule; however, we recognize that 
some manufacturers and GPOs may begin to collect certain data 
voluntarily. We seek comment on the amount of time applicable 
manufacturers and applicable GPOs will need following publication of 
the final rule in order to begin complying with the data collection 
requirements of section 1128G of the Act. We are considering a 
preparation period of 90 days, since we believe that was the time 
period intended by Congress based on the timeline indicated in the 
statute and are requesting comments on whether that is a sufficient 
amount of time. Finally, we also seek input on specific challenges that 
applicable manufacturers and applicable GPOs may face when setting up 
the necessary data collection and reporting systems.
    We hope to finalize this rule as soon as possible during calendar 
year (CY) 2012 and, depending on the publication date of the final 
rule, we are considering requiring the collection of data for part of 
2012, to be reported to CMS by the statutory date of March 31, 2013. We 
seek comments on the feasibility of submitting the required information 
for part of CY 2012 by March 31, 2013.

A. Transparency Reports

    Section 1128G(a) of the Act outlines the transparency reporting 
requirements and consists of two parts. The first part, section 
1128G(a)(1) of the Act, outlines the required reports from applicable 
manufacturers on payments or other transfers of value to covered 
recipients. The second part, section 1128G(a)(2) of the Act, outlines 
the reporting requirements for applicable manufacturers and applicable 
GPOs concerning ownership and investment interests of physicians, and 
their immediate family members, as well as information on any payments 
or other transfers of value provided to such physician owners or 
investors. While there is some overlap between these submissions, we 
propose that these two types of information be reported separately to 
ensure that the relevant reporting obligations of applicable 
manufacturers and applicable GPOs are clearly distinguished. We seek 
comments on this general approach. We want to emphasize that compliance 
with the reporting requirements of section 1128G of the Act does not 
exempt applicable manufacturers, applicable GPOs, covered recipients, 
physician owners or investors, or anyone else from any potential 
liability associated with payments or other transfers of value, or 
ownership or investment interests (for example, potential liability 
under the Federal Anti-Kickback statute or False Claims Act).
1. Reports on Payments and Other Transfers of Value Under Section 
1128G(a)(1) of the Act
a. Applicable Manufacturers
(1) Manufacturers
    Section 1128G(a) of the Act requires that applicable manufacturers 
disclose certain payments or other transfers of value to covered 
recipients. In defining applicable manufacturer, we sought a 
comprehensive definition to ensure the full transparency and complete 
reporting envisioned by the statute. Section 1128G(e)(9) of the Act 
defines a ``manufacturer of a covered drug, device, biological, or 
medical supply'' as--:

    Any entity which is engaged in the production, preparation, 
propagation, compounding, or conversion of a covered drug, device, 
biological, or medical supply (or any entity under common ownership 
with such entity which provides assistance or support to such entity 
with respect to the production, preparation, propagation, 
compounding, conversion, marketing, promotion, sale, or distribution 
of a covered drug, device, biological, or medical supply).

Section 1128G(e)(2) of the Act clarifies that an ``applicable 
manufacturer'' of a covered drug, device, biological, or medical 
supply, is one which is ``operating in the United States, or in a 
territory, possession, or commonwealth of the United States.''

    Given these statutory definitions and relevant considerations, we 
propose to interpret ``applicable manufacturer'' for the purposes of 
this regulation as an entity that is:

    (1) Engaged in the production, preparation, propagation, 
compounding, or conversion of a covered drug, device, biological, or 
medical supply for sale or distribution in the United States, or in 
a territory, possession, or commonwealth of the United States; or
    (2) Under common ownership with an entity in paragraph (1) of 
this definition, which provides assistance or support to such entity 
with respect to the production, preparation, propagation, 
compounding, conversion, marketing, promotion, sale, or

[[Page 78744]]

distribution of a covered drug, device, biological, or medical 
supply for sale or distribution in the United States, or in a 
territory, possession, or commonwealth of the United States.

    We recognize that there are other definitions of ``manufacture,'' 
``manufacturer'' and ``manufacturing'' with which industry may be 
familiar (such as those in 21 CFR 207.3, 21 CFR 210.3(b)(12), 21 CFR 
820.3(o), and 42 USC 1396r-8(k)(5)). We note that this proposed 
definition, which generally tracks the statute, is somewhat more 
limited than those definitions.
    Under this definition, manufacturers of a covered drug, device, 
biological, or medical supply (under either paragraph (1) or paragraph 
(2) of the definition) are deemed to be an ``applicable manufacturer'' 
if their products are sold or distributed in the United States (U.S.), 
regardless of where the covered drug, device, biological, or medical 
supply is actually produced or where the entity is actually located or 
incorporated. Given the global nature of these industries, we believe 
that any entity manufacturing covered drugs, devices, biologicals, or 
medical supplies for sale or distribution in the U.S. (or any entity 
under common ownership which provides assistance or support in the 
production, preparation, propagation, compounding, conversion, 
marketing, promotion, sale, or distribution of such items) should be 
subject to the requirements of section 1128G of the Act. The 
opportunity for undue influence or inappropriate relationships caused 
by payments or transfers of value to covered recipients is the same for 
manufacturers of drugs, devices, biologicals, or medical supplies sold 
or distributed in the United States regardless of where the product is 
actually manufactured, and we, therefore, propose to treat them the 
same.
    We also seek to clarify that any manufacturer that meets the 
definition of applicable manufacturer by selling or distributing in the 
United States at least one covered drug, device, biological, or medical 
supply is considered an applicable manufacturer, even though it may 
also manufacturer products that do not fall within that category (as 
defined later in this section). We propose that all payments or 
transfers of value made by an applicable manufacturer to a covered 
recipient must be reported as required under section 1128G of the Act 
regardless of whether the particular payment or other transfer of value 
is associated with a covered drug, device, biological, or medical 
supply. Additionally, we seek to clarify that the proposed definition 
includes entities that hold Food and Drug Administration (FDA) 
approval, licensure, or clearance for a covered drug, device, 
biological, or medical supply, even if they contract out the actual 
physical manufacturing of the product to another entity. We interpret 
these entities as being ``engaged in the production, preparation, 
propagation, compounding, or conversion of a covered drug, device, 
biological, or medical supply.'' We seek comment on this 
interpretation.
    As noted previously, section 1128G(e)(9) of the Act states 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. 
Specifically, this applies to entities under ``common ownership'' with 
an applicable manufacturer which provide assistance or support to the 
applicable manufacturer with respect to the production, preparation, 
propagation, compounding, conversion, marketing, promotion, sale, or 
distribution of a covered drug, device, biological, or medical supply 
for sale or distribution in the U.S., or in a territory, possession, or 
commonwealth of the U.S. We propose to define ``common ownership'' as 
when the same individual, individuals, entity, or entities, directly or 
indirectly, own any portion of two or more entities. The common 
ownership definition would apply to a range of corporate arrangements, 
including, but not limited to, parent companies and subsidiaries and 
brother/sister corporations.
    We are also considering an alternate interpretation that would 
limit the common ownership definition to circumstances where the same 
individual, individuals, entity, or entities own 5 percent or more of 
total ownership in two or more entities. This would be subject to the 
same requirements as the proposed definition described previously, but 
would only apply to interests of 5 percent of more. We seek comments on 
our proposed definition of ``common ownership,'' including, whether a 
more specific definition is needed and, if a minimum percentage 
threshold is adopted, whether 5 percent is appropriate. We intend to 
finalize the agency's position on this in the final rule based on 
comments received.
    If two entities are under common ownership with one another, and 
both individually meet the definition of an applicable manufacturer 
under paragraph (1) of the definition, then we propose that the 
entities should report separately under section 1128G of the Act. For 
example, if company A and company B are both owned by company C, and 
companies A, B and C all meet the definition of applicable manufacturer 
under paragraph (1), then all three have to report separately. However, 
if only one company under common ownership meets the definition of 
applicable manufacturer under paragraph (1), and the other company is 
required to report under paragraph (2) of the definition, then we 
propose that the affected entities can choose whether or not to report 
together. For example, if only company C meets the definition of 
applicable manufacturer under paragraph (1) and companies A and B meet 
the definition of applicable manufacturer under paragraph (2), then the 
companies can decide whether to report together. If an applicable 
manufacturer under paragraph (1) reports for itself as well as for 
entities under common ownership that are required to report under 
paragraph (2), the report should clearly name all of the entities that 
are included in the report. Given the various relationships between 
entities under common ownership, we propose that if an applicable 
manufacturer under paragraph (1) reports for at least one additional 
entity under common ownership, the applicable manufacturer may decide 
whether to identify the payments as those from the entity under common 
ownership, or whether to combine them with their payments or other 
transfers of value.
    In addition to payments or other transfers of value to covered 
recipients made by applicable manufacturers themselves, applicable 
manufacturers (under both paragraphs (1) and (2) of the definition) are 
also required by statute to report payments and other transfers of 
value provided indirectly to covered recipients through third parties, 
if the applicable manufacturer is aware of the identity of the covered 
recipient. This is addressed in more detail in the discussion of third 
party payments found later in this preamble.
(2) Covered Drug, Device, Biological, or Medical Supply
    The reporting requirements are limited to applicable manufacturers 
of a ``covered drug, device, biological, or medical supply.'' The 
phrase ``covered drug, device, biological, or medical supply'' is 
defined in section 1128G(e)(5) of the Act as any drug, biological 
product, device, or medical supply for which payment is ``available'' 
under Medicare, Medicaid,

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or CHIP. Many drugs, devices, biological, and medical supplies are 
reimbursed separately under these programs, making payment availability 
clear. However, others are paid for as a part of a composite rate 
payment, such as the Medicare hospital inpatient prospective payment 
system (IPPS), the outpatient prospective payment system (OPPS), or the 
end-stage renal disease (ESRD) prospective payment system. Since 
payment, while indirect, is still being provided for the bundled drug, 
device, biological or medical supply, we propose that payment is 
considered ``available'' under Medicare, Medicaid or CHIP for items 
included in a composite payment rate. Therefore, we propose that drugs, 
devices, biologicals, or medical supplies included in a composite 
payment rate, as well as those reimbursed separately, are considered to 
be covered drugs, devices, biologicals, or medical supplies under 
section 1128G of the Act.
    Given these proposals, we propose to define ``covered drug, device, 
biological, or medical supply'' as:

    Any drug, device, biological, or medical supply for which 
payment is available under Title XVIII of the Act or under a State 
plan under Title XIX or XXI (or a waiver of such plan), either 
separately, as part of a fee schedule payment, or as part of a 
composite payment rate (for example, the hospital inpatient 
prospective payment system or the hospital outpatient prospective 
payment system). With respect to a drug or biological, this 
definition is limited to those drug and biological products that, by 
law, require a prescription to be dispensed. With respect to a 
device or medical supply, this definition is limited to those 
devices (including medical supplies) that, by law, require premarket 
approval by or premarket notification to the Food and Drug 
Administration.

    We are proposing to limit drugs and biologicals in the definition 
of ``covered drug, device, biological, and medical supply,'' to drugs 
and biologicals that, by law, require a prescription to be dispensed, 
thus excluding drugs and biologicals that are considered ``over-the-
counter'' (OTC). We believe this limitation will reduce the number of 
manufacturers subject to the reporting requirements by excluding those 
that only manufacturer OTC drugs or biologicals. We believe that this 
exclusion may be appropriate for manufacturers that manufacture only 
these products (and not also products which fall within the proposed 
definition of ``covered drug, device, biological, or medical supply''), 
since physicians and teaching hospitals have less influence over 
patients' choice of OTC products. We seek comments on the proposal to 
limit covered drugs and biologicals to those that require a 
prescription to be dispensed. In the event we adopt this 
interpretation, applicable manufacturers who manufacturer only OTC 
drugs or biologicals (and not also products which fall within the 
proposed definition of ``covered drug, device, biological, or medical 
supply''), would not be required to report at all under section 1128G 
of the Act. However, manufacturers who manufacture both OTC drugs or 
biologicals and at least one product that falls within the definition 
of a covered drug, device, biological or medical supply would be 
required to report all payments or transfers of value to covered 
recipients required by section 1128G of the Act (whether or not 
associated with a covered drug, device, biological, or medical supply), 
as previously explained.
    Similarly, we are also proposing an additional limitation to the 
definition as it pertains to devices and medical supplies, which would 
limit them to those devices (including medical supplies) that, by law, 
require premarket approval by or notification to FDA. This would 
exclude many Class I devices and certain Class II devices, which are 
exempt from premarket notification requirements under 21 U.S.C. 360(l) 
or (m), such as tongue depressors and elastic bandages. Some of these 
devices and medical supplies are so routinely provided in the course of 
medical care that the Congress may not have intended to capture 
manufacturers of such items under these reporting requirements. 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. However, we are also 
concerned that this would be overly limiting for the definition of 
applicable GPOs, which also incorporates the phrase ``covered drug, 
device, biological, or medical supply.'' We discuss this more in the 
applicable GPO definition section. We seek comment on this additional 
limitation that we are proposing. We note that in the event this 
interpretation is adopted, applicable manufacturers who manufacture 
only devices or medical supplies that are exempt from premarket 
notification requirements (and not also products which fall within the 
proposed definition of ``covered drug, device, biological, or medical 
supply''), would not be required to report at all under section 1128G 
of the Act. However, manufacturers who manufacture both devices or 
medical supplies that are exempt from premarket notification 
requirements and at least one product that falls within the definition 
of a covered drug, device, biological or medical supply would be 
required to report all payments or transfers of value to covered 
recipients required by section 1128G of the Act (whether or not 
associated with a covered drug, device, biological, or medical supply), 
as previously explained.
b. Covered Recipients
    Under section 1128G(a)(1) of the Act, applicable manufacturers are 
required to disclose certain payments or other transfers of value made 
to covered recipients, or to entities or individuals at the request of, 
or designated on behalf of, a covered recipient. Section 1128G(e)(6) of 
the Act defines ``covered recipient'' as: (1) A physician, other than a 
physician who is an employee of an applicable manufacturer; or (2) a 
teaching hospital. Section 1128G(e)(11) of the Act defines 
``physician'' to have the meaning set forth in section 1861(r) of the 
Act, which includes doctors of medicine and osteopathy, dentists, 
podiatrists, optometrists and licensed chiropractors. ``Employee'' is 
also defined in section 1128G(e)(7) of the Act to have the meaning set 
forth in section 1877(h)(2) of the Act, which is defined as follows: 
``An individual who is considered to be ``employed by'' or an 
``employee'' of an entity if the individual would be considered to be 
an employee of the entity under the usual common law rules applicable 
in determining the employer-employee relationship (as applied for 
purposes of section 3121(d)(2) of the Internal Revenue Code of 1986).'' 
We note that these common law rules are discussed in 20 CFR 404.1007 
and 26 CFR 31.3121(d) through 1(c).
    The term ``teaching hospital'' is not explicitly defined in section 
1128G of the Act or elsewhere in the Act. One possible way to define 
the term ``teaching hospital'' is by linking it to Medicare graduate 
medical education (GME). We believe this is an appropriate way to 
identify teaching hospitals because GME payments are provided to 
support the training of medical residents, and hospitals that receive 
such payments are easily identifiable. Therefore, we propose to define 
a teaching hospital as any institution that received payments under 
section 1886(d)(5)(B) of the Act (IPPS Indirect Medical Education 
(IME)), section 1886(h) of the Act (direct GME), or

[[Page 78746]]

section 1886(s) of the Act (psychiatric hospitals IME) during the most 
recent year for which such information is available. While we recognize 
that this definition may not capture hospitals with accredited resident 
programs that do not receive IME or GME payments, we are unable to 
include these hospitals since we cannot readily identify them based on 
Medicare payment data. We seek comment on this proposed definition.
c. Identification of Covered Recipients
    In order to accurately distinguish covered recipients, section 
1128G of the Act requires that applicable manufacturers report the 
covered recipient's name and business address, and for physician 
covered recipients, report the physician's National Provider Identifier 
(NPI), and specialty. The collection of this information is necessary 
for applicable manufacturers, in order to distinguish individual 
covered recipients when reporting to CMS. Similarly, it is also 
important for CMS when aggregating the data. However, it is not simple 
given the number of covered recipients. In order to identify physicians 
covered recipients, we suggest that applicable manufacturers use the 
National Plan & Provider Enumeration System (NPPES), which CMS 
currently maintains and updates on its public Web site. The NPPES Web 
site includes a database of physician NPIs and has an NPI Registry 
function which allows applicable manufacturers to look up individual 
physician's NPIs.\1\ Similarly, the full database can be downloaded 
from the CMS Web site.\2\ The NPPES system is updated frequently and 
NPIs do not generally change over time, so we believe this is the best 
source of information for applicable manufacturers to obtain physician 
NPIs. We realize that the NPPES system may not contain NPI information 
for every physician covered recipient as defined in this provision. 
However, we believe that NPPES represents the most comprehensive 
listing of physicians available. If a physician is not listed in the 
NPPES NPI registry, the applicable manufacturer will be responsible for 
obtaining the physician's individual NPI directly from the physician, 
to the extent that the physician has an NPI.
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    \1\ NPI Registry can be found at https://nppes.cms.hhs.gov/NPPES/NPIRegistryHome.do.
    \2\ Database can be downloaded at http://nppes.viva-it.com/NPI_Files.html.
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    We are also considering whether we should require, under the 
authority granted in section 1128G(a)(1)(A)(viii) of the Act, that 
applicable manufacturers report another unique identifier, such as 
State license number, for physicians who are identified, but do not 
have an NPI. We seek comments on what other unique identifiers could be 
used, including whether these unique identifiers are readily obtainable 
by applicable manufacturers.
    With respect to teaching hospitals, we propose to publish a list of 
hospital covered recipients (that is, those hospitals that received 
Medicare direct or indirect GME) on the CMS Web site once per year. We 
believe publication of this list is necessary because it may not be 
immediately apparent to applicable manufacturers whether a particular 
hospital meets our proposed definition of a teaching hospital, and 
there is no currently published database that includes this 
information. The list for the reporting year would include the most 
recent data available. We propose that the list of teaching hospital 
covered recipients should include the name and address of each teaching 
hospital. We seek comments on this proposal.
d. Payments or Other Transfers of Value
    ``Payment or other transfer of value'' is defined broadly in 
section 1128G(e)(10)(A) of the Act as ``a transfer of anything of 
value.'' This includes all payments or other transfers of value given 
to a covered recipient, regardless of whether the covered recipient 
specifically requested the payment or other transfer of value. In 
addition, payments or transfers of value made to an individual or 
entity at the request of or designated on behalf of a covered recipient 
must be reported under the name of the covered recipient. We propose 
that this includes payments or other transfers of value provided to a 
physician (or physicians) through a physician group or practice. We 
propose that payments or other transfers of value provided through a 
group or practice should be reported individually under the name(s) of 
the physician covered recipient(s).
    In addition, there may be other situations when a covered recipient 
may request that a payment or other transfer of value be transferred by 
the applicable manufacturer to another individual or entity instead of 
being provided directly to himself/herself or the hospital itself. As 
required in section 1128G(a)(1)(A) of the Act, these payments should be 
reported under the name of the covered recipient since they are made at 
the request of, or designated on behalf of, a covered recipient. 
Additionally, we propose that applicable manufacturers report the name 
of the entity or individual that received the payment at the request of 
or designated on behalf of the covered recipient. Reporting the entity 
or individual paid will maximize transparency about the details of the 
payment or other transfer of value, by allowing end users to discern 
whether a covered recipient actually received the payment, and if not, 
where the payment went. We do not believe it is feasible to provide a 
review period for these entities or individuals before the data is made 
publicly available on the CMS Web site. Instead, we believe that review 
by the covered recipient is sufficient. We welcome comment on this 
approach. We believe that the collection of this information is within 
the discretion provided in section 1128G(a)(1)(A)(viii) of the Act to 
require reporting of additional categories of information regarding a 
payment or other transfer of value.
e. Payment and Other Transfer of Value Report Content
    The specific categories of information required to be reported for 
each payment or transfer of value provided to a covered recipient are 
set forth in section 1128G(a)(1)(A) of the Act. We have provided the 
following explanations and details on how we propose that applicable 
manufacturers report some of this information to CMS.
(1) Name
    When reporting the name of physician covered recipients, we propose 
reporting the first name, last name, and middle initial for physician 
covered recipients.
(2) Business Address
    We propose that applicable manufacturers report the full street 
address. For teaching hospital covered recipients, we propose using 
only the address included in the CMS-published list of teaching 
hospitals. For physician covered recipients, we propose that applicable 
manufacturers report the physician's primary practice location address 
since this is more easily recognizable to end users of the data. The 
practice location can be found in NPPES as the ``provider business 
practice location.''
(3) Specialty and NPI
    Applicable manufacturers are also required to report specialty and 
NPI for physician covered recipients. If using NPPES, we suggest using 
the ``provider taxonomy'' field when reporting the physician specialty. 
We propose that applicable manufacturers only report a single specialty 
for each physician covered recipient. We propose that applicable 
manufacturers use only the specialties available for the ``provider

[[Page 78747]]

taxonomy'' field in NPPES; details on these terms are available 
online.\3\ As explained previously, for NPI, we propose that applicable 
manufacturers report the physician's individual NPI, rather than any 
group NPI, with which the physician may be associated.
---------------------------------------------------------------------------

    \3\ Health care provider taxonomy codes are available through a 
link on the NPPES Web site: https://nppes.cms.hhs.gov/NPPES/StaticForward.do?forward=static.instructions.
---------------------------------------------------------------------------

(4) Date of Payment
    Applicable manufacturers must provide the date upon which a payment 
or transfer of value was provided to the covered recipient. Some 
payments or transfers of value may be provided over multiple dates, 
such as a consulting agreement with monthly payments. We propose that 
applicable manufacturers use their discretion over whether to report 
the total payment on the date of the first payment as a single line 
item, or to report each individual payment as a separate line item. 
Under this proposal, either approach would comply with these 
regulations. We are also considering requiring manufacturers to report 
multiple payments in a single consistent manner. We seek comments on 
these proposals.
(5) Associated Covered Drug, Device, Biological, or Medical Supply
    Section 1128G(a)(1)(A)(vii) of the Act requires applicable 
manufacturers to report the name of the covered drug, device, 
biological, or medical supply associated with that payment, if the 
payment is related to ``marketing, education, or research'' of a 
particular covered drug, device, biological, or medical supply. We 
realize that not every financial relationship between an applicable 
manufacturer and a covered recipient is explicitly linked to a 
particular covered drug, device, biological, or medical supply. 
However, in cases when a payment or other transfer of value is 
reasonably associated with a specific drug, device, biological, or 
medical supply, the name of the specific product must 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 must be included since it was associated with the 
dinner. We propose that the applicable manufacturer should report a 
related covered drug, device, biological, or medical supply (if there 
is one) using the name under which the product is marketed, since this 
name is probably most recognizable to the consumer. In the event that a 
covered drug, device, biological or medical supply does not yet have a 
market name, the applicable manufacturer should report the scientific 
name. Additionally, we propose that applicable manufacturers report 
only one covered drug, device, biological, or medical supply as related 
to a payment or other transfer of value, even though there arguably may 
be multiple products related to the payment. 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. Allowing the reporting of 
multiple covered drugs, devices, biologicals and medical supplies may 
be easier for applicable manufacturers since many financial 
relationships are not specific to one product only, but would make 
aggregating payments by product difficult. We seek comment on this 
approach. Finally, if an applicable manufacturer is not reporting the 
name of the drug, device, biological, or medical supply as appropriate, 
then the applicable manufacturer may be subject to penalties under 
section 1128G(b) of the Act.
(6) Form of Payment and Nature of Payment
    The statute requires reporting on both the form of payment and the 
nature of payment for each payment or transfer of value made by an 
applicable manufacturer to a covered recipient. The statute provides a 
list of categories for both the form of payment and nature of payment 
and gives the Secretary discretion to define additional categories, if 
necessary. These categories are described in more detail later in this 
section.
    We propose that the categories within both the form of payment and 
the nature of payment should be defined as distinct from one another. 
We believe that any overlap among the categories will decrease the 
overall utility of the information submitted to CMS. For example, a 
payment for activities under the nature of payment category 
``education'' should be separate from activities under the nature of 
payment category ``research.'' If a payment or other transfer of value 
for an activity is associated with multiple categories, such as travel 
to a meeting under a consulting contract, we propose that the travel 
expenses should remain distinct from the consulting fee expenses and 
both categories would need to be reported to accurately describe the 
relationship. However, we believe that reporting multiple categories to 
describe a single payment or transfer of value may be confusing for end 
users, so we propose that for each payment or other transfer of value 
reported, applicable manufacturers may only report a single nature of 
payment and a single form of payment. For example, if a physician 
received meals and travel in association with a consulting fee, we 
propose that each segregable payment be reported separately in the 
appropriate category. The applicable manufacturer would have to report 
three separate line items, one for consulting fees, one for meals and 
one for travel. The amount of the payment would be based on the amount 
of the consulting fee, and the payments for the meals and travel. For 
these lump sum payments or other transfers of value, we propose that 
the applicable manufacturer break out the disparate aspects of the 
payment that fall into multiple categories for both form of payment and 
nature of payment. This approach should be easier for users to 
understand since they will know the totals for each form of payment, 
and each nature of payment, rather than totals for various combinations 
of categories, which may differ across applicable manufacturers. In 
addition, this should lead to greater consistency within the database 
because applicable manufacturers will separate all payments, rather 
than each applicable manufacturer combining payments differently. We 
seek comment on the proposal to require reporting payments under a 
single form of payment and nature of payment. We welcome comments about 
the usefulness of this data as well as any operational issues that 
applicable manufacturers might face in reporting it.
    We also solicit comment on an alternative approach of allowing a 
payment or other transfer of value for an activity that is associated 
with multiple segregable categories to be reported as a single lump 
sum, rather than separately by each segregable category. This approach 
may be more compatible with existing business processes, but it might 
also make the public disclosure database more confusing for end users. 
We welcome comment on the costs and relative advantages and 
disadvantages of this approach.
f. Forms of Payments
    Section 1128G(a)(1)(A)(v) of the Act lists the following forms of 
payment that applicable manufacturers must use to describe payments or 
other transfers of value:
     Cash or a cash equivalent.
     In-kind items or services.
     Stock, a stock option, or any other ownership interest, 
dividend, profit, or other return on investment.

[[Page 78748]]

     Any other form of payment determined by the Secretary.
    We do not propose to add any forms of payment beyond those outlined 
in the statute because we believe what is provided in the statute is 
sufficient to describe payments and other transfers of value. We seek 
comments on whether other categories are necessary or would be helpful. 
Additionally, we believe that these terms are understandable as written 
and propose that each form of payment be defined by the term's 
dictionary definition. Applicable manufacturers must assign each 
individual payment or other transfer of value, or separate parts of a 
payment, to one and only one of these categories.
g. Nature of Payment
    Section 1128G(a)(1)(A)(vi) of the Act lists the categories for the 
nature of payment or other transfer of value that applicable 
manufacturers must use to describe each payment. As explained 
previously, we propose that each of these categories should be distinct 
and that only one nature of payment can be indicated for each 
individual payment or other transfer of value reported. When selecting 
natures of payment, we encourage applicable manufacturers to consider 
the purpose and the manner of the payment or other transfer of value. 
If a payment could conceivably fall into more than one category, we ask 
applicable manufacturers to make reasonable determinations about the 
nature of payment reported for the payment or transfer of value. 
Section 1128G(a)(1)(A)(vi) of the Act lists the following categories 
for nature of payment:
     Consulting fees.
     Compensation for services other than consulting.
     Honoraria.
     Gift.
     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).
    We believe that these terms have meanings to the general public 
that are familiar to the industry and propose defining each nature of 
payment category by its dictionary definition. To ensure consistency in 
the reporting and selection of categories, we will allow applicable 
manufacturers to submit with their data a document describing the 
assumptions used when categorizing the natures of payments. Submission 
of the assumptions document will not be mandatory, but we believe that 
applicable manufacturers may want to explain the reasoning behind their 
categories. Additionally, we believe that the information may be useful 
for CMS to monitor how applicable manufacturers are reporting data and 
whether significant differences among applicable manufacturers exist. 
The assumptions documents will not be posted on the public Web site 
because they may contain information applicable manufacturers would 
consider proprietary. However, based on our review and assessment of 
these assumptions, we may choose to offer further guidance to 
applicable manufacturers regarding how natures of payment should be 
classified. We recognize that many of these categories are similar, so 
the assumptions document can also help us understand the assumptions 
made by applicable manufacturers when classifying payments or other 
transfers of value. We seek comment on this proposal, including whether 
we should make submission of the assumptions document mandatory instead 
of voluntary.
    We are providing some explanation of the following categories to 
provide additional context: Charitable contribution, food, research, 
and direct compensation for serving as faculty or as a speaker for a 
medical education program. These explanations are not exhaustive 
(unless specified as such), but rather are intended to provide guidance 
to applicable manufacturers when they are categorizing payments.
(1) Charitable Contributions
    Charitable contributions to, at the request of, or on behalf of 
covered recipients by applicable manufacturers must be reported. For 
purposes of the reporting requirement, a charitable contribution is any 
payment or transfer of value made to an organization with tax-exempt 
status under the Internal Revenue Code of 1986 that is not more 
specifically described by one of the other nature or payment 
categories. Payments that do not meet this requirement made to, at the 
request of, or designated on behalf of a covered recipient must be 
reported in another appropriate category.
(2) Food and Beverage
    We propose that applicable manufacturers should report the value of 
any food or beverage items provided to covered recipients, subject to 
the minimum threshold as discussed in more detail in section 
II.A.1.h.(1). of this proposed rule. This would be more straightforward 
in circumstances where covered recipients who partake in the meal are 
easily identifiable (for example, when a sales representative takes a 
specific number of physician covered recipients to a restaurant). 
However, we recognize that in instances where group meals are being 
provided in group settings (for example, buffet-style food in a 
physician's office), it may be more difficult to keep track of which 
covered recipients are partaking in the food and beverage. We propose 
that in this type of scenario, applicable manufacturers should report 
the cost per covered recipient receiving the meal (even if the covered 
recipient does not actually partake of the meal). For example, if once 
during the calendar year, a sales representative from an applicable 
manufacturer brings $25 worth of bagels and coffee to a solo 
physician's office for a morning meeting, regardless of the number of 
individuals who partake (such as non-covered recipient staff members), 
the per covered recipient cost is $25. Since this falls above the $10 
minimum threshold for reporting a payment or other transfer of value, 
which is statutorily required and discussed in detail in section 
II.A.1.h.(1). of this proposed rule, this meal must be reported. 
However, if the practice group includes five physicians, then the per-
covered recipient cost is $5 (regardless of whether all five physicians 
actually consumed any of the food provided), so the payment would not 
need to be reported. We recognize that this may be difficult for large 
group practices or hospital-based physicians, where an applicable 
manufacturer may be bringing bagels for a meeting with two specialists. 
We are considering whether to adopt a different approach for these 
situations, such as counting the number of physicians by department. We 
seek comment on these proposals and whether there is a more equitable, 
but not overly burdensome, way to report these payments or other 
transfers of value. Additionally, we propose that applicable 
manufacturers do not need to report any offerings of buffet meals, 
snacks or coffee at booths at conferences or other similar events where 
it would be difficult for applicable manufacturers to definitively 
establish the identities of

[[Page 78749]]

the individuals who accept the offerings.
(3) Research
    We seek to limit the research category to bona fide research 
activities, including clinical investigations that are subject to both 
a written agreement or contract between the applicable manufacturer and 
the organization conducting the research, as well as a research 
protocol. We propose to use this method to distinguish the research 
nature of payment category from other natures of payment categories 
because this method is also used to identify payments or other 
transfers of value eligible for delayed publication to protect the 
proprietary interests of applicable manufacturers. More details and an 
explanation of the written agreement and research protocol, as well as 
a definition of clinical investigation, are discussed more fully in the 
section of this preamble regarding delayed publication.
    We recognize that reporting payments or other transfers of value 
for research activities may be complicated, since many research 
activities include large payment amounts which are spread across 
numerous activities and parties. Additionally, the payments are often 
not provided directly to a covered recipient, but to a clinic, 
hospital, or institution administering the research that is often led 
by a physician-covered recipient(s) as the principal investigator(s). 
This situation is further complicated because many applicable 
manufacturers use contract research organizations (CROs), as defined in 
21 CFR 312.3(b), or other similar entities, such as site management 
organizations (SMOs) to manage their clinical research activities. Due 
to the complexities in the flow of research payments, we have outlined 
a proposed method for reporting research payments. However, we request 
comment on whether our proposed method is viable and not overly 
burdensome, and whether an alternative method would be preferable.
    We propose to separate the classification of research payments to 
clarify whether the payment or other transfer of value went indirectly 
or directly to the covered recipient. Indirect research would be used 
when a research payment is made to a clinic, hospital (other than a 
teaching hospital), or institution conducting the research (either by 
an applicable manufacturer or a CRO entity) and that organization in 
turn pays the physician covered recipient (or multiple physician 
covered recipients) serving as a principal investigator(s). Conversely, 
direct research would be used when a research payment or other transfer 
of value was provided directly to a physician covered recipient or 
teaching hospital covered recipient by an applicable manufacturer or 
CRO entity. When reporting payments or other transfers of value 
designated as research, we propose that applicable manufacturers must 
report the payment or other transfer of value as either ``indirect 
research'' or ``direct research.''
    When reporting indirect or direct research, we propose that the 
payment or other transfer of value should be reported individually 
under the names and NPIs of physician covered recipients serving as 
principal investigators. For indirect payments, this includes the 
physician covered recipient(s) serving as principal investigator(s) who 
would ultimately receive payments from the clinic, hospital, or other 
research institution, assuming the applicable manufacturer is aware of 
the identity of the principal investigator(s). This is consistent with 
section 1128G(a)(1)(B) of the Act, which requires payments to an entity 
or individual at the request of or designated on behalf of a covered 
recipient to be disclosed under the name of the covered recipient. 
Payments or other transfers of value reported as indirect research 
should also include the name of the entity or individual that received 
the payment or other transfer of value.
    Teaching hospitals are also defined as covered recipients, and may 
conduct research led by a physician covered recipient(s) acting as (a) 
principal investigator(s). While these payments could be reported as 
direct research to the teaching hospital covered recipient, we do not 
want to establish different reporting requirements for physician 
covered recipients acting as principal investigators at teaching 
hospitals versus other research institutions. To maintain consistency, 
we propose that research payments provided to teaching hospitals and 
ultimately to physician covered recipients must be reported for both 
the teaching hospital covered recipient, and the physician covered 
recipient(s). The payment or other transfer of value to the teaching 
hospital covered recipient should be reported as a direct research 
payment; whereas the payment or other transfer of value for the 
principal investigator(s) (physician covered recipient(s)) should be 
reported as indirect research.
    We understand that reporting the amount of the payment or other 
transfer of value may be difficult because neither the applicable 
manufacturer nor the CRO generally know how the research payment is 
distributed because the payment includes all items and activities 
associated with the research project, not only the physician's time and 
services. This is particularly important for indirect research, since a 
principal investigator(s) may be receiving his/her usual salary from 
the institution for conducting the study. Additionally, we do not 
believe the total costs should be attributed personally to the 
principal investigator(s). However, we do believe it would be 
burdensome for applicable manufacturers to accurately determine the 
exact amount a physician covered recipient received. Finally, we also 
believe that reporting the total research payment amount provides 
additional transparency to end users about the applicable 
manufacturers' total research payments.
    Based on these considerations, we propose that for both direct and 
indirect research, applicable manufacturers must report the entire 
payment amount for each research payment (whether to the covered 
recipient or research institution), rather than the specific amount 
that was provided to the covered recipient. However, we propose that on 
the public Web site, we would report the payment amount separately and 
would not aggregate it into the total for physician covered recipients. 
For teaching hospitals, we believe end users would understand that the 
research payment covered all aspects of the research, so we believe it 
is appropriate to aggregate this into the teaching hospital's total 
payment amount. However, for physician covered recipients we believe 
attributing the full research payment to the physician could be 
misleading, due to the nature of research payments as described. We 
seek comment on these proposals.
    We are also considering attributing the total payment to the 
covered recipient for direct research. We believe this may be necessary 
because in direct research, the covered recipient is individually 
receiving the payment, so the specific amount the covered recipient is 
receiving is clearly defined and available to the applicable 
manufacturer.
    We recognize that the proposed reporting requirements for research 
payments and transfers of value may not cover all circumstances in 
which applicable manufacturers make payments or other transfers of 
value to covered recipients for research-related activities (for 
example, post-marketing research or other research or studies not 
conducted pursuant to a written contract between the applicable 
manufacturer and the organization conducting the research, and those 
studies without a research protocol). We

[[Page 78750]]

solicit comments about which existing nature of payment category 
(previously described) would apply to these other types of research, 
whether the scope of the ``research'' nature of payment should be 
broadened, and/or whether another nature of payment category should be 
added to address such research. Finally, we note that some of the 
reporting requirement will duplicate requirements already required 
under FDA regulations at 21 CFR part 54.
(4) Direct Compensation for Serving as a Faculty or as a Speaker for a 
Medical Education Program
    We propose that this category be interpreted broadly to encompass 
all instances in which applicable manufacturers pay physicians to serve 
as speakers, and not just those situations involving ``medical 
education programs.'' We believe that this interpretation is consistent 
with the authority granted in section 1128G(a)(1)(A)(vi)(XV) of the Act 
to add additional nature of payment categories. Alternatively, we are 
considering adding another nature of payment category to describe 
situations when a covered recipient provides speaking services that are 
outside of medical education programs; however we believe that fewer 
categories for nature of payment is preferable. Additionally, it is 
simpler to only have one category for speaker fees to minimize 
potential inconsistencies in how applicable manufacturers categorize 
payments. We welcome comment on this proposal and the appropriate 
distinction between this nature of payment category and other 
categories, such as honoraria.
    We realize that this interpretation does not allow for 
differentiation between continuing medical education (CME) accredited 
speaking engagements, and all other speaking engagements. We are 
considering, and welcome comments on, whether to limit this category to 
CME-accredited speaking engagements and report other speaking 
engagements in another category, such as compensation for services 
other than consulting, or additional category.
(5) Other
    Under the Act, all payments or transfers of value from applicable 
manufacturers to covered recipients (other than those excluded under 
section 1128G(e)(10)(B) of the Act) must be reported. For simplicity, 
and under the discretion provided in section 1128G(a)(1)(A)(vi)(XV) of 
the Act, we propose the addition of a nature of payment category to 
serve as a catch all for all payments or other transfers of value that 
do not fit into one of the listed natures of payment. Any payments or 
transfers of value that are not specifically excluded, and do not fit 
into another category should be reported with a nature of payment of 
``other.''
h. Exclusions
    Section 1128G(e)(10)(B) of the Act excludes the following types of 
payments and other transfers of value from the reporting requirements:
     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.
    We anticipate that the public may inquire about the treatment of 
payments or other transfers of value between individuals who happen to 
have existing personal relationships. It is not our intent to capture 
purely personal transfers of value (for example, if one spouse, who 
works for an applicable manufacturer, gives a present to the other 
spouse who is a covered recipient). We welcome suggestions on how to 
incorporate this into the codified language of the final rule.
    We propose that applicable manufacturers use the dictionary 
definitions for the exclusions. However, we are providing some 
clarification on how we propose applying the following types of 
exclusions:
(1) Transfers of Value Less Than $10
    Small payments, which the statute defines as payments or other 
transfers of value less than $10, do not need to be reported, except 
when the total annual value of payments or other transfers of value 
provided to a covered recipient exceeds $100. As defined in section 
1128G of the Act for subsequent calendar years the dollar amounts 
specified will be increased by the same percentage as the percentage 
increase in the consumer price index for all urban consumers (all 
items; U.S. city average) for the 12-month period ending with June of 
the previous year. We propose to publish the updated threshold amounts 
annually on the CMS Web site. We propose that applicable manufacturers 
should not report to CMS any payments or other transfers of value less 
than $10 individually and all small payments or transfers of value in 
the same nature of payment category should be reported as one total 
amount for that category. This would simplify reporting for applicable 
manufacturers and prevent the reporting of payments less than $10 
individually. We have provided a few examples to ensure that this 
exclusion is applied consistently.

     Example 1: An applicable manufacturer takes a 
physician out to lunch four times during the year and each lunch 
costs $9. The applicable manufacturer has no other relationships 
with the physician. Since the aggregate cost of the four meals is 
$36 for the year, these payments would not need to be reported.
     Example 2: An applicable manufacturer 
provides a physician with five meals, each worth $9, a speaker fee 
of $150, and pens worth $5. The aggregate amount is greater than 
$100 so all the payments need to be reported. The speaker fee should 
be reported as $150 under ``direct compensation for serving as 
faculty or as a speaker for a medical education programs,'' the 
meals

[[Page 78751]]

would be reported together as food for $45, and the pens would be 
reported as gifts for $5.
(2) Educational Materials That Directly Benefit Patients or Are 
Intended for Patient Use
    Educational materials must consist of materials (such as pamphlets) 
that directly benefit patients or are intended for patient use. We want 
to clarify that this exclusion is limited to ``materials'' (including, 
but not limited to, written or electronic materials) and does not 
include services or other items. We are considering whether certain 
materials provided by applicable manufacturers to covered recipients to 
educate the covered recipients themselves, but which are not actually 
given to patients (for example, medical textbooks), should be 
interpreted as educational materials that ``directly benefit 
patients.'' We seek comments on whether such materials should be 
included in this exclusion and, if so, which types of educational 
materials provided to covered recipients should be deemed to ``directly 
benefit patients.'' We intend to finalize the agency's position on this 
in the final rule based on comments received.
(3) Discounts and Rebates
    Discounts and rebates for covered drugs, devices, biologicals, and 
medical supplies provided by applicable manufacturers to covered 
recipients are excluded from reporting under section 
1128G(e)(10)(B)(vii) of the Act. Discounts and rebates are common in 
the industry and may be beneficial to payers (including Federal health 
care programs) and beneficiaries. We remind manufacturers of their 
obligations to appropriately report discounts and rebates for purposes 
of the Medicare and Medicaid programs and to comply with fraud and 
abuse laws, including the Federal Anti-Kickback statute.
(4) In-Kind Items for the Provision of Charity Care
    We recognize the extensive philanthropic activities of many 
applicable manufacturers, such as the provision of supplies (both in 
the U.S. and abroad) to provide care for those who are unable to pay. 
We propose defining ``charity care'' as items provided to a covered 
recipient for one or more patients who cannot pay, where the covered 
recipient neither receives, nor expects to receive, payment because of 
the patient's inability to pay. Any items provided by the applicable 
manufacturer to a covered recipient that meet the definition of charity 
care, are excluded from reporting. This does not include the provision 
of in-kind items to a covered recipient, even if the covered recipient 
is a charitable organization, for the care of all of the covered 
recipient's patients (both those who can and cannot pay). For example, 
the donation of an imaging machine to a covered recipient that would be 
for the use of both paying and non-paying patients would not be 
excluded under this category, even if the covered recipient is a 
charitable organization. If a payment or other transfer of value is not 
an in-kind item and/or not for the provision of charity care, as 
defined, then the payment must be reported as required under section 
1128G of the Act.
(5) Indirect Payments Through a Third Party
    Section 1128G(e)(10)(A) of the Act also excludes the reporting of 
payments or other transfers of value that an applicable manufacturer 
makes indirectly to a covered recipient through a third party when the 
applicable manufacturer is unaware of the identity of the covered 
recipient. However, any payment or other transfer of value provided to 
a covered recipient through a third party, whether or not the third 
party is under common ownership with an applicable manufacturer or 
operating in the U.S., must be reported, if the applicable manufacturer 
is aware of the covered recipient's identity.
    This exclusion hinges on whether an applicable manufacturer is 
``unaware'' of the identity of the covered recipient. To ensure that 
payments via third parties are reported, where appropriate, we propose 
that an applicable manufacturer is aware of the identity of a covered 
recipient if the applicable manufacturer has actual knowledge of, or 
acts in deliberate ignorance or reckless disregard of, the identity of 
the covered recipient. For example, if an applicable manufacturer 
provides a payment through a third party to the department chairs at a 
specific hospital, this payment would need to be reported because even 
though the applicable manufacturer did not name the recipients, their 
identities are publicly available. This standard is consistent with the 
knowledge standard set forth in many fraud and abuse laws, including 
the False Claims Act, and we believe it is one with which applicable 
manufacturers are already familiar. In addition, we propose that 
awareness of the identity of the covered recipient by an agent of the 
applicable manufacturer will be attributed to the applicable 
manufacturer.
2. Reports on Physician Ownership and Investment Interests Under 
Section 1128G(a)(2) of the Act
    Section 1128G(a)(2) of the Act requires applicable manufacturers, 
as well as applicable GPOs, to report to the Secretary, in electronic 
form, certain information concerning ownership and investment interests 
held by physicians or their immediate family members in such applicable 
manufacturers and applicable GPOs, and payments or other transfers of 
value to such physician owners or investors. There is significant 
overlap between the requirements under section 1128G(a)(1) and (a)(2) 
of the Act. We note the areas of overlap and, when necessary, refer to 
the sections of this proposed rule that apply.
a. Reporting Entities
(1) Applicable Manufacturers
    Section 1128G(a)(2) of the Act includes applicable manufacturers as 
defined for section 1128G(a)(1) of the Act, as entities subject to the 
reporting requirements in section 1128G(a)(2) of the Act.
(2) Applicable Group Purchasing Organizations
    Section 1128G(a)(2) of the Act also includes applicable GPOs as 
entities required to submit reports on physician ownership or 
investment interests; these reports are required to include any 
payments or other transfers of value provided to the applicable GPO's 
physician owners or investors. Section 1128G(e)(1) of the Act defines 
``applicable group purchasing organization'' as ``a group purchasing 
organization (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, commonwealth or possession of the United States.'' Many 
hospitals and other types of health care providers rely on GPOs to 
lower their acquisition costs for supplies, devices, and services. We 
note that Congress gave the Secretary authority to define a GPO for 
purposes of reporting under section 1128G of the Act, and also 
specified that such organizations would include organizations that 
purchase covered drugs, devices, biologicals, and medical supplies, as 
well as organizations that arrange for or negotiate the purchase of 
covered drugs, devices, biologicals, and medical supplies. We thus 
interpret the statute to encompass not only more traditional GPOs that 
negotiate contracts for their members, but also entities that purchase 
covered drugs, devices,

[[Page 78752]]

biologicals, and medical supplies for resale or distribution to groups 
of individuals or entities. This would include, for example, physician 
owned distributors (PODs) of covered drugs, devices, biologicals, and 
medical supplies. We propose to define ``applicable GPOs'' as--

    An entity that (1) operates in the United States, or in a 
territory, possession or commonwealth of the United States, and (2) 
purchases, arranges for or negotiates the purchase of a covered 
drug, device, biological, or medical supply for a group of 
individuals or entities, and not solely for use by the entity 
itself.

    We propose that the definition will not include entities that buy 
covered drugs, devices, biologicals, or medical supplies solely for 
their own use, such as some large practices or hospitals (including 
those owned by physicians). Rather, it is our intent to capture 
entities (including physician-owned entities) that purchase covered 
drugs, devices, biologicals, or medical supplies for resale or 
distribution to others. We solicit comments on this proposal.
    As discussed in the section on covered drug, device, biological, 
and medical supply, we are proposing limiting the definition to only 
those drugs and biologicals that, by law, require a prescription to be 
dispensed and to only those devices (including medical supplies) that 
require premarket approval by or notification to FDA. We believe the 
device limitation may be appropriate for defining the universe of 
applicable manufacturers, but are considering that it may be overly 
limiting for the definition of applicable GPOs, since GPOs often 
purchase, arrange for, or negotiate the purchase of routine devices and 
medical supplies. We seek comment on whether to include the proposed 
limitation on devices and medical supplies in the definition of covered 
drug, device, biological, or medical supply.
b. Physicians
    Section 1128G(a)(2) of the Act differs from section 1128G(a)(1) of 
the Act in that section 1128G(a)(2) of the Act does not use the term 
``covered recipient'' as defined in 1128G(e)(6) of the Act, which 
explicitly excludes payments or other transfers of value to employees 
of an applicable manufacturer from the reporting requirements. Instead, 
section 1128G(a)(2) of the Act uses the term ``physician'' as defined 
in section 1861(r) of the Act. Based on this definition of 
``physician,'' the requirement to report physician ownership and 
investment interests includes any physician, regardless of whether the 
physician is an employee of the applicable manufacturer or applicable 
GPO. Similarly, ownership and investment interests of immediate family 
members of physicians must also be reported under this provision. As 
required by section 1128G(a)(2) of the Act, we propose to define 
``immediate family member'' as it relates to a person as one of the 
following (as defined for purposes of section 1877(a) of the Act at 42 
CFR 411.351):
     Spouse.
     Natural or adoptive parent, child, or sibling.
     Stepparent, stepchild, stepbrother, or stepsister.
     Father-, mother-, daughter-, son-, brother-, or sister-in-
law.
     Grandparent or grandchild.
     Spouse of a grandparent or grandchild.
c. Ownership or Investment Interests
    We propose to define an ownership or investment interest in an 
applicable manufacturer or applicable GPO in a similar manner as in the 
physician self-referral regulation (42 CFR 411.354(b)). Specifically, 
we propose to define an ownership or investment interest as one that 
may be direct or indirect, and through debt, equity, or other means. 
Ownership or investment interest includes, but is not limited to, 
stock, stock options (other than those received as compensation, until 
they are exercised), partnership shares, limited liability company 
memberships, as well as loans, bonds, or other financial instruments 
that are secured with an entity's property or revenue or a portion of 
that property or revenue. As required by statute, an ownership or 
investment interest shall not include an ownership or investment 
interest in a publicly traded security or mutual fund, as described in 
section 1877(c) of the Act. Additionally, ownership or investment 
interest shall not include the following:

    (i) An interest in an applicable manufacturer or applicable GPO 
that arises from a retirement plan offered by that applicable 
manufacturer or applicable GPO to the physician (or a member of his 
or her immediate family) through the physician's (or immediate 
family member's) employment with that applicable manufacturer or 
applicable GPO;
    (ii) Stock options and convertible securities received as 
compensation, until the stock options are exercised or the 
convertible securities are converted to equity;
    (iii) An unsecured loan subordinated to a credit facility.

    We also note that ``ownership and investment interests'' is listed 
in section 1128G(a)(1)(A)(vi)(XII) of the Act as a nature of payment 
for transparency reports on payments and other transfers of value. We 
would like to clarify that any payments or other transfers of value of 
an ownership or investment interest made to a covered recipient (as 
defined) must be reported under section 1128G(a)(1) of the Act. 
Additionally, all ownership and investment interests held by a 
physician must also be reported under section 1128G(a)(2) of the Act, 
which also requires reporting of payments or other transfers of value 
to physician owners or investors. In order to prevent the duplicative 
reporting, we propose that if an ownership or investment interest is 
required to be reported under section 1128G(a)(1) of the Act and under 
section 1128G(a)(2) of the Act, then the applicable manufacturer need 
only to report under section 1128G(a)(1) and should not re-report the 
provision of the ownership or investment interest under the reporting 
requirements in section 1128G(a)(2)(C) of the Act.
d. Physician Ownership or Investment Report Content
    Under section 1128G(a)(2) of the Act, applicable manufacturers and 
applicable GPOs are required to report information about each ownership 
or investment interest held by physician owners or investors (or their 
immediate family member(s)). We propose that the applicable 
manufacturer or applicable GPOs should report the name, address, NPI, 
and specialty of the physician owner or investor, as required in 
section 1128G(a)(2) of the Act. In cases when the ownership or 
investment interest is held by an immediate family member of a 
physician, we propose that applicable manufactures and applicable GPOs 
should report not only the required information for the physician, but 
also that the ownership or investment interest is held by an immediate 
family member of the physician. We are considering whether to require 
the reporting of the immediate family member's relationship to the 
physician, as well as the immediate family member's name, in order to 
bring additional transparency to the nature of the relationship. We 
believe this would provide additional details on the nature of the 
relationship; however, we wonder whether this information is worth the 
additional collection of information, particularly since we believe, 
due to privacy concerns, that the name of the immediate family member 
should not be made public. We seek comment on whether to report the 
relationship and/or the name of the immediate family member holding the 
ownership and investment interest.
    Section 1128G(a)(2)(C) of the Act requires the reporting of ``[a]ny 
payment

[[Page 78753]]

or other transfer of value provided to a physician holding such an 
ownership or investment interest (or to an entity or individual at the 
request of or designated on behalf of a physician holding such an 
ownership interest)[hellip]'' Applicable manufacturers and applicable 
GPOs must report all the information required in section 1128G(a)(1)(A) 
of the Act for those physicians who hold ownership or investment 
interests in such entity. With regard to reporting payments and 
transfers of value to physician owners or investors, we propose that 
applicable manufacturers and applicable GPOs follow the procedures 
outlined in this preamble for reporting payments and other transfers of 
value. Given this overlap, we are concerned about duplicative 
reporting, since applicable manufacturers must submit both reports and 
there may be overlap between physicians holding an ownership or 
investment interest and physicians being considered covered recipients 
for the purposes of reporting payments or transfers of value. We 
propose that applicable manufacturers submit one file for all their 
payments and other transfers of value and another for all their 
physician ownership or investment interests. To comply with section 
1128G(a)(2)(C) of the Act, we propose that applicable manufacturers 
report the payments or other transfers of value to physician owners or 
investors (regardless of whether the physician owner is a covered 
recipient) in the section for all payments and other transfers of 
value, but should note that the covered recipient receiving the payment 
or other transfers of value is a physician owner or investor. This 
would prevent double counting of payments or other transfers of value 
to physicians that meet the definition of a covered recipient and are a 
physician owner or investor of the applicable manufacturer.
    Since applicable GPOs are not subject to the reporting requirements 
in section 1128G(a)(1) of the Act, we propose that applicable GPOs are 
only required to submit a report on physician ownership or investment 
interests. However, in the event that an applicable GPO has payments or 
other transfers of value to report for their physician owners or 
investors, we propose that applicable GPOs use the data elements 
outlined in the preamble section on payments and other transfers of 
value report contents for payments or other transfers of value, but 
that they would only be required to report payments to physician owners 
or investors.

B. Report Submission and Correction

    The statute requires the Secretary to establish procedures for 
applicable manufacturers and applicable GPOs to submit the required 
information. We recognize that these regulations would require 
applicable manufacturers and applicable GPOs to collect and submit 
large amounts of new data, so we strive to be as flexible as possible 
about the data collection and submission methods. However, we believe 
that we also need standardization to ensure that we can aggregate the 
data correctly and efficiently to make it publicly available. Given 
these considerations, we plan to work with applicable manufacturers and 
applicable GPOs to create the best system for all parties involved. 
Based on our stakeholder outreach and analysis of the data systems 
available, we are proposing a potential system for the submission of 
data to CMS. We seek comments on the proposed approach and whether an 
alternative system would be preferable.
1. Prior to Submission
    We are considering ways to ease the post-submission review process 
of this information and facilitate early resolution of conflicts 
between applicable manufacturers, applicable GPOs, covered recipients 
and physician owners or investors. We seek comments on a way for 
applicable manufacturers and applicable GPOs to make necessary 
corrections prior to submission to CMS, thus lessening potential 
changes during the statutory review and correction period, and thereby 
strengthening the accuracy of the data. One way to achieve this is for 
applicable manufacturers, prior to submitting data to CMS, to provide 
each covered recipient with information regarding the payments or other 
transfers of value that the applicable manufacturer plans to report to 
CMS as having made to the covered recipient. Similarly, applicable 
manufacturers and applicable GPOs could provide to each physician owner 
or investor the information they plan to report regarding the ownership 
and investment interests held by the physician owner or investor. While 
CMS is not proposing to require this type of pre-review, we recommend 
that applicable manufacturers and applicable GPOs provide for a ``pre-
submission review,'' and we seek comment on whether a pre-review of 
this nature would be useful.
2. Report Submission
    Applicable manufacturers and applicable GPOs are statutorily 
required to submit their reports electronically to CMS on March 31, 
2013 and on the 90th-day of each calendar year thereafter. We propose 
to interpret ``on'' March 31, 2013 or the 90th of the each year 
thereafter as ``by'' March 31, 2013 or the 90th of each year thereafter 
and intend to allow applicable manufacturers and applicable GPOs to 
submit data prior to this date to provide applicable manufacturers and 
applicable GPOs with more flexibility for submission. We propose that 
only applicable manufacturers that have payments or other transfers of 
value and/or physician ownership or investment interests to disclose 
for the previous calendar year must register and submit reports. If an 
applicable manufacturer neither made any payments or other transfers of 
value required to be reported nor had any physician owners or investors 
in the previous calendar year, it need not submit a report to CMS. 
Similarly, only applicable GPOs with physician owners or investors are 
required to submit information.
    For applicable manufacturers and applicable GPOs that do have 
information to disclose, we propose that applicable manufacturers and 
applicable GPOs register with us prior to submission to facilitate 
communication. This registration process would require the applicable 
manufacturer or applicable GPO to designate a point of contact, which 
we would use for communications related to the submitted data. We 
propose that applicable manufacturers or applicable GPOs must register 
prior to the submission of data for the current reporting cycle. We do 
not limit the time prior to the submission of data, so an applicable 
manufacturer or applicable GPO could choose to submit the data 
immediately after registration. We are proposing to open the 
registration process at the beginning of the calendar year, giving 
applicable manufacturers and applicable GPOs time to register and 
submit their data. The first opportunity for registration and the data 
submission would be January 1, 2013. We seek comment on the proposed 
timing of the registration and submission process.
    Alternatively, we are considering requiring that all applicable 
manufacturers and applicable GPOs register with CMS, regardless of 
whether they have information to report. If an applicable manufacturer 
or applicable GPO had no payments or transfers of value and/or 
ownership or investment interests to report, the chief executive 
officer, chief financial officer or chief compliance officer would be 
required to submit an attestation that, to the best of

[[Page 78754]]

his or her knowledge and belief, there were no reportable payments or 
transfers and value and/or ownership or investment interests during the 
previous calendar year. We believe this may help us better understand 
the extent of these relationships (including which types of entities 
have financial relationships with covered recipients and physician 
owners and investors and which do not). Additionally, we believe such a 
requirement would ensure that applicable manufacturers and applicable 
GPOs perform a more thorough evaluation to determine whether they have 
any reportable information. However, we are seeking input on whether 
requiring registration for all entities and an attestation from 
entities with no reportable information would be more burdensome than 
beneficial. We seek comment on both the benefits and burdens of this 
consideration and intend to finalize the agency's position on this in 
the final rule based on comments received. We propose that applicable 
manufacturers and applicable GPOs submit their data electronically in a 
comma-separated value (CSV) format. Each line item in the dataset 
should represent a unique payment or other transfer of value, or a 
unique ownership or investment interest. In the event that a single 
file does not have sufficient volume for all the data required, then 
the applicable manufacturer or applicable GPO may submit as many files 
as necessary to provide the entirety of its data. We seek comments on 
the appropriateness of the CSV format for data submission, and 
suggestions for alternative formats. Additionally, we propose that 
annually, following the submission of data, an authorized 
representative from each applicable manufacturer and applicable GPO 
will be required to submit a signed attestation certifying the truth, 
correctness, and completeness of the data submitted to the best of the 
signer's knowledge and belief. Such attestations must be signed by the 
chief executive officer, chief financial officer or chief compliance 
officer.
3. Report Format
    We have outlined the fields of information to be included when 
reporting payments or other transfers of value and physician ownership 
and investment interests . The asterisks indicate the additional 
information, which we propose to require under the discretion provided 
by the statute. The justification for the submission of these 
additional data requirements is provided throughout the preamble. In 
the Addendum to this proposed rule, we have provided a sample of the 
reporting template, and we will place a spreadsheet in the regulatory 
docket on Regulations.gov. We note that this is a mock up table (not in 
CSV format) to demonstrate how we expect this data to be reported. This 
is not an official reporting document, but only an example for the 
purposes of the proposed rule.
    For each payment and other transfer of value, we are proposing that 
the following information is required:
     Applicable manufacturer or applicable GPO name.
     Covered recipient's or physician owner's (as applicable)--
    ++ Name (for physicians include first and last name, and middle 
initial);
    ++ Specialty (physician only);
    ++ Business street address (practice location);
    ++ NPI (physician only);
     Amount of payment or other transfer of value in U.S. 
dollars.
     Date of payment or other transfer of value.
     Form of payment or other transfer of value.
     Nature of payment or other transfer of value.
     Name of the associated covered drug, device, biological, 
or medical supply, as applicable.
     Name of entity that received the payment or other transfer 
of value, if not provided to the covered recipient directly.*
     Whether the payment or other transfer of value was 
provided to a physician holding ownership or investment interests in 
the applicable manufacturer. (Yes or No response)
     Whether the payment or other transfer of value should be 
granted a delay in publication because it was made pursuant to a 
product research agreement, development agreement, or clinical 
investigation. (Yes or No response)
    For each physician ownership or investment interest, the following 
information is required:
     Applicable manufacturer or applicable GPO name.
     Ownership or investment physicians'--
    ++ Name (for physicians include first and last name, and middle 
initial)
    ++ Specialty;
    ++ Business street address (practice location);
    ++ NPI;
     Whether the ownership or investment interest is held by 
the physician, or an immediate family member of the physician.
     Dollar amount invested.
     Value and terms of each ownership or investment interest.
     For applicable GPOs only: Any payments or other transfers 
of value provided to the physician owner or investor, including the 
following (applicable manufacturers should report this information with 
their other payments or other transfers of value, and indicate that the 
covered recipient is a physician investor or owner):
    ++ Amount of payment or other transfer of value in U.S. dollars.
    ++ Date of payment or other transfer of value.
    ++ Form of payment or other transfer of value.
    ++ Nature of payment or other transfer of value.
    ++ Name of the associated covered drug, device, biological, or 
medical supply, as applicable.
    We seek comment on our proposed requirements regarding the data 
elements that should be submitted and plan to finalize them in the 
final rule based on comments received.
4. 45-Day Review Period for Applicable Manufacturers, Applicable GPOs, 
and Covered Recipients
    Section 1128G(c)(1)(C)(ix) of the Act requires that the Secretary 
allow applicable manufacturers, applicable GPOs, covered recipients, 
and physician owners or investors the opportunity to review the data 
submitted for a period of at least 45-days prior to the data being made 
available to the public. After the due date has passed, and we have 
received the data from the applicable manufactures and applicable GPOs, 
we will aggregate the data by individual covered recipient and 
physician owner or investor, across applicable manufacturers and 
applicable GPOs. Once the data aggregation is complete, we plan to 
notify all applicable manufacturers, applicable GPOs, covered 
recipients, and physician owners or investors about the procedures for 
the review. We recognize it may be difficult for CMS to contact covered 
recipients and physician owners or investors, since they do not 
actively participate in the data submission process with CMS prior to 
their review, so we propose to notify covered recipients and physician 
owners or investors in a few ways. We propose to allow, but not 
require, covered recipients, and physician owners or investors to 
register with CMS to ensure they receive communication about the 
processes for review. Additionally, we propose to notify physicians and 
hospitals through CMS' list serves and posting the information 
publicly. We are considering a posting either on the CMS Web site or on 
the Federal Register, and

[[Page 78755]]

seek comment on which would be most useful to physicians and teaching 
hospitals. We propose that these notifications would be provided 
annually to announce the covered recipient and physician owner and 
investor review and correction period, and would include the specific 
instructions for performing this review. For example, we are 
considering that covered recipients and physician owners and investors 
would sign in to a secure Web site to see the information reported 
about them. We are also considering an alternative method, in which we 
would require applicable manufacturers and applicable GPOs to collect 
and report whether the covered recipient, or physician owner or 
investor would like to be notified by USPS or email of the processes 
for their review, as well as the individual's email address, if 
indicated. We seek comment on our proposed method of notification, as 
well as the alternative method provided. We solicit comments on other 
ways that CMS, applicable manufacturers, or applicable GPOs can provide 
timely, adequate, and cost-effective notice to covered recipients and 
physician owners or investors of their opportunity to review the 
collected data.
    In addition, we believe that we should not be actively involved in 
arbitrating disputes between applicable manufacturers or applicable 
GPOs, and covered recipients, or physician owners or investors 
regarding the receipt, classification or amount of any payment or other 
transfer of value, or ownership or investment interest. However, we are 
working on identifying a streamlined and automated process for 
reporting disputes and changes to ensure that the review and correct 
process is as smooth as possible. We plan to provide more information 
on the details of this process once it has been fully developed, but 
provide general guidelines for comment at this time. We propose that 
covered recipients, and physician owners or investors may request from 
CMS the contact information for a specific applicable manufacturer or 
applicable GPO, in the event of a potential dispute over the reported 
data. However, it would be the responsibility of the covered recipient, 
or physician owner or investor to contact and try to resolve the 
dispute with the applicable manufacturer or applicable GPO. We propose 
that at least one of any entity involved (applicable manufacturer, 
applicable GPO, covered recipient, or physician owner or investor) must 
report to CMS that a payment or other transfer of value, or ownership 
or investment interest is disputed and the results of that dispute at 
the end of the 45-day review period.
    If an applicable manufacturer or applicable GPO, and covered 
recipient, or physician owner or investor have contradicting 
information that cannot be resolved by the parties involved, then we 
propose that the data would be identified as contradictory and both the 
original submission from the applicable manufacturer or applicable GPO, 
and the modified information provided by the covered recipient, or 
physician owner or investor would appear in the final publicly 
available Web site. We recognize that publishing disagreements in this 
manner may make it difficult to aggregate the data and report it in a 
meaningful way to the public and are considering how to best aggregate 
reports that note contested information but do not double count 
payments or other transfers of value or ownership and investment 
interests. Given these concerns, we are considering that in these cases 
(when a dispute over the data cannot be resolved by the parties), the 
individual payment would be flagged as contested, but the contradictory 
data, as corrected by the covered recipient or physician owner or 
investor, would be used for aggregated totals for the physician, as 
necessary. We believe that this is preferable since the covered 
recipient and physician owner or investor stakeholders have expressed 
concern about the accuracy of information submitted by the applicable 
manufacturer or applicable GPO. However, we are also considering 
aggregating the original information, as submitted by the applicable 
manufacturer and applicable GPO. We seek comment on this proposal and 
suggestions for how best to handle instances where there are 
outstanding disagreements.
    Finally, we propose that the 45-day review period is the primary 
opportunity to correct errors or contest the data submitted by 
applicable manufacturers and applicable GPOs to CMS. Once the 45-day 
review period has passed and the parties have identified all changes or 
disputes and CMS has made or noted them all, we propose that neither 
applicable manufacturers, applicable GPOs, covered recipients, nor 
physician owners or investors would be permitted to amend the data for 
that calendar year. We believe that allowing continual changes would be 
operationally difficult for CMS to handle and would reduce the utility 
of the data set. We propose that applicable manufacturers, applicable 
GPOs, covered recipient, or physician owners or investors alert CMS as 
soon as possible regarding any errors or omissions, but these changes 
may not be made until the data is refreshed for the following reporting 
year. At that time, all parties would once again have an opportunity to 
review and amend the data. However, we propose that we would have the 
option to make changes to the data at any time (for example, to correct 
mathematical mistakes). We also propose that only the current and 
previous year would be available for review and correction. For 
example, during the 45-day review period in 2014, applicable 
manufacturers, applicable GPOs, covered recipients, and physician 
owners or investors would be able to review and amend the data 
submitted for 2012 and 2013. However, during the 2015 review, only 2013 
and 2014 would be available for changes. We seek comments on the 
procedures outlined for data submission and the 45-day review period, 
particularly the best way to contact covered recipients and physician 
owners or investors to ensure they receive notification of the review 
period.

C. Public Availability

    Under the statute, we are required to publish on a publicly 
available Web site the data reported by applicable manufacturers and 
applicable GPOs for CY 2012 by September 30, 2013. For each year 
thereafter, we must publish the data for the preceding calendar year by 
June 30th. The public Web site must be searchable, understandable, 
downloadable, and easily aggregated on various levels, as stated in the 
statute. In addition, section 4 of Executive Order 13563 calls upon 
agencies to consider approaches that ``maintain flexibility and freedom 
of choice for the public,'' including the ``provision of information to 
the public in a form that is clear and intelligible.'' We request 
comments on how to structure this Web site for ultimate usability.
    As required in section 1128G(c)(1)(C)(ii) of the Act, we propose 
that the following information on payments and other transfers of value 
would be included on the public Web site in a format that is 
searchable, downloadable, understandable and able to be aggregated:
     Applicable manufacturer name.
     Covered recipient's--
    ++ Name;
    ++ Specialty (physician only); and
    ++ Business street address (practice location).
     Amount of payment or other transfer of value in U.S. 
dollars.

[[Page 78756]]

     Date of payment or other transfer of value.
     Form of payment or other transfer of value.
     Nature of payment or other transfer of value.
     Name of the covered drug, device, biological, or medical 
supply, when applicable.
     Name of entity that received the payment or other transfer 
of value, if not provided to the covered recipient directly.
    For physician ownership and investment interests, the following 
information would be included on the public Web site in a format that 
is searchable, downloadable, understandable and able to be aggregated:
     Applicable manufacturer or applicable GPO name.
     Physician owner's--
    ++ Name;
    ++ Specialty; and
    ++ Business street address.
     Whether the ownership or investment interest is held by 
the physician or an immediate family member of the physician.
     Dollar amount invested.
     Value and terms of each ownership or investment interest.
     Any payment or other transfer of value provided to the 
physician owner, including:
    ++ Amount of payment or other transfer of value in U.S. dollars.
    ++ Date of payment or other transfer of value.
    ++ Form of payment or other transfer of value.
    ++ Nature of payment or other transfer of value.
    ++ Name of the covered drug, device, biological, or medical supply, 
as applicable.
    In addition, as required by statute, we propose that the Web site 
will include information on any enforcement activities taken under 
section 1128G of the Act for the previous year, background or other 
helpful information on relationships between the drug and device 
industry and physicians and teaching hospitals, and publication of 
information on payments or other transfers of value that were granted 
delayed reporting, as required under section 1128G(c)(1)(C) of the Act. 
Beyond the information required by statute, we propose that the Web 
site clearly state that disclosure of a payment or other transfer of 
value on the Web site does not indicate that the payment was legitimate 
nor does it necessarily indicate a conflict of interest or any 
wrongdoing. We welcome comment regarding the details and format for how 
this information should be displayed on the Web site.

D. Delayed Publication for Payments Made Pursuant to Product Research 
or Development Agreements and Clinical Investigations

    Section 1128G(c)(1)(E) of the Act provides for delayed publication 
of payments or other transfers of value from applicable manufacturers 
to covered recipients made pursuant to product research or development 
agreements or clinical investigations. The granting of delayed 
publication aims to maintain confidentiality for proprietary 
information relating to development of new drugs, devices, biologicals, 
and medical supplies. The statute outlines several statutorily required 
instances when publication of a payment or transfer of value should be 
delayed in the context of a product research or development agreement 
or clinical investigation.
    The statute requires that information about payments and other 
transfers of value that are delayed from publication must be made 
publicly available on the first publication date after the earlier of 
either: (1) The approval, licensure or clearance by the FDA of the 
covered drug, device, biological or medical supply; or (2) 4-calendar 
years after the date of payment. For example, if in April of 2013 an 
applicable manufacturer provides a research grant to a teaching 
hospital for an initial trial of a new product under a product research 
or development agreement, the applicable manufacturer would be required 
to report this payment to us under section 1128G(a)(1) of the Act by 
March 31, 2014. However, the payment would not be published on the 
public Web site in 2014 since the product had not yet been granted FDA 
approval, licensure or clearance. If the product is granted FDA 
approval, licensure or clearance in October of 2015, then we would 
publish the payment by the applicable manufacturer to the covered 
recipient as part of the public release of CY 2015 data in 2016. If the 
product had not been approved or cleared by the FDA by the beginning of 
2018 (4-calendar years after the payment date in 2013), we would 
publish the 2013 payment during the data release in 2018.
    We propose that applicable manufacturers should indicate on their 
reports whether or not a payment or other transfer of value should be 
granted a delay in publication on the public Web site. In the absence 
of notification by an applicable manufacturer that a payment or other 
transfer of value is subject to delayed publication, we would have no 
way of knowing that such a payment or other transfer of value should 
not be published. In addition, we propose that payments or other 
transfers of value subject to delayed reporting need to be reported 
each year with a continued indication that publication should remain 
delayed and any updated information on the payment or other transfer of 
value, as necessary.
    Further, we propose that following FDA approval, licensure or 
clearance, applicable manufacturers must indicate in their next annual 
submission that the payment should no longer be granted a delay and 
should be published in the current reporting cycle. Failure to indicate 
to CMS in a timely fashion that a payment or other transfer of value 
should no longer be granted a delay in publication, due to FDA 
approval, licensure or clearance, may be subject to penalties under 
section 1128G(b) of the Act. Finally, if a report includes a date of 
payment 4 years prior to the current year, then the payment or other 
transfer of value would be automatically published, regardless of 
whether the applicable manufacturer indicates that the payment should 
be delayed. For example, in 2019, all payments or transfers of value 
with a payment date in 2014 (which were initially submitted to CMS in 
2015) would be published in the public database in 2019. With an annual 
publication, it is difficult to grant each payment an exactly 4-year 
delay and we recognize that payments made early in the year would be 
granted more than a full 4-year delay period under this proposal. We 
believe that this method is preferable because it allows all payments, 
even those made late in the year, a full 4 year delay. We seek comment 
on these proposals.
    We propose that payments or other transfers of value granted 
delayed publication are limited to relationships for bona fide research 
or investigation activities, which, if made public, would damage the 
manufacturers' competitive and/or proprietary interests. In order to 
ensure that the payments or other transfers of value granted a delay 
are for bona fide research, we propose that the ``product research or 
development agreement'' referenced in the statute include a written 
statement or contract between the applicable manufacturer and covered 
recipient, as well as a written research protocol. Additionally, the 
Act defines ``clinical investigation'' in section 1128G(e)(3) of the 
Act as ``[a]ny experiment involving 1 or more human subjects, or 
materials derived from human subjects, in which a drug or device is 
administered, dispensed, or used.'' We propose that in the context

[[Page 78757]]

of this definition, a clinical investigation is limited to one which is 
memorialized in a written research protocol between the covered 
recipient and the applicable manufacturer.
    We realize that many applicable manufacturers contract with CROs, 
to facilitate their clinical research. In these cases, as long as the 
applicable manufacturer has a written agreement with the CRO, we 
propose that the CRO may have the written research agreement with the 
covered recipient, rather than the applicable manufacturer.
    The statute provides for delayed publication of payments for 
services furnished in connection with research on ``medical 
technology'' with regard to both research on potential new medical 
technologies and new applications of existing medical technologies. In 
contrast, the statute provides for delayed publication for services 
furnished in connection with the development of, or a clinical 
investigation for, a new drug, device, biological, or medical supply 
(as opposed to a new application of an existing drug, device, 
biological, or medical supply as well). However, given the close 
relationship and significant overlap among the phrases ``medical 
technology'' and ``drug, device, biological, and medical supply,'' we 
propose to consider ``medical technology'' broadly as any drug, device, 
biological, or medical supply. We propose this interpretation because 
we believe that the rationale underlying the statutory inclusion of the 
delayed publication provision--protecting an applicable manufacturer's 
legitimate proprietary and competitive interests in research and 
development--should apply to all applicable manufacturers under this 
statute. Moreover, it is difficult to fairly carve out certain 
applicable manufacturers or certain products for differing standards of 
delayed publication. Alternatively, we are considering defining 
``medical technology'' more narrowly as a subset of drugs, devices, 
biologicals, and medical supplies. We seek comments on both approaches, 
including suggestions for a narrower definition of ``medical 
technology.''
    The statute also distinguishes between the scope of delayed 
publication permitted for payments related to ``research'' versus 
payments related to ``development'' or ``clinical investigations.'' 
Delayed publication is allowed for payments or other transfers of value 
for research-related services for both new medical technologies and new 
applications of existing medical technologies, whereas, delayed 
publication for development and clinical investigations are limited 
solely to new drugs, devices, biologicals, and medical supplies. It is 
difficult to meaningfully separate research and development due to the 
overlap in the activities associated with them, and the fact that they 
are commonly used synonymously. Given this close association between 
the terms, we propose to treat them similarly in this provision. 
However, we are also considering the possibility of assigning different 
meanings to ``research'' and ``development,'' and we seek comments on 
this approach and suggestions for meaningful distinctions for the two 
terms. With regard to clinical investigations, we believe they have a 
distinct meaning as set forth in section 1128G(e)(3) of the Act, which 
is separate from both ``research'' and ``development'' for the purposes 
of the Act. Specifically, section 1128G(e)(3) provides that clinical 
investigations involve human subjects or materials derived from human 
subjects. We note that this definition may differ from those that 
applicable manufacturers may be familiar with in 21 CFR 312.3 and 
812.3.
    Given these interpretations, we propose that delayed publication 
should apply to payments to covered recipients for services in 
connection with research on, or development of new drugs, devices, 
biologicals, or medical supplies, as well as new applications of 
existing drugs, devices, biologicals, or medical supplies. Conversely, 
we propose limiting delayed publication for payments in connection with 
clinical investigations for new drugs, devices, biologicals, or medical 
supplies, and not new applications of existing drugs, devices, 
biologicals, or medical supplies. We seek comment on these proposals 
and solicit comment on whether there are better ways to distinguish 
among these categories for the purposes of delayed publication, 
including treating payments and transfers of values made in connection 
with clinical investigations the same as those made in connection with 
research and development.
    Pursuant to the statute, information reported by applicable 
manufacturers that is subject to delayed publication under section 
1128G(c)(1)(E) of the Act shall be considered confidential and shall 
not be subject to disclosure under 5 U.S.C. 552, or any other similar 
Federal, State or local law, until after the date on which the 
information is made available to the public via publication on the Web 
site.

E. Penalties

    Section 1128G(b) of the Act authorizes the imposition of CMPs for 
failures to report required information on a timely basis in accordance 
with our regulations. If an applicable manufacturer or applicable GPO 
fails to submit the required information, then the applicable 
manufacturer or applicable GPO may be subject to a CMP of at least 
$1,000, but no more than $10,000, for each payment or other transfer of 
value, or ownership or investment interest not reported as required. 
The maximum CMP with respect to each annual submission for failure to 
report is $150,000. For knowing failure to submit required information 
in a timely manner, an applicable manufacturer or applicable GPO will 
be subject to a CMP of at least $10,000, but no more than $100,000, for 
each payment or other transfer of value, or ownership or investment 
interest not reported as required. The maximum CMP with respect to each 
annual submission for a knowing failure to report is $1,000,000. The 
term ``knowingly'' is given the meaning from the False Claims Act, 31 
U.S.C. 3729(b).
    All CMPs would be collected and imposed in the same manner as the 
CMPs collected and imposed under section 1128A of the Act. 
Additionally, we propose that the procedures in 42 CFR part 402 subpart 
A would apply with regard to imposition and appeal of CMPs.
    As noted previously, applicable manufacturers and applicable GPOs 
may be subject to a CMP for a failure to report information timely in 
accordance with our regulations. This proposed rule interprets the 
statute to require the submission of information that is accurate and 
complete. Therefore, we propose that a CMP may be imposed for failure 
to report information in a timely, accurate, and complete manner. As 
set forth in section 1128G(c)(1)(C)(ix) of the Act, applicable 
manufacturers and applicable GPOs are allowed 45-days prior to 
publication to review their data. Outside this period, any additions or 
oversights would be considered late and subject to penalties. Together 
with the annual submission of data, an authorized representative from 
each applicable manufacturer and applicable GPO would be required to 
submit a signed attestation certifying the truth, correctness, and 
completeness of the data submitted to the best of the signer's 
knowledge and belief.
    In determining the amount of the CMP, we propose that the factors 
to be considered include, but are not limited to, the following:

[[Page 78758]]

     The length of time the applicable manufacturer or 
applicable GPO failed to report, including the length of time the 
applicable manufacturer and applicable GPO knew of the payment or other 
transfer of value, or ownership or investment interest.
     Amount of the payment or other transfer of value or the 
value of the ownership or investment interest the applicable 
manufacturer or applicable GPO failed to report.
     Level of culpability.
     Nature and amount of information reported in error.
     Degree of diligence exercised in correcting information 
reported in error.

We seek comments on these proposals.

    In addition, we also propose that the Secretary, CMS, OIG or their 
designees may audit, evaluate, or inspect applicable manufacturers and 
applicable GPOs for their compliance with timely, complete and accurate 
submission of information required in section 1128G of the Act and the 
implementing regulations. Access to this information is implicit in the 
statute in order to enforce the requirements outlined. To facilitate 
this review, applicable manufacturers and applicable GPOs must maintain 
all books, records, documents, and other materials sufficient to enable 
an audit, evaluation or inspection of the applicable manufacturer's or 
applicable GPO's compliance with the requirements in section 1128G of 
the Act and the implementing regulations. We propose that applicable 
manufacturers and applicable GPOs must maintain these books, records, 
documents, and other materials for a period of at least 5 years from 
the date the payment or other transfer of value, or ownership or 
investment interest is published publicly on the Web site. We believe 
that 5 years from the date of publication is sufficient for all audit, 
inspection, or evaluation activities. The requirements set forth in 
this proposed rule are in addition to, and do not limit, any other 
applicable requirements that may obligate applicable manufacturers or 
applicable GPOs to retain and allow access to records. We seek comments 
on these proposals.

F. Annual Reports

    We are required to submit annual reports to Congress and the 
States. The Report to Congress is due annually on April 1st beginning 
in 2013 and shall include aggregated information on each applicable 
manufacturer and applicable GPO for the preceding calendar year, as 
well as any enforcement action taken and any penalties paid. Since we 
will not receive data for the prior year until the 90th day of each 
year, the data submitted that year will not be ready for the April 1st 
report. Instead, we propose that we report to Congress information 
submitted by applicable manufacturers and applicable GPOs during the 
preceding year. Similarly, we must report to States annually by 
September 30, 2013 and June 30 for each year thereafter. The reports 
would be State specific and include summary information on the data 
submitted regarding covered recipients and physician owners or 
investors in that State. Since these reports are due later in the year 
than the Report to Congress, we propose that the reports would include 
data collected during the previous calendar year which was submitted in 
the current year. These reports would not include any payments or other 
transfers of value that were not published under the delayed 
publication requirements in section 1128G(c)(1)(E) of the Act.

G. Relation to State Laws

    Section 1128G(d)(3) of the Act preempts any State or local laws 
requiring reporting, in any format, of the same type of information 
concerning payments or other transfers of value made by applicable 
manufacturers to covered recipients. No State or local government may 
require the separate reporting of any information regarding a payment 
or other transfer of value that is required to be reported under 
section 1128G(a) of the Act, unless such information is being collected 
by a Federal, State, or local governmental agency for public health 
surveillance, investigation, or other public health purposes or health 
oversight. Such agencies include those that are charged with preventing 
or controlling disease, injury, or disability and/or with conducting 
oversight activities authorized by law, including audits, 
investigations, inspections, licensure or disciplinary actions, or 
other activities necessary for oversight of the health care system. 
However, this exception does not apply to State or local reporting 
requirements related to information on payments or other transfers of 
value included in section 1128G of the Act.
    In addition, State and local governments may require reporting of 
information other than that required under this provision, including 
the types of information excluded by section 1128G(e)(10)(B) of the 
Act, with the exception of payments that fall below the $10 individual 
or $100 aggregate threshold in section 1128G(e)(10)(B)(i).

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on the following requirements:

A. ICRs Regarding Reports of Payments or Other Transfers of Value and 
Physician Ownership and Investment Interests (Sec.  403.904, Sec.  
403.906 and Sec.  403.908(a) Through (g))

    Proposed Sec.  403.904 would require applicable manufacturers of 
covered drugs, devices, biologicals, and medical supplies to report 
annually to CMS all payments and other transfers of value to physicians 
and teaching hospitals (collectively, covered recipients). Applicable 
manufacturers and applicable GPOs would also be required to report 
ownership and investment interests held by physicians or the immediate 
family members of physicians in such entities. This information is to 
be aggregated and posted publicly by CMS on a searchable Web site. 
Covered recipients and physician owners or investors must be provided 
with the opportunity to review and, if necessary, correct the 
information before it is posted publicly. When reporting the burden of 
this provision, we considered the impact in the first year of the 
program when applicable manufacturers and applicable GPOs must build 
reporting systems, and covered recipients and physician owners or 
investors are becoming accustomed with the review and correction 
requirements, as well as year 2 and annually thereafter. We anticipate 
that the burden will be reduced by roughly 25 percent in year 2 and 
remain the same annually thereafter.

[[Page 78759]]

    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. We estimate that approximately 1,150 applicable 
manufacturers, (150 drug and biologic manufacturers, and 1,000 device 
and medical supply manufacturers), and approximately 420 applicable 
GPOs would submit reports. We based these estimates on the number of 
manufacturers reporting in States with similar transparency provisions, 
as well as the number of manufacturers registered with FDA. The number 
of drug manufacturers is based on reporting in Massachusetts, 
Minnesota, and Vermont, and the number of device manufacturers is based 
on reporting in Massachusetts, since Minnesota and Vermont do not 
require device manufacturers to report. Because the State laws have 
higher payment thresholds and are specific to the physicians in the 
State, we estimated that the number of manufacturers reporting would be 
greater under section 1128G of the Act. For device manufacturers, we 
used data from the FDA to identify the total number of manufacturers to 
use as a ceiling for our estimate. We seek comment on whether there are 
any other sources of data available.
    It is difficult to establish with precision the number of GPOs, as 
proposed, because the definition of GPO includes physician owned 
distributorships (PODs). However, we did rely on a recent report by the 
Senate Finance Committee which identified 20 States with multiple PODs 
and more than 40 PODs in California. When we extrapolate these 
estimates to the national level, taking into account the 
disproportionately higher number in California, we estimate that there 
are approximately 260 PODs currently in the U.S. We further estimate 
that there are an additional 160 GPOs, which have some form of 
physician ownership or investment. This is based on judgmental 
estimates, from a review of what little literature exists, and 
discussions with knowledgeable persons. Our research found that there 
are approximately 800 GPOs and that approximately 20 percent of GPOs 
have at least one physician owner or investor.
    We believe that larger companies that manufacture more products may 
have a greater number of financial relationships with a more diverse 
group of covered recipients. Coordinating the data collection will 
require ensuring that all payments and other transfers of value are 
attributed to the correct covered recipient and reported in the manner 
proposed in this proposed rule. These estimates include our aggregate 
estimate of the overall time required to build and maintain the 
reporting systems (including the development of new information 
technology systems), obtain NPI and other information from the NPPES 
system (and if necessary supplement that information), establish 
whether any owners or investors have physicians as immediate family 
members (if necessary), organize the data for submission to CMS (within 
the organization and with any third party vendors), register with CMS 
and submit the required data, review the aggregated data that CMS 
produces, respond to any physician or teaching hospital queries during 
the review process, and resubmit certain disputed information (if 
necessary). It allows for time applicable manufacturers and applicable 
GPOs may sometimes use for ``pre-submission'' reviews but assumes that 
would be rarely used, and only for complex cases. It also includes the 
time that applicable manufacturers may elect to spend to submit with 
their data a document describing their assumptions and methodology for 
categorizing the nature of payments. The estimates also include the 
potentially substantial time savings that would accrue to them as 
registrants through the ability to query CMS, and receive informal 
guidance through a listserv or other methods of providing technical 
assistance and useful information on low cost methods of compliance. As 
a technical point, we note that we propose a 5-year records retention 
requirement. We believe the costs of this are negligible for electronic 
recordkeeping, but solicit comment on this approach. Additionally, the 
estimates also include the time of employees, such as sales 
representatives, who have direct relationships with covered recipients 
and physician owners or investors. These employees would have to record 
the details of each relationship with the covered recipient, or 
physician owner or investor for reporting purposes.
    This overall estimate is based primarily on the judgmental 
estimates of persons we have consulted that are expert in the overall 
cost of existing reporting systems. We welcome more detailed and 
disaggregated information that would help us improve the overall 
estimate or better craft the final rule to deal with specific problems 
or time-saving options. We are particularly interested in the burden of 
collecting and recording information for each payment or transfer of 
value by the staff and identifying whether individuals with ownership 
or investment interests have physicians as immediate family members.
    We estimate that on average, smaller applicable manufacturers will 
have to dedicate 50 percent of a full time equivalent (FTE) employee 
(mainly in the range of zero to one), whereas larger applicable 
manufacturers may have to dedicate 5 to 15 FTE employees to comply with 
the reporting requirements (we assume 10 on average). Large 
manufactures are often multinational enterprises that employ tens of 
thousands of people worldwide, whereas many small manufacturers only 
have a few products and employ significantly fewer people. Since there 
are many more small companies, we estimate that on average, 1.74 FTE 
employees would be needed for each applicable manufacturer in the first 
year (150 larger firms times 10 FTE and 1000 smaller firms times 0.5 
FTE). We appreciate that this is considerable simplification of a far 
more complex distribution of firms, but we think that it captures the 
skewness of the distribution in manufacturing sectors where a relative 
handful of firms have sales in the billions of dollars annually over a 
wide range of products, and a far larger number have annual sales in 
low millions of dollar annually for just a few products, with practices 
regarding financial relationships with physicians varying widely within 
each group and, in many cases by product or product class.
    The greater staff time for year 1 represents time for applicable 
manufacturers to alter their systems to collect and report this data. 
We estimate that once procedures and systems are modified, costs would 
be 25 percent lower, which reduces this value to an average of 1.3 FTEs 
in year 2 and annually thereafter. We emphasize that these are very 
rough estimates. The actual burdens could easily average 25 percent 
lower or higher, and would depend on manufacturers' changes in 
practices after the regulations are made final. Some may welcome the 
new transparency; others may decide to change or eliminate their 
current practices. Our assumption that smaller firms could in some 
cases incur no new costs assumes that some do not now have any such 
financial relationships and that this proportion would grow as some 
firms decide that the benefits of such relationships are less than the 
costs of reporting. Other smaller firms with only a few products and 
only a few financial relationships might well already have systems in 
place that

[[Page 78760]]

essentially meet the proposed requirements or that could do so with 
minimal effort. We welcome comments that can provide empirical data on 
the costs to implement the requirements in firms of varying sizes and 
product portfolios, on the extent to which systems already in place 
meet the proposed requirements in firms of various kinds and sizes, and 
on the extent to which firms would modify their practices to avoid 
reporting costs.
    We anticipate it would be less burdensome for an applicable GPO to 
comply with these proposed reporting requirements, since we believe 
companies will have fewer relationships with physician owners or 
investors (or immediate family members). This will make it much easier 
for applicable GPOs to match ownership and investment interests to the 
appropriate physicians (or family members). Based on discussions with 
officials of some GPOs and industry observers, we estimate that it 
would take from 5 to 25 percent of a FTE staff member, depending on the 
size of the applicable GPO. Once again, this includes time of many 
individuals, particularly the ones who are in direct contact with the 
physician and are required to record the details of the interaction. We 
assume that applicable GPOs already know the ownership and investment 
interests of its major investors, so the burden of these requirements 
include any changes to internal procedures to record and report the 
information. Also again, we have not found any empirical studies to 
better inform this estimate. Accordingly, we estimate that on average, 
an applicable GPO would dedicate 10 percent of an FTE employee to 
reporting under this section for year 1, followed by 7.5 percent for 
year 2 and annually thereafter. We welcome any comments or data that 
would improve this estimate.
    While many individuals within the applicable manufacturer or 
applicable GPO may contribute to the data collection and reporting, we 
believe that majority of the work will be performed by a compliance 
officer. According to the Bureau of Labor Statistics Occupational 
Employment Statistics, in 2010, the annual compensation for a 
compliance officer in the pharmaceutical and medicine manufacturing 
field was $73,380. We applied a 33 percent increase to this amount to 
account for fringe benefits and overhead, making the total annual cost 
of a compliance officer $97,595. The total number of hours for 
applicable manufacturers during year 1 would be 4,186,000 (1,150 
applicable manufacturers x 70 hours (1.74 FTEs) x 52 weeks). For year 2 
and subsequent years, we estimate a total of 3,110,000 hours (1,150 
applicable manufacturers x 52 hours (1.3 FTEs) x 52 weeks). On average, 
this equals 3,460,000 hours annually for all applicable manufacturers 
for the first 3 years. The total number of hours for applicable GPOs 
for year 1 would be 87,400 (420 applicable GPOs x 4 hours (0.10 FTE) x 
52 weeks) and for year 2 would be 65,500 hours (420 applicable GPOs x 3 
hours (0.075 FTE) x 52 weeks). For the first 3 years, in total 
applicable GPOs will spend on average 72,800 hours annually.
    The following tables provide our total cost estimates for 
applicable manufacturers and applicable GPOs to collect and submit the 
information required in section 1128G of the Act for year 1 and year 2. 
In total, we estimate that for applicable manufacturers and applicable 
GPOs required to report, it will cost $199,387,000 for year 1 and will 
cost $148,979,000 for year 2 and annually thereafter. For the first 3 
years, this averages to a cost of $165,781,000 annually. All estimates 
are in 2010 dollars.

                                    Table 1--Year 1 Estimated Burden for Applicable Manufacturers and Applicable GPOs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Estimated                                        Average annual     Average total
                                                    reporting         Average FTE per reporting      rate (with 33%       cost per        Total burden
                                                  organizations             organization            fringe/overhead)    organization
--------------------------------------------------------------------------------------------------------------------------------------------------------
Applicable Manufacturers......................             1,150  1.74 FTE (70 hrs x 52 wks)......           $97,595          $169,815      $195,288,000
Applicable GPOs...............................               420  0.10 FTE (4 hrs x 52 wks).......            97,595          9,759.54         4,098,990
--------------------------------------------------------------------------------------------------------------------------------------------------------


                          Table 2--Year 2 and Subsequent Year Estimated Costs for Applicable Manufacturers and Applicable GPOs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Estimated                                        Average annual     Average total
                                                    reporting         Average FTE per reporting      rate (with 33%       cost per         Total cost
                                                  organizations             organization            fringe/overhead)    organization
--------------------------------------------------------------------------------------------------------------------------------------------------------
Applicable Manufacturers......................             1,150  1.3 FTE (52 hrs x 52 wks).......           $97,595          $126,874      $145,905,000
Applicable GPOs...............................               420  0.075 FTE (3 hrs x 52 wks)......            97,595             7,320         3,074,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. ICRs Regarding Review and Correction by Physicians and Teaching 
Hospitals (Sec.  403.908(h))

    An additional burden associated with section 1128G of the Act is 
the time and effort spent by covered recipients, and physician owners 
or investors reviewing, and if necessary, correcting the data before it 
is reported publicly. Neither the statute, nor this proposed rule, 
contains a recordkeeping requirement for physicians or teaching 
hospitals. Therefore, while we evaluated the burden associated with the 
review and correction process, we do not include an estimate of the 
burden for keeping records. We seek comments on this assumption, and on 
the extent to which physicians and teaching hospitals will keep records 
in the absence of a requirement to do so. While this would not be 
considered an information collection under the Paperwork Reduction Act, 
this will be helpful information to consider at the final rule stage 
related to the overall costs of this regulatory action.
    The statute uses the definition of physician in section 1861(r) of 
the Act, which includes doctors of medicine and osteopathy, dentists, 
podiatrists, optometrists and licensed chiropractors. Using the Bureau 
of Labor Statistics Occupational Outlook Handbook, we estimate that 
information may be available for as many as 892,000 physicians. 
However, we believe that not all physicians will have relationships 
with applicable manufacturers or applicable GPOs. Based on feedback we 
received from stakeholders, we estimate that 25 percent of physicians 
have no relationships with applicable

[[Page 78761]]

manufacturers or applicable GPOs, which reduces our universe of 
affected physicians to approximately 669,000. Further, stakeholders 
have expressed that many physicians maintain relationships with 
applicable manufacturers that are relatively insignificant from a 
financial point of view, so we estimate that many physicians will not 
devote any time to reviewing and correct the aggregated reports from 
CMS. We estimate that only 50 percent of the remaining 669,000 
physicians will review the report, which reduces our universe of 
affected physicians to 334,500 for year 1. For year 2, we anticipate 
that there would be a further reduction in the number of physicians 
reviewing the data because they would be familiar with the information, 
so we reduced the number of physicians reviewing by another 25 percent, 
to 250,875 physicians. For teaching hospitals, we know that about 1,100 
hospitals receive Medicare GME or IME payments, all of which are 
defined as teaching hospitals for this provision. We believe that the 
vast majority of teaching hospitals would have at least one financial 
relationship with an applicable manufacturer, so we did not apply any 
adjustments to this estimate. We also anticipate that there would not 
be a reduction in the number of teaching hospitals that review the 
information after the first year because teaching hospitals probably 
have more complex financial relationships.
    Each physician and teaching hospital would be only allowed to 
review the information attributed to them by all applicable 
manufacturers and applicable GPOs. We estimate that on average, 
physicians would need one hour to review the information reported. For 
physicians that choose to review the information, this would range from 
a few minutes for physicians with few relationships with applicable 
manufacturers, to at most 10 or 20 hours for the small number of 
physicians who have lengthy disputes over a payment or other transfer 
of value, or ownership or investment interest. We believe that teaching 
hospitals would have to review more payments or other transfers of 
value and have more complex relationships, so we estimate that, on 
average, it would take a representative from a teaching hospital 10 
hours to review the submitted data, ranging from 3 hours for small 
teaching hospitals that receive few payments or other transfer of 
value, to 60 hours for teaching hospitals that have lengthy disputes. 
We welcome comment and data on these estimates, and particularly 
welcome data from physicians and institutions in States that have 
required similar reporting in the past.
    The Bureau of Labor Statistics Occupational Employment Statistics 
publishes data on hourly compensation for Healthcare Practitioners and 
Technical Occupations in physicians' offices. Although this category is 
broader than the provider types listed in the definition of physician 
in section 1861(r) of the Act, we believe that many physicians would 
delegate their review responsibilities to their nurses and office 
assistants. Given this expectation, we believe that the Healthcare 
Practitioners and Technical Occupations cost estimate is appropriate 
for this calculation. The average hourly rate for Healthcare 
Practitioners and Technical Occupations is $54.53 in physician offices 
(see http://www.bls.gov/oes/current/oes290000.htm), which rises to 
$72.52 with 33 percent fringe benefits and overhead costs. This average 
includes physicians, who account for about half of the employment in 
this category. The total number of hours for physicians (including 
physician offices) would be 334,500 for year 1 and 188,156 hours 
(250,875 x 0.75 hours) for year 2, which averages to 236,938 hours 
annually for the first 3 years. The total estimated cost for the review 
and correction period for physicians in year 1 is $24,258,000. For year 
2 and annually thereafter, the estimated cost for physician review and 
correction is $13,645,000. For the first 3 years, the average cost for 
all physicians review and correction will be $17,190,000 annually.
    For teaching hospitals, we expect a manager to review the payments 
and other transfers of value. Since this review could be done by 
employees with multiple titles, we used the Bureau of Labor Statistics 
Occupational Employment Statistics reported compensation for Management 
Occupations at General Medical and Surgical Hospitals in 2010. The 
hourly average rate for Management Occupations is $48.88, or $65.01 
when fringe and overhead costs are applied. For year 1, the total 
number of hours would be 11,000 (1,100 x 10 hours) at $65.01 per hour. 
For year 2 this would decrease to 8,250 hours (1,100 x 7.5 hours) at 
$65.01 per hour. For the first 3 years, the total number of hours for 
teaching hospitals will be 9,167 annually. The total estimated cost for 
the review and correction period for teaching hospitals is $715,000 for 
year 1 and $536,332 for year 2 and annually thereafter. On average, the 
cost for all teaching hospitals will be $595,925 annually for the first 
3 years.

                                         Table 3--Year 1 Estimated Burden for Physicians and Teaching Hospitals
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Estimated
                                                                    entities       Estimated hours     Hourly rate      Average total     Total burden
                                                                    reviewing        for review                        cost per entity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physicians....................................................           334,500               1.0            $72.52            $75.52       $24,258,000
Teaching Hospitals............................................             1,100              10.0             65.01            650.10           715,000
--------------------------------------------------------------------------------------------------------------------------------------------------------


                                Table 4--Year 2 and Subsequent Year Estimated Costs for Physicians and Teaching Hospitals
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Estimated
                                                                   entities       Estimated hours      Hourly rate      Average total      Total cost
                                                                   reviewing         for review                        cost per entity
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physicians...................................................           250,875               0.75            $72.52            $56.64       $13,645,000
Teaching Hospitals...........................................             1,100               7.5              65.01            487.57           536,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on the assumptions presented here, we anticipate that the 
total estimated burden of section 1128G of the Act for year 1 is 
4,619,000 hours, at a cost of $224,360,000. For year 2 and annually 
thereafter, the total estimated burden is 3,372,000 hours, at a cost of 
$163,087,390. Annualized over 3 years, the total number of hours per 
year is 3,788,000 with a cost of $183,560,000.

[[Page 78762]]



                                                 Table 5--Estimated Annual Information Collection Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   Hourly
                                                                         Burden per     Total    labor cost    Total labor      Total
    Regulation section(s)        OMB Control    Number of    Number of    response     annual        of          cost of       capital/   Total cost ($)
                                     No.       respondents   responses    (hours)      burden     reporting   reporting ($)  maintenance
                                                                                       (hours)       ($)                      costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   403.904 and Sec.        0938-New......        1,150       1,150     3,009      3,460,427      $46.92    $162,365,548           $0    $162,365,548
 404.908(a)-(g)--Applicable
 Manufacturer Data Collection
 and Reporting.
Sec.   403.906 and Sec.        ..............          420         420       173         72,800       46.92       3,415,825            0       3,415,825
 404.908(a)-(g)--Applicable
 GPO Data Collection and
 Reporting.
Sec.   403.908--Physician      ..............      278,750     278.750         0.85     236,938       72.52      17,182,708            0      17,182,708
 Review and Correction Period.
Sec.   403.906--Teaching       ..............        1,100       1,100         8.33       9,167       65.01         595,925            0         595,925
 Hospital Review and
 Correction Period.
                              --------------------------------------------------------------------------------------------------------------------------
    Total....................  ..............      281,410     281,410        13.43   3,779,331       48.57     183,560,006            0     183,560,006
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We emphasize that these estimates are, by necessity, uncertain, and 
that we particularly solicit comments providing us a better basis for 
final estimates.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, CMS-5060-P.
    Fax: (202) 395-5806; or
    Email: [email protected].

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

    This proposed rule is necessary to implement the requirements in 
section 1128G of the Act (as added by section 6002 of the Affordable 
Care Act), which requires applicable manufacturers of covered drugs, 
devices, biologicals and medical supplies to report annually to the 
Secretary all payments and other transfers of value to physicians and 
teaching hospitals (collectively, covered recipients). Section 1128G of 
the Act also requires applicable manufacturers and applicable group 
purchasing organizations (GPOs) to report ownership and investment 
interests held by physicians or the immediate family members of 
physicians in such entities.
    These provisions of the Act were modeled largely on the 
recommendations of the Medical Payments Advisory Commission (MedPAC), 
which voted in 2009 to recommend Congressional enactment of a new 
regulatory program. The problem addressed, as stated by MedPAC, is that 
``at least some'' drug and device manufacturer interactions with 
physicians ``are associated with rapid prescribing of new, more 
expensive drugs and with physician requests that such drugs be added to 
hospital formularies,'' as well as ``concern that manufacturers' 
influence over physicians' education may skew the information 
physicians receive.'' MedPAC went on to say that ``there is no doubt 
that those relationships should be transparent,'' while pointing out 
that ``transparency does not imply that all--or even most--of these 
financial ties undermine physician-patient relationships.'' \4\
---------------------------------------------------------------------------

    \4\ All quotes from pages 315-316 of ``Public reporting of 
physicians' financial relationships'' at http://www.medpac.gov/chapters/Mar09_Ch05.pdf.
---------------------------------------------------------------------------

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 
1995; Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and promoting 
flexibility. Section 4 of Executive Order 13563 calls upon agencies to 
consider approaches that ``maintain flexibility and freedom of choice 
for the public,'' including the ``provision of information to the 
public in a form that is clear and intelligible.'' A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). We estimate 
that this rulemaking is ``economically significant'' as measured by the 
$100 million threshold. Accordingly, we have prepared a Regulatory 
Impact Analysis that presents estimated costs and benefits of the 
rulemaking. We solicit comments on all assumptions and estimates in 
this regulatory impact analysis. As is standard practice in meeting 
these various requirements for regulatory analysis, this section of the 
preamble addresses all of them together. Other parts of the preamble, 
together with this analysis, meet all statutory and Executive Order 
requirements.
    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. Under the RFA, ``small entities'' are those 
that fall below size thresholds set by the Small Business 
Administration, or are not-for-profit

[[Page 78763]]

organizations or governmental jurisdictions with a population of less 
than 50,000. For purposes of the RFA, we estimate that the majority of 
teaching hospitals and physicians, and most applicable manufacturers 
and applicable GPOs are small entities under either the size or not-
for-profit standard. We seek comment on our assumptions and estimations 
regarding the RFA. According to the Small Business Administration size 
standards \5\ the threshold size standard for ``small'' pharmaceutical 
manufacturers is 750 employees, for biological products, and surgical 
equipment, surgical supplies, and electromedical/electrotherapeutic 
apparatus manufacturers is 500 employees and for drug and medical 
equipment wholesalers is 100 employees. We estimate that approximately 
75 percent of applicable manufacturers and applicable GPOs are smaller 
than these size standards. In this proposed rule, we propose that 
applicable manufacturers that do not have payments or other transfers 
of value or physician ownership or investment interests to report do 
not need to submit a report. We believe that many small applicable 
manufacturers and applicable GPOs will have no relationships, thus will 
not have to report, so the burden on them will be negligible. For small 
entities with financial relationships to report, we believe that they 
will only have a small number to report, making the reporting process 
significantly less burdensome. We believe that the average burden of 
the reporting requirements will be about $50,000 in the first year 
(average annual wage rate of $97,595 times 0.5 FTE) for smaller 
manufacturers, and even less in subsequent years. This amount is far 
below the 3 percent of revenues that HHS uses as a threshold for 
``significant impact'' under the RFA, so these regulations will not 
have a significant effect on these small entities. For example, if a 
firm with only 100 employees generates annual revenues of $200,000 per 
employee, or $20 million, a cost of $50,000 would be about one-fourth 
of 1 percent of revenues. Firms this small would potentially face costs 
considerably less than $50,000, and hence an even lower effect.
---------------------------------------------------------------------------

    \5\ http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.
---------------------------------------------------------------------------

    As previously noted, most teaching hospitals and physicians are 
small entities under the RFA, since most teaching hospitals are not-
for-profit and some have revenues below $34.5 million. We estimate that 
95 percent of physician practices have revenues under $10 million. We 
believe the regulatory effects of this provision on physicians and 
teaching hospitals are relatively minor. Physicians and teaching 
hospitals are provided with the opportunity to review and correct this 
information, but are not involved in the data collection or reporting 
processes. We estimated that this review would take the great majority 
of individual physicians and/or their office staff one hour or less to 
perform annually and 10 hours or less annually for teaching hospitals, 
on average. Given that their review will take such a small amount of 
their time annually, the costs faced by physicians and teaching 
hospitals are not substantial. As a result, we believe that the cost 
burden of this review and correction period will be far below the 3 
percent threshold for ``significant impact.'' Moreover, the amount of 
time spent on such reviews is entirely discretionary. Therefore, we 
have determined that this proposed rule will not have a significant 
economic impact on a substantial number of small entities in any 
category of entities it affects.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. We do not believe that 
any of the affected teaching hospitals are small rural hospitals. 
Therefore, we have determined that this proposed rule will not have a 
significant impact on the operations of a substantial number of small 
rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any single year of 
$100 million in 1995 dollars, updated annually for inflation. In 2011, 
that threshold is approximately $136 million. The estimates presented 
in this section of this proposed rule exceed this threshold and as a 
result, we have provided a detailed assessment of the anticipated costs 
and benefits in section V.C.4. of this proposed rule. Reporting under 
section 1128G of the Act is required by law, so we are limited in 
another policy avenue for achieving the expected benefits. Section V.D. 
of this proposed rule, as well as other parts of the preamble, provide 
detailed additional information on the alternatives we considered.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. While this proposed rule does preempt certain elements of 
State law, the regulatory standard simply follows the express 
preemption provision in the statute. Because of this and the fact that 
this regulation does not impose any costs on State or local 
governments, the requirements of Executive Order 13132 are not 
applicable. We offer a more detailed discussion of preemption in 
section II.G. of this proposed rule.

C. Anticipated Effects

    The regulatory impact of this provision includes applicable 
manufacturers and applicable GPOs collection and submitting this 
information to CMS, and physician and teaching hospital review and 
correction period. The costs of these requirements are outlined in 
section III. of this proposed rule. As a reminder, we estimate a total 
cost of about $224 million for the first year of reporting, followed by 
about $163 million in the second year and annually thereafter. Because 
of a paucity of existing data on which to base these estimates they are 
very uncertain. We solicit comments on the assumptions, data, 
estimates, and anticipated effects described throughout this analysis 
and section III. of this proposed rule.
1. Effects on Applicable Manufacturers and Applicable GPOs
    Only applicable manufacturers that made reportable payments or 
other transfers of value, or have physicians (or immediate family 
members of physicians) holding ownership and investment interests, 
would be required to submit reports. Similarly, only applicable GPOs 
that have ownership or investment interests held by physicians (or 
immediate family members of physicians) would be required to submit 
reports. We estimate that approximately 1,150 applicable manufacturers 
(150 drug and biologic manufacturers and 1,000 device and medical 
supply manufacturers) and 420 applicable GPOs would submit reports. 
Across applicable manufacturers we estimate that, on average, fewer 
than two FTE employees would be needed for each applicable manufacturer 
submitting a report, and that for smaller manufacturers the effort 
would be on average about half of an FTE employee. For applicable GPOs, 
we estimate that

[[Page 78764]]

on average an applicable GPO would dedicate 10 percent of an FTE 
employee to reporting under section 1128G of the Act. The rationale for 
these estimations is included in section III.A. of this proposed rule 
and Tables 1A and 1B provide our total cost estimates for applicable 
manufacturers and applicable GPOs to collect and submit the information 
required in section 1128G of the Act.
    We note, and discuss in the benefits section later in this section, 
that the costs of applicable manufacturers may be partially offset 
because many companies are already required to report to States with 
similar disclosure requirements, but would no longer be so required to 
report the same information to States after the final rule is issued. 
In addition, a few large companies are already reporting similar 
information on a national level in order to comply with Corporate 
Integrity Agreements (CIAs) with HHS OIG. These companies may not have 
to invest as much to comply with the requirements in section 1128G of 
the Act, so the burden of these requirements may be lower for these 
companies. However, given the differing requirements for each State and 
CIA, and broad scope of section 1128G of the Act, we do not believe it 
is possible to approximate the lessened burden for entities already 
reporting. We seek comment on this interpretation and whether there is 
a more precise way to quantify these estimates. Further, we estimate 
that applicable manufacturers and applicable GPOs may face significant 
first year costs in scaling and staffing up to meet the reporting 
requirements. However, once systems are in place and reporting becomes 
routine, such costs would decrease in subsequent years. Therefore we 
estimate that the cost for year 2 would be approximately 25 percent 
less for applicable manufacturers and applicable GPOs.
2. Effects on Physicians and Teaching Hospitals
    We also have estimated costs for physicians and teaching hospitals, 
since they would have an opportunity to review and correct the data 
submitted by applicable manufacturers. We estimated the number of 
physicians as defined in the statute, which includes a number of 
provider types, including doctors of medicine and osteopathy, dentists, 
podiatrists, optometrists, and licensed chiropractors. We also reduced 
these numbers to adjust for physicians with no financial relationships 
and those who would not review and correct the data submitted on their 
behalf. See the Table 6 for a breakdown of this calculation. Roughly 
1,100 teaching hospitals meet the proposed definition of teaching 
hospital and would need to review the data submitted during the 45-day 
review period.

                  Table 6--Number of Physicians by Type
------------------------------------------------------------------------
                        Physician type                           Number
------------------------------------------------------------------------
Doctor of Medicine/Doctor of Osteopathy......................    660,000
Doctor of Dental Medicine....................................    150,000
Doctor of Podiatric Medicine.................................     12,000
Doctor of Optometry..........................................     35,000
Licensed Chiropractors.......................................    *35,000
                                                              ----------
    Total....................................................    892,000
                                                              ==========
Adjustment for physicians with no reports (reduction by 25%).    669,000
Adjustment for physicians who do not review reports (year 1--    334,500
 reduction by 50%)...........................................
Adjustment for physicians who do not review reports (year 2--    250,875
 reduction by 25%)...........................................
------------------------------------------------------------------------
*Reduced from 50,000 in BLS to account for licensure.

    We estimate that it would take on average one hour for physicians 
or their office staffs to review the information reported. For teaching 
hospitals, we estimate that, on average, it would take a representative 
from a teaching hospital 10 hours to review the submitted data, ranging 
from 3 hours for small teaching hospitals that receive few payments or 
other transfer of value, to 60 hours for teaching hospitals that have 
lengthy disputes. Further we estimate that as physicians and teaching 
hospitals become accustomed to receiving these reports that the amount 
of time they spend reviewing them and interacting with applicable 
manufacturers and applicable GPOs would decrease in year 2 and 
subsequent years of reporting. These assumptions are described in more 
detail in section III.B. of this proposed rule. Additionally, more 
detailed information regarding these costs is provided in Tables 3 and 
4 of this proposed rule.
3. Effects on the Medicare, Medicaid, and CHIP
    Although the Department proposes to administer this program through 
the Centers for Medicare and Medicaid Services, the proposed rules 
would have no direct effects on the Medicare, Medicaid, and CHIP. 
Reporting is required for all physicians and teaching hospitals 
regardless of their association with Medicare, Medicaid, or CHIP. 
Manufacturers are identified by whether the company has a product 
eligible for payment by Medicare, Medicaid or CHIP, but this does not 
affect whether or not the product may be covered under titles XVIII, 
XIX, or XXI of the Act.
4. Benefits
    Collaboration among physicians, teaching hospitals, and industry 
manufacturers can contribute to the design and delivery of life-saving 
drugs and devices. While collaboration is beneficial to the continued 
innovation and improvement of our health care system, some payments 
from manufacturers to physicians and teaching hospitals can introduce 
conflicts of interests that may influence research, education, and 
clinical decision-making in ways that compromise clinical integrity and 
patient care, and lead to increased program costs. It is important to 
understand the extent and nature of relationships between physicians, 
teaching hospitals, and industry manufacturers through increased 
transparency, and to permit patients to make better informed decisions 
when choosing health care professionals and making treatment decisions. 
Additionally, it is important to develop a system that encourages 
constructive collaboration, while also discouraging relationships that 
threaten the underlying integrity of the health care system.
    Recent increases in both the amount and scope of industry 
involvement in medical research, education, and clinical practice has 
led to considerable scrutiny. Both the Institute of Medicine and other 
experts, such as the Medicare Payment Advisory Commission (MedPAC), 
have recommended enhanced disclosure and transparency to discourage the 
inappropriate use of financial incentives and lessen the risk of such 
incentives interfering with medical judgment and patient care. We 
recognize that disclosure is not sufficient to differentiate 
beneficial, legitimate financial relationships from those that create a 
conflict of interest or are otherwise improper. However, transparency 
can shed light on the nature and extent of relationships, and 
discourage inappropriate conflicts of interest.\6\
---------------------------------------------------------------------------

    \6\ Information on the IOM recommendations may be found here: 
http://www.iom.edu/Reports/2009/Conflict-of-Interest-in-Medical-Research-Education-and-Practice.aspx.
---------------------------------------------------------------------------

    We have no empirical basis for estimating the frequency of such 
problems, the likelihood that transparent reporting will reduce them, 
or the likely resulting effects on reducing the costs of medical care.

[[Page 78765]]

However, we observe that the costs of the proposed rule for preparing 
reports are small in relation to the size of the affected industry 
sectors.
    Finally, section 1128G(d)(3) of the Act preempts State laws 
requiring the reporting of the same type of information as required by 
section 1128G(a) of the Act. Applicable manufacturers and applicable 
GPOs subject to State requirements would not have to comply with 
multiple State requirements, and instead would only have to comply with 
a single Federal requirement with regard to the types of information 
required to be reported under 1128G(a) of the Act. This benefits 
applicable manufacturers and applicable GPOs by allowing them a single 
set of reporting requirements with which to comply, lessening the 
potential for multiple, conflicting State requirements. We do not have 
a basis for estimating the amount of savings that manufacturers would 
realize through immediate elimination of duplicative reporting, but 
these could be substantial. Future savings from the preemption could be 
far greater, since manufacturers were facing potentially dozens of 
State-mandated reporting systems, all differing in reporting 
requirements and detail.

D. Alternatives Considered

    Reporting under section 1128G of the Act is required by law, which 
limits the other policy options available. Section 1128G of the Act 
encourages transparency of financial relationships between physicians 
and teaching hospitals, and the pharmaceutical and device industry. 
Although, many of these relationships are beneficial, close 
relationships between manufacturers and prescribing providers can lead 
to conflicts of interests that may affect clinical decision-making. 
Increased transparency of these relationships tries to discourage 
inappropriate relationships, while maintaining the beneficial 
relationships. Public reporting and publication is the only identified 
option for obtaining this transparency and achieving the intensions of 
this provision. In developing this proposed rule, we tried to minimize 
the burden on reporting entities by trying to simplify the reporting 
requirements as much as possible within the statutory requirements.
    The statute is prescriptive as to the types of information required 
to be reported, and the ways in which it is required to be reported; 
however wherever possible we tried to allow flexibility in the 
reporting requirements. For example--
     We do not propose to require the submission of an 
assumptions document for nature of payment categories, but allow 
applicable manufacturers and applicable GPOs to submit this 
voluntarily; and
     The Secretary is allowed discretion to require the 
reporting of additional information, but we tried to use this 
discretion as sparingly as possible, in large part because of the 
strong desire expressed by stakeholders that we not expand reporting 
categories. For example, we considered asking applicable manufacturers 
and applicable GPOs to report the method of preferred communication and 
email address for physicians and teaching hospitals with which they 
have relationships, but have solicited comment on whether this would be 
useful or additionally burdensome.
    These examples demonstrate our effort to minimize the regulatory 
burden of this proposed rule and we solicit comments on all the 
alternatives considered in this section or elsewhere in the preamble.
    Throughout this preamble we have identified alternatives that are 
possible within the statutory framework. While we do not have precise 
cost estimates for these, our qualitative assessment of each is as 
follows.
     We are considering not including the two proposed 
limitations on the definition of covered drug, device, biological, and 
medical supply. We propose limiting covered drugs and biologicals to 
those that require a prescription to be dispensed and limiting covered 
devices (including medical supplies) to those that require premarket 
approval by or notification to the FDA. These limitations may reduce 
the number of entities meeting the definition of applicable 
manufacturer and applicable GPO. However, we do not expect that 
removing these limitations would significantly change the regulatory 
burden because we do not expect many companies that manufacture only 
these exempt products to have significant relationships with physicians 
and teaching hospitals. As a result, if the companies were included as 
applicable manufacturers, they would likely not be required to file a 
report, or would only have a few relationships to report, thus 
minimizing the burden. We request information on the potential cost and 
transparency implications of including these products.
     We propose to define ``common ownership'' as covering any 
ownership portion of two or more entities, but are also considering an 
alternate interpretation that would limit the common ownership 
definition to circumstances where the same individual, individuals, 
entity, or entities own 5 percent or more of total ownership in two or 
more entities. We solicit information on the potential implications of 
this option or of variations for ease of implementation, scope of 
covered entities or transparency implications.
     We are also considering whether we should require that 
applicable manufacturers report another unique identifier, such as 
State license number, for physicians who are identified but do not have 
an NPI. Such an approach would provide additional information by which 
to cross-reference physicians who do not have an NPI, but it may be 
confusing to interpret if it is not captured in a consistent manner. 
Instead, we are proposing that applicable manufacturers may leave the 
NPI blank for physicians that do not have an NPI. We seek comments on 
this alternative.
     The Congress gave the Secretary authority to define a GPO 
and also specified that such organizations would include organizations 
that purchase covered drugs, devices, biologicals, and medical 
supplies, as well as organizations that arrange for or negotiate the 
purchase of covered drugs, devices, biologicals, and medical supplies. 
We therefore interpret the statute to encompass entities that purchase 
covered drugs, devices, biological, and medical supplies for resale or 
distribution to groups of individuals or entities. This would include 
physician owned distributors (PODs) of covered drugs, devices, 
biological, and medical supplies. We welcome comment on this 
interpretation and on whether there is some variation that would 
reasonably distinguish entities according to potential for improper 
influence.
     We are proposing, as required by statute, a 45-day review 
period during which applicable manufacturers and GPOs, covered 
recipients, and physician owners or investors can review the data 
before it is made available to the public. As discussed earlier in the 
preamble, there are some complexities involved, especially regarding 
the latter two groups. We request comments on alternative time periods 
and, especially, on possible alternatives to this approach that might 
better serve the interest of all concerned in publication of accurate 
information. For example, should there be a two-step process, in which 
the information when first released is labeled provisional, and 
``final'' data is labeled as such after a second opportunity for 
correction? As

[[Page 78766]]

previously discussed, what about mail or email options? Should 
applicable manufacturers and applicable GPOs be required to inquire of 
covered recipients and physician owners or investors of their 
opportunity to review the data? We welcome comments on any approach 
that minimizes costs or improves accuracy of the information. We also 
would welcome information on the likely frequency of cases in which 
additional communication methods would be necessary, useful, costly, 
inexpensive, or otherwise better or worse.
    As these alternatives suggest, we welcome ideas on how to improve 
the quality and utility of the program, while minimizing unnecessary 
costs. We particularly welcome comments that can provide not only 
better methods, but also ways to quantify the potential savings from 
those methods.

E. Accounting Statement (Table 7)

    The Office of Management and Budget, in Circular A-40, requires an 
accounting statement for rules with significant economic impacts. The 
table that follows shows the costs we have estimated by the first year, 
the second year, and annualized over 10 years. We assume that future 
outlay costs may be similar to those costs experienced in year two. We 
envision that the number of financial relationships required to be 
reported will remain similar, so the cost of reporting the information 
will not change significantly. However, we welcome information on the 
burden in these future years and seek comment on our assumptions for 
the burden beyond year two.

                      Table 7--Accounting Statement
------------------------------------------------------------------------
                     Category                               Costs
------------------------------------------------------------------------
CY 2013 Monetized Costs...........................  Estimated increase
                                                     in expenditures of
                                                     $224 million for
                                                     year one for the
                                                     implementation of
                                                     section 1128G of
                                                     the Act.
CY 2014 Annualized Monetized Costs................  Estimated increase
                                                     in expenditures of
                                                     $163 million for
                                                     year two and beyond
                                                     for the
                                                     implementation of
                                                     section 1128G of
                                                     the Act.
CY 2013-CY 2022 Annualized Monetized Costs........  Estimated increase
                                                     in expenditures of
                                                     $170 million at
                                                     discount rate of 3%
                                                     or $171 million at
                                                     discount rate of
                                                     7%.
From Whom To Whom?................................  Increased costs for
                                                     manufacturers and
                                                     GPOs of covered
                                                     drugs, devices,
                                                     biologicals, and
                                                     medical supplies,
                                                     as well as
                                                     physicians and
                                                     teaching hospitals.
Benefits..........................................  Public reporting of
                                                     the extent and
                                                     nature of
                                                     relationships
                                                     between physicians,
                                                     teaching hospitals,
                                                     and industry
                                                     manufacturers
                                                     through increased
                                                     transparency will
                                                     permit patients to
                                                     make better
                                                     informed decisions
                                                     when choosing
                                                     health care
                                                     professionals and
                                                     making treatment
                                                     decisions, and
                                                     deter inappropriate
                                                     financial
                                                     relationships.
------------------------------------------------------------------------

F. Conclusions

    Section 1128G of the Act requires applicable manufacturers to 
report annually to CMS certain payments or transfers of value provided 
to physicians or teaching hospitals. In addition, applicable GPOs are 
required to report annually certain physician ownership interests. We 
estimate that the impact of these reporting requirements will be about 
$224 million for the first year of reporting, and $163 million for the 
second year and annually thereafter. As we have indicated throughout, 
these are rough estimates and subject to considerable uncertainty. 
Better estimates might well be 25 percent higher or lower. Nonetheless, 
we believe that the public comment period offers an excellent 
opportunity for all stakeholders to consider alternatives and to 
present quantitative or qualitative information that will enable us to 
both improve the effectiveness and lower the costs of the final rule. 
Therefore, we solicit comments on the analysis and assumptions provided 
throughout this preamble and in the alternatives section of the 
regulatory impact analysis in particular.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 402

    Administrative practice and procedure, Medicaid, Medicare, 
Penalties.

42 CFR Part 403

    Grant programs--health, Health insurance, Hospitals, 
Intergovernmental relations, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as set forth 
below:

PART 402--CIVIL MONEY PENALTIES, ASSESSMENTS, AND EXCLUSIONS

Subpart A--General Provisions

    1. The authority citation for part 402 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    2. Section 402.1 is amended as follows:
    A. In paragraph (c) introductory text, by removing the reference 
``(c)(33)'' and adding the reference ``(c)(34)'' in its place.
    B. Adding a new paragraph (c)(34).
    The addition reads as follows:


Sec.  402.1  Basis and scope.

* * * * *
    (c) * * *
    (34) Section 1128G (b)(1) and (2) of the Act--Any applicable 
manufacturer or applicable group purchasing organization that fails to 
report information to CMS as required under Part 403 Subpart I.
* * * * *
    3. Section 402.105 is amended as follows:
    A. In paragraph (a), by removing the reference to ``paragraphs (b) 
through (g)'' and adding the reference ``paragraphs (b) through (h)'' 
in its place.
    B. Adding paragraphs (d)(5) and (h).
    The additions read as follows:


Sec.  402.105  Amount of penalty.

* * * * *
    (d) * * *
    (5) CMS or OIG may impose a penalty of not more than $10,000 for 
each failure of an applicable manufacturer to report timely, 
accurately, and completely a payment or other transfer of value, or 
each failure of an applicable manufacturer or an applicable group 
purchasing organization to report timely, accurately, and completely an 
ownership or investment interest (Sec.  402.1(c)(34)). The total 
penalty imposed with respect to each annual

[[Page 78767]]

submission of information will not exceed $150,000.
* * * * *
    (h) $100,000. CMS or OIG may impose a penalty of not more than 
$100,000 for each knowing failure of an applicable manufacturer to 
report timely, accurately and completely a payment or other transfer of 
value, or each knowing failure of an applicable manufacturer or an 
applicable group purchasing organization to report timely an ownership 
or investment interest (Sec.  402.1(c)(34)). The total penalty imposed 
with respect to each annual submission of information will not exceed 
$1,000,000.

PART 403--SPECIAL PROGRAMS AND PROJECTS

    4. The authority citation for part 403 continues to read as 
follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

    5. Subpart I is added to part 403 to read as follows:
Subpart I--Transparency Reports and Reporting of Physician Ownership or 
Investment Interests
Sec.
403.900 Purpose and scope.
403.902 Definitions.
403.904 Reports of payments or other transfers of value.
403.906 Reports of physician ownership and investment interests.
403.908 Procedures for electronic submission of reports.
403.910 Delayed publication for payments made under product research 
or development agreements and clinical investigations.
403.912 Penalties for failure to report.
403.914 Preemption of State laws.

Subpart I--Transparency Reports and Reporting of Physician 
Ownership or Investment Interests


Sec.  403.900  Purpose and scope.

    The regulations in this subpart implement section 1128G of the Act. 
These regulations apply to applicable manufacturers and applicable 
group purchasing organizations and describe the requirements and 
procedures for applicable manufacturers to report payments or other 
transfers of value to physicians and teaching hospitals, as well as for 
applicable manufacturers and applicable group purchasing organizations 
to report ownership or investment interests held by physicians or 
immediate family members of physicians.


Sec.  403.902  Definitions.

    Applicable group purchasing organization means an entity that--
    (1) Operates in the United States, or in a territory, possession or 
commonwealth of the United States; and
    (2) Purchases, arranges for or negotiates the purchase of a covered 
drug, device, biological, or medical supply for a group of individuals 
or entities, and not solely for use by the entity itself.
    Applicable manufacturer means an entity that is--
    (1) Engaged in the production, preparation, propagation, 
compounding, or conversion of a covered drug, device, biological, or 
medical supply for sale or distribution in the United States, or in a 
territory, possession, or commonwealth of the United States; or
    (2) Under common ownership with an entity in paragraph (1) of this 
definition, which provides assistance or support to such entity with 
respect to the production, preparation, propagation, compounding, 
conversion, marketing, promotion, sale, or distribution of a covered 
drug, device, biological, or medical supply for sale and distribution 
in the United States, or in a territory, possession, or commonwealth of 
the United States.
    Charity care means services provided by a covered recipient 
specifically for a patient who cannot pay, where the covered recipient 
neither receives, nor expects to receive, payment because of the 
patient's inability to pay.
    Charitable contribution includes, but is not limited to, any 
payment or transfer of value made to an organization with tax-exempt 
status under the Internal Revenue Code of 1986.
    Clinical investigation means any experiment involving one or more 
human subjects, or materials derived from human subjects, in which a 
drug or device is administered, dispensed, or used.
    Common ownership means entities that are owned, in whole or in 
part, by the same individual, individuals, entity, or entities, 
directly or indirectly. This includes, but is not limited to, parent 
corporations, direct and indirect subsidiaries, and brother or sister 
corporations.
    Covered device means any device for which payment is available 
under Title XVIII of the Act or under a State plan under Title XIX or 
XXI of the Act (or a waiver of such plan), either separately, as part 
of a fee schedule payment, or as part of a composite payment rate (for 
example, the hospital inpatient prospective payment system or the 
hospital outpatient prospective payment system). This definition is 
limited to those devices (including medical supplies) that, by law, 
require premarket approval by or premarket notification to the Food and 
Drug Administration.
    Covered drug, device, biological, or medical supply means any drug, 
device, biological, or medical supply for which payment is available 
under Title XVIII of the Act or under a State plan under Title XIX or 
XXI of the Act (or a waiver of such plan), either separately, as part 
of a fee schedule payment, or as part of a composite payment rate (for 
example, the hospital inpatient prospective payment system or the 
hospital outpatient prospective payment system). With respect to a drug 
or biological, this definition is limited to those drug and biological 
products that, by law, require a prescription to be dispensed. With 
respect to a device or medical supply, this definition is limited to 
those devices (including medical supplies) that, by law, require 
premarket approval by or premarket notification to the Food and Drug 
Administration.
    Covered recipient means--
    (1) Any physician, except for a physician who is an employee (as 
defined in section 1877(h)(2) of the Act) of an applicable 
manufacturer; or
    (2) A teaching hospital, which is any institution that received a 
payment under 1886(d)(5)(B), 1886(h), or 1886(s) of the Act during the 
last calendar year for which such information is available.
    Employee means an individual who is considered to be ``employed 
by'' or an ``employee'' of an entity if the individual would be 
considered to be an employee of the entity under the usual common law 
rules applicable in determining the employer-employee relationship (as 
applied for purposes of section 3121(d)(2) of the Internal Revenue Code 
of 1986).
    Immediate family member means any of the following:
    (1) Spouse.
    (2) Natural or adoptive parent, child, or sibling.
    (3) Stepparent, stepchild, stepbrother, or stepsister.
    (4) Father-, mother-, daughter-, son-, brother-, or sister-in-law.
    (5) Grandparent or grandchild.
    (6) Spouse of a grandparent or grandchild.
    Know, knowing, or knowingly. (1) Means that a person, with respect 
to information--
    (i) Has actual knowledge of the information;
    (ii) Acts in deliberate ignorance of the truth or falsity of the 
information; or
    (iii) Acts in reckless disregard of the truth or falsity of the 
information; and

[[Page 78768]]

    (2) Requires no proof of a specific intent to defraud.
    Ownership or investment interest. (1) Includes, but is not limited 
to--
    (i) Stock, stock option(s) (other than those received as 
compensation, until they are exercised);
    (ii) Partnership share(s);
    (iii) Limited liability company membership(s);
    (iv) Loans, bonds, or other financial instruments that are secured 
with an entity's property or revenue or a portion of that property or 
revenue.
    (2) May be direct or indirect and through debt, equity or other 
means; and
    (3) Must not include an ownership or investment interest in a 
publicly traded security or mutual fund, as described in section 
1877(c) of the Act, nor any of the following:
    (i) An interest in an applicable manufacturer or applicable group 
purchasing organization that arises from a retirement plan offered by 
the applicable manufacturer or applicable group purchasing organization 
to the physician (or a member of his or her immediate family) through 
the physician's (or immediate family member's) employment with that 
applicable manufacturer or applicable group purchasing organization.
    (ii) Stock options and convertible securities received as 
compensation, until the stock options are exercised or the convertible 
securities are converted to equity.
    (iii) An unsecured loan subordinated to a credit facility.
    Physician has the same meaning given that term in section 1861(r) 
of the Act.


Sec.  403.904  Reports of payments or other transfers of value.

    (a) General rule. Payments or other transfers of value provided to 
any covered recipient, including payments to another individual or 
entity at the request of (or designated on behalf of) a covered 
recipient, by an applicable manufacturer or a third party (on behalf of 
an applicable manufacturer) must be reported to CMS by the applicable 
manufacturer on an annual basis.
    (b) Required information to report. A report must contain all of 
the following information for each payment or other transfer of value:
    (1) Name of the covered recipient. If the payment or other transfer 
of value was provided to another individual or entity at the request of 
(or designated on behalf of) any covered recipient, the payment or 
transfer of value must be disclosed in the name of that covered 
recipient.
    (2) Business address of the covered recipient, including street 
address, suite or office number (if applicable), city, state, and ZIP 
code.
    (3) In the case of a covered recipient who is a physician, the 
specialty and National Provider Identifier (if applicable) of the 
covered recipient.
    (4) Amount of each payment or other transfer of value to the 
covered recipient.
    (5) Date of each payment or transfer of value to the covered 
recipient.
    (6) Form of each payment or other transfer of value, as described 
in paragraph (c) of this section.
    (7) Nature of each payment or other transfer of value, as described 
in paragraph (d) of this section.
    (8) If a payment or other transfer of value is related to 
marketing, education, or research specific to a covered drug, device, 
biological, or medical supply, the name under which the covered drug, 
device, biological, or medical supply is marketed. If the marketed name 
has not yet been selected, applicable manufacturer must indicate the 
scientific name. Applicable manufacturers may only report a single 
covered drug, device, biological or medical supply for each payment or 
other transfer of value.
    (9) The applicable manufacturer must indicate that a payment or 
other transfer of value is subject to delayed publication, if the 
payment or other transfer of value is made under any of the following 
arrangements:
    (i) In accordance with a product research or development agreement 
for services furnished in connection with research on or development of 
a new drug, device, biological, or medical supply or a new application 
of an existing drug, device, biological or medical supply.
    (ii) In connection with a clinical investigation regarding a new 
drug, device, biological, or medical supply.
    (10) If the payment or other transfer of value is made to an entity 
or individual at the request of (or designated on behalf of) a covered 
recipient, the name of the other individual or entity that receives the 
payment or other transfer of value.
    (11) Whether the payment or other transfer of value was provided to 
a physician who holds an ownership or investment interest (as defined 
Sec.  403.902) in the applicable manufacturer.
    (c) Reporting the form of payment or other transfer of value. An 
applicable manufacturer must report each payment or transfer of value, 
or separable part of that payment or transfer of value, as taking one 
of the following forms, using the designation that best describes the 
form of the payment or other transfer of value, or separable part of 
that payment or other transfer of value. Each of the following terms 
has its dictionary definition:
    (1) Cash or cash equivalent.
    (2) In-kind items or services.
    (3) Stock, a stock option, or any other ownership interest, 
dividend, profit, or other return on investment.
    (d) Reporting the nature of the payment or other transfer of 
value--(1) General rule. The categories describing the nature of a 
payment or other transfer of value are mutually exclusive.
    (2) Rules for categorizing natures of payment. An applicable 
manufacturer must categorize each payment or other transfer of value, 
or separable part of that payment or transfer of value, in one of the 
categories listed in this paragraph (d)(2), using the designation that 
best describes the nature of the payment or other transfer of value, or 
separable part of that payment or other transfer of value. If a payment 
or other transfer of value could reasonably be considered as falling 
within more than one category, the applicable manufacturer should 
select one category that it deems to most accurately describe the 
nature of the payment or transfer of value. Each of the following terms 
has its dictionary definition:
    (i) Consulting fee.
    (ii) Compensation for services other than consulting.
    (iii) Honoraria.
    (iv) Gift.
    (v) Entertainment.
    (vi) Food and beverage.
    (vii) Travel and lodging.
    (viii) Education.
    (ix) Research.
    (x) Charitable contribution.
    (xii) Royalty or license.
    (xiii) Current or prospective ownership or investment interests.
    (xiv) Direct compensation for serving as a faculty or as a speaker 
for a medical education program.
    (xv) Grant.
    (xvi) Other.
    (e) Special rules for research payments. (1) Applicable 
manufacturers must designate each research payment or transfer of value 
as direct research or indirect research.
    (i) Direct research, is a payment or other transfer of value 
provided to a covered entity directly by an applicable manufacturer or 
through a contract research organization (or similar entity).
    (ii) Indirect research, is a payment or other transfer of value 
provided by an applicable manufacturer (including through a contract 
research organization or similar entity) to a clinic, hospital, or 
other institution conducting the research, and that clinic, hospital, 
or

[[Page 78769]]

other institution conducting the research in turn pays the physician 
covered recipient (or multiple physician covered recipients) serving as 
the principal investigator(s).
    (2) All payments or other transfers of value designated as research 
(direct or indirect) must be subject to a written agreement and 
research protocol. Direct or indirect research payments (whether made 
directly by an applicable manufacturer or through a clinical research 
organization or similar entity) must be reported as follows:
    (i) For indirect research, individually under the name(s) and 
NPI(s) (if applicable) of the physician covered recipient principal 
investigator(s). The total amount paid to the clinic, hospital or other 
institution conducting the research, must be reported for each 
principal investigator.
    (ii) For direct research, individually under the name(s) and NPI(s) 
(if applicable) of the covered recipient. The total must indicate the 
amount the covered recipient received.
    (3) If payment is made to a teaching hospital, the payment to the 
teaching hospital must be reported as follows:
    (i) Direct research under the name of the teaching hospital.
    (ii) Indirect research under the name(s) and NPI(s) (if applicable) 
of the physician covered recipient serving as principal 
investigator(s).
    (4) For direct or indirect payments provided to physician covered 
recipients, CMS reports the total payment amount separately from other 
payments or transfers of value.
    (f) Exclusions from reporting. The following types of payments or 
other transfers of value are excluded from the reporting requirements 
specified in this section:
    (1) 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. An applicable 
manufacturer is unaware of the identity of a covered recipient if the 
applicable manufacturer does not know (as defined in Sec.  403.902) the 
identity of the covered recipient.
    (2)(i) For CY 2012, 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.
    (ii) For CY 2013 and subsequent calendar years, to determine if 
transfers of value are excluded under this section, the dollar amounts 
specified in paragraph (f)(2)(i) of this paragraph must be increased by 
the same percentage as the percentage increase in the consumer price 
index for all urban consumers (all items; U.S. city average) for the 
12-month period ending with June of the previous year.
    (3) Product samples that are not intended to be sold and are 
intended for patient use.
    (4) Educational materials that directly benefit patients or are 
intended for patient use.
    (5) 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.
    (6) 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.
    (7) 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.
    (8) Discounts, including rebates.
    (9) In-kind items used for the provision of charity care.
    (10) A dividend or other profit distribution from, or ownership or 
investment interest in, a publicly traded security or mutual fund.
    (11) 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.
    (12) 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.
    (13) 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.


Sec.  403.906  Reports of physician ownership and investment interests.

    (a) General rule. Each applicable manufacturer and applicable group 
purchasing organization must report to CMS on an annual basis all 
ownership or investment interests in the applicable manufacturer or 
applicable group purchasing organization that were held by a physician 
or an immediate family member of a physician during the preceding year.
    (b) Identifying information. Reports on physician ownership or 
investment interests must include the following identifying 
information:
    (1) Name of the physician, and whether the ownership or investment 
interest is held by an immediate family member of the physician.
    (2) Business address of physician, including street address, suite 
or office number (if applicable), city, State, and ZIP code.
    (3) The physician owner's specialty and NPI (if applicable). If the 
ownership or investment interest is held by the immediate family member 
of a physician, the physician's specialty and National Provider 
Identifier must be reported.
    (4) Dollar amount invested by each physician or immediate family 
member of the physician.
    (5) Value and terms of each ownership or investment interest.
    (6) For any payment or other transfer of value provided to a 
physician holding an ownership or investment interest (or to an entity 
or individual at the request of, or designated on behalf of, a 
physician holding such an ownership or investment interest), an 
applicable manufacturer or applicable group purchasing organization 
must report the information requested in Sec.  403.904(b). The same 
exclusions from reporting in Sec.  403.904(f) apply to payments or 
other transfers of value made by applicable manufacturers and 
applicable group purchasing organizations to physician owners or 
investors under this section.


Sec.  403.908  Procedures for electronic submission of reports.

    (a) File format. Reports required under this subpart must be 
electronically submitted as comma separated value (CSV) files to CMS by 
March 31, 2013, and by the 90th day of each subsequent calendar year.
    (b) General rules. (1) If an applicable manufacturer made no 
reportable payments or transfers of value in the previous calendar 
year, nor had any reportable ownership or investment interests held by 
a physician or a physician's immediate family member (as defined in 
Sec.  403.902) during the previous calendar year, the applicable 
manufacturer is not required to file a report.
    (2) If an applicable group purchasing organization had no 
reportable ownership or investment interests held by a physician or 
physician's immediate family member during the previous calendar year, 
the applicable group purchasing organization is not required to file a 
report.
    (c) Registration. Any applicable manufacturer or applicable group 
purchasing organization that is required to report under this subpart 
must register with CMS before March 31,

[[Page 78770]]

2013. During registration, applicable manufacturers and applicable 
group purchasing organizations must name a point of contact with 
appropriate contact information.
    (d) Other rules. (1) An applicable manufacturer under paragraph (1) 
of the definition of ``applicable manufacturer'' in Sec.  403.902 and 
an entity (or entities) under common ownership with the applicable 
manufacturer under paragraph (2) of the definition of ``applicable 
manufacturer'' may, but are not required to, file a consolidated report 
of payments or other transfers of value to covered recipients, and 
physician ownership or investment interests.
    (2) If an applicable manufacturer and an entity (or entities) under 
common ownership choose to file a consolidated report, the report must 
provide the names of each applicable manufacturer and entity (or 
entities) under common ownership that the report covers. It is up to 
the discretion of the applicable manufacturer and entity (or entities) 
under common ownership whether or not specific payments need to be 
identified to the entity that provided the payment.
    (3) If a payment or other transfer of value is provided in 
accordance with a joint venture or other cooperative agreement between 
two or more applicable manufacturers, the payment or other transfer of 
value must be reported--
    (i) In the name of the applicable manufacturer that actually 
furnished the payment or other transfer of value to the covered 
recipient, unless the terms of a written agreement between the 
applicable manufacturers specifically require otherwise, so long as the 
agreement requires that all payments or other transfers of value in 
accordance with the arrangement are reported by one of the applicable 
manufacturers; and
    (ii) Only once by one applicable manufacturer.
    (e) Errors or omissions. If an applicable manufacturer or 
applicable group purchasing organization discovers an error or omission 
in its annual report, it must submit corrected information to CMS 
immediately upon discovery of the error or omission.
    (f) Attestation. Each report, including any subsequent corrections 
to a filed report, must include a certification by the Chief Executive 
Officer, Chief Financial Officer, or Chief Compliance Officer of the 
applicable manufacturer or applicable group purchasing organization 
that the information submitted is true, correct, and complete to the 
best of his or her knowledge and belief.
    (g) 45-day review period for review and error correction--(1) 
General rule. Applicable manufacturers, applicable group purchasing 
organizations, covered recipients, and physician owners or investors 
must have an opportunity to review and submit corrections to the 
information submitted for a period of not less than 45-days before CMS 
makes the information available to the public. In no case may this 45-
day period for review and submission of corrections prevent the 
information from being made available to the public.
    (2) Notification. CMS notifies the applicable manufacturers, 
applicable group purchasing organizations, covered recipients, and 
physician owners or investors when the reported information is ready 
for review.
    (i) Applicable manufacturers and applicable group purchasing 
organizations are notified through the point of contact the applicable 
manufacturer or applicable group purchasing organization identified 
during registration.
    (ii) Physicians and teaching hospitals--
    (A) Are notified using a CMS' list serve and through a posting.
    (B) May also register with CMS to receive notification about the 
review processes.
    (iii) The 45-day review period begins on the date of this 
notification, but in no case may the 45-day review period begin later 
than August 16, 2013, or May 16 of any subsequent year.
    (3) Process. (i) An applicable manufacturer, applicable group 
purchasing organization, covered recipient, and a physician owner or 
investor may log into a secure Web site where each applicable 
manufacturer, applicable group purchasing organization, covered 
recipient, and physician owner is able to view the information reported 
specific to it.
    (ii) If the applicable manufacturer, applicable group purchasing 
organization, covered recipient, or physician owner or investor agrees 
with the information reported, the applicable manufacturer, applicable 
group purchasing organization, covered recipient, or physician owner or 
investor may electronically certify that the information reported is 
accurate.
    (4) Data disputes. (i) Upon request by a covered recipient, 
physician owner or investor, CMS provides the point of contact 
information for the applicable manufacturer or applicable group 
purchasing organization in the event that the covered recipient or 
physician owner disputes the reported data.
    (ii) The covered recipient or physician owner or investor must 
directly contact the applicable manufacturer or applicable group 
purchasing organization to attempt to resolve any dispute regarding a 
reported payment or other transfer of value or an ownership or 
investment interest.
    (iii) At the discretion of the parties involved, one entity must 
notify CMS that a specific payment or other transfer of value, or 
ownership or investment interest is disputed and the outcome of the 
dispute at the end of the 45-day review period.
    (iv) If the dispute is not resolved by the end of the 45-day review 
period, CMS publicly reports both the applicable manufacturer's or 
applicable group purchasing organization's version of the payment or 
other transfer of value, or ownership or investment interest data, as 
well as the covered recipient's or physician owner's version of the 
payment or other transfer of value, or ownership or investment interest 
data.


Sec.  403.910  Delayed publication for payments made under product 
research or development agreements and clinical investigations.

    (a) General rule. In the case of payments or other transfers of 
value made to a covered recipient by an applicable manufacturer under a 
product research or development agreement, or in connection with a 
clinical investigation, payments may be delayed from publication on the 
Web site. Publication of a payment or other transfer of value is 
delayed when made in connection with the following instances:
    (1) Research on or development of a new drug, device, biological, 
or medical supply or a new application of an existing drug, device, 
biological, or medical supply.
    (2) Clinical investigations regarding a new drug, device, 
biological, or medical supply.
    (b) Research or development agreement. The research or development 
agreement must include a written agreement and research protocol 
between the applicable manufacturer and covered recipient.
    (c) Date of publication. Payments must be reported to CMS on the 
first reporting date following the year in which they occur, but CMS 
does not publicly post the payment until the first annual publication 
date after the earlier of the following:
    (1) The date of the approval, licensure or clearance of the covered 
drug, device, biological, or medical supply by the Food and Drug 
Administration.

[[Page 78771]]

    (2) Four calendar years after the date the payment or other 
transfer of value was made.
    (d) Notification of delayed publication. It is the responsibility 
of the applicable manufacturer to notify CMS during subsequent annual 
submissions, if the new drug, device, biological or medical supply, 
with which the payment is associated, is approved by the FDA.
    (1) An applicable manufacturer must indicate on its report to CMS 
whether a payment or other transfer of value is eligible for a delay in 
publication. The absence of this indication in the report results in 
CMS posting all payments publicly in the first year of public 
reporting.
    (2) An applicable manufacturer must continue to indicate annually 
in its report that FDA approval of the new drug, device, biological or 
medical supply, with which the payment is associated, is pending.
    (3) Failure to notify CMS when FDA approval occurs may be 
considered failure to report, and the applicable manufacturer may be 
subject to civil monetary penalties.
    (4) If, after 4 years from the date of a payment first appearing in 
a report to CMS, there is an indication in a report that the payment is 
subject to delayed reporting, it is reported regardless of the 
indication.


Sec.  403.912  Penalties for failure to report.

    (a) Failure to report. (1) Any applicable manufacturer or 
applicable group purchasing organization that fails to accurately and 
completely submit the information required in accordance with the rules 
established under this subpart in a timely manner is subject to a civil 
monetary penalty of not less than $1,000, but not more than $10,000, 
for each payment or other transfer of value or ownership or investment 
interest not reported.
    (2) The total amount of civil monetary penalties imposed on an 
applicable manufacturer or applicable group purchasing organization 
under this subpart with respect to each annual submission of 
information will not exceed $150,000.
    (b) Knowing failure to report. (1) Any applicable manufacturer or 
applicable group purchasing organization that knowingly fails to 
accurately and completely submit the information required in accordance 
with the rules established under this subpart in a timely manner is 
subject to a civil monetary penalty of not less than $10,000, but not 
more than $100,000, for each payment or other transfer of value or 
ownership or investment interest not reported.
    (2) The total amount of civil monetary penalties imposed on an 
applicable manufacturer or group purchasing organization for knowing 
failure to report under this subpart with respect to each annual 
submission of information will not exceed $1,000,000.
    (c) Determinations regarding the amount of civil monetary 
penalties. In determining the amount of the civil monetary penalty, 
factors to be considered include, but are not limited to, the 
following:
    (1) The length of time the applicable manufacturer or applicable 
group purchasing organization failed to report, including the length of 
time the applicable manufacturer and applicable GPO knew of the payment 
or other transfer of value, or ownership or investment interest.
    (2) Amount of the payment the applicable manufacturer or applicable 
group purchasing organization failed to report.
    (3) Level of culpability.
    (4) Nature and amount of information reported in error.
    (5) Degree of diligence exercised in correcting information 
reported in error.
    (d) Record retention and audits-- (1) Maintenance of records. (i) 
Applicable manufacturers and applicable group purchasing organizations 
must maintain all books, contracts, records, documents, and other 
evidence sufficient to enable the audit, evaluation, and inspection of 
the applicable manufacturer's or applicable group purchasing 
organization's compliance with the requirement to accurately and 
completely submit information in a timely manner in accordance with the 
rules established under this subpart.
    (ii) The items described in paragraph (d)(1)(i) of this section 
must be maintained for a period of at least 5 years from the date the 
payment or other transfer of value, or ownership or investment interest 
is published publicly on the Web site.
    (2) Audit. HHS, CMS, OIG or their designees may audit, inspect, and 
evaluate any books, contracts, records, documents, and other evidence 
of applicable manufacturers and applicable group purchasing 
organizations that pertain to their compliance with the requirement to 
accurately and completely submit information in a timely manner in 
accordance with the rules established under this subpart.
    (3) The record retention and audit requirements in this subpart are 
in addition to, and do not limit, any other applicable requirements 
that may obligate applicable manufacturers or applicable group 
purchasing organizations to retain and allow access to records.


Sec.  403.914  Preemption of State laws.

    (a) General rule. In the case of a payment or other transfer of 
value provided by an applicable manufacturer to a covered recipient, 
this subpart preempts any statute or regulation of a State or political 
subdivision of a State that requires an applicable manufacturer to 
disclose or report, in any format, the type of information regarding 
the payment or other transfer of value required to be reported under 
this subpart.
    (b) Information collected for public health purposes. (1) 
Information required to be reported to a Federal, State, or local 
governmental agency for public health surveillance, investigation, or 
other public health purposes or health oversight purposes must still be 
reported to appropriate Federal, State, or local governmental agencies, 
regardless of whether the same information is required to be reported 
under this subpart.
    (2) Governmental agencies include, but are not limited to, the 
following:
    (i) Agencies that are charged with preventing or controlling 
disease, injury, disability.
    (ii) Agencies that conduct oversight activities authorized by law, 
including audits, investigations, inspections, licensure or 
disciplinary actions, or other activities necessary for oversight of 
the health care system.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program; Program No. 93.773, Medicare--Hospital 
Insurance; and Program No. 93.774, Medicare--Supplementary Medical 
Insurance Program)


    Dated: November 9, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: December 13, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
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[FR Doc. 2011-32244 Filed 12-14-11; 4:15 pm]
BILLING CODE 4120-01-C