Slides (Revised 9/16/13)

Slides (Revised 9/16/13)



Indirect and Third-Party Payments

What is an Indirect Payment?

• Direct Payment

• Manufacturer pays physician or hospital directly

• Indirect Payment

– Manufacturer pays a 3 rd party directly, the 3 rd party

then pays a physician or Hospital

Reporting Exclusion: Indirect Payments

• The final rule excludes from reporting “indirect

payments or other transfers of value where the

applicable manufacturer is unaware of the identity

of the covered recipient during the reporting year or

by the end of the second quarter of the following

reporting year.”

– 78 Fed. Reg. 9525

– 42 CFR § 403.904(i)(1)

Indirect Payments

• Applicable to any non-covered recipient:

– Advisory Boards, Guideline Committees

– Non-Accredited Education (including accred. other than 5 bodies)

– Local Meeting Grants

– Conventions/Conferences (excluding accredited CE programs)

– Professional Medical Associations/Orgs/Societies

– Patient Advocacy Groups

– Medical Communications and Publications

• Includes payments at such events for:

– Speaking, Consulting

– Charitable contribution

– Travel, Entertainment

– Meals, Gifts

– Educational items or materials (not otherwise excluded)

Is the Indirect Payment Reportable?

Four-Step Process

1. Does the Sunshine Act apply (e.g., app.


2. Is the payment or TOV made to a non-covered

recipient (e.g., third party or intermediary)?

3. Is the payment a reportable indirect payment?

4. Will the manufacturer be “unaware” of the identity

of the covered recipient for up to 1.5 years after

the payment is made?

Is the Indirect Payment Reportable?

Final CMS Rule defines “indirect payment”

• Payments or other transfers of value made to a CR

through a third party, where the AM “requires,

instructs, directs or otherwise causes” the third party

to provide the payment or transfer of value, in whole

or in part, to a CR. 78 Fed. Reg. 9522

• “Indirect payments … are made to an entity or

individual (that is, a third party) to be passed through

to a covered recipient.” 78 Fed. Reg. 9470

Not Reportable Indirect Payments

• Example 1:

– AM provides unrestricted donation to prof. org to use at org’s


– Org. uses donation to make grants to physicians

– Not “indirect payments” not reportable

• AM did not require, instruct, direct org to use $$ for grants to MD’s

• Prof. org. could have used donation for any purpose

• Example 2:

– AM pays consulting firm, who incidentally uses MD’s

– Payment made to MD, but not “directed” by AM

• AM did not intend, expect MD get value

– Not “indirect payments” not reportable

Reportable Indirect Payments

• Example 3:

– If AM gave $$ to prof. org earmarked for funding

awards/grants to physicians

• indirect payments that must be reported

• Example 4:

– AM gives general payment to clinic for employed physician

to review materials

– Indirect payment b/c directed payment reportable

• Example 5:

– AM directs 3 rd party to pay top billing cardiologists in certain

city or chiefs of staff of certain hospitals

– “should be required to report” even though they do not

have actual knowledge of identities


• Even if AM requires, instructs, directs or otherwise

causes, the payment/TOV will not be reportable if

AM is “unaware” of the CR’s identity within 1.5 years

of the payment.

• “Unaware”

– The AM “does not know” the identity of the CR

• “Know”

• Includes legal agent acting on behalf of AM

– The AM has actual knowledge of the identity or acts in

deliberate ignorance or reckless disregard of identity


• CMS will not consider deliberate ignorance or

reckless disregard when reason pay third party is that

identity of CR remains anonymous

• Example

– AM hire market research firm for double-blinded

market research study; $50 pre physician response

– AM intends portion of payment to go to physicians,

but given to third party to maintain anonymity

– Not reportable as indirect payment

Keys to Indirect Payments

• If unrestricted payment to 3 rd party not indirect,

not reportable

• If restricted, CMS will view as “require, instruct,

direct or otherwise cause”

• Coupled with broad standard for awareness (e.g.,

deliberate ignorance), such indirect payments will

likely be reportable

– Then all payments must be reported accordingly (e.g.,

meals, travel, honoraria, etc.) and separately

Third-Party Payments

“At the Request of” or “Designated on Behalf of”

• Payments or TOVs that refer to

– A covered recipient directs the payment/ TOV to a 3rd

party and does not receive the payment personally.

– Thus, the entity or individual receives (3 rd party) keeps

the payment that was made (or designated) on behalf

of (or at the request of) the covered recipient and the

covered recipient does not receive the payment/TOV

• Such payments are reportable, direct payments

• They are not indirect payments

“At the Request of” or “Designated on Behalf of”

• If the payment/TOV is provided to a 3rd party “at the request

of” or “designated on behalf of” a covered recipient, the value

must be reported in the name of the covered recipient.

• The AM must also report the name of the entity that received

the payment or TOV or “individual”(no name)

• If covered recipient performed service, but neither accepted

offered payment nor “requested” it be made to a 3rd party

no reporting

• Unless, AM provides payment/TOV to a third party and

“designates” such payment/TOV as provided “on behalf” of

the covered recipient.

No Payment

• If a covered recipient performed a service, but

neither accepted the offered payment or other

transfer of value nor requested that it be made to a

third party, the applicable manufacturer is not

required to report the offered payment or other

transfer of value unless the applicable

manufacturer nonetheless provided it to a third

party and designated such payment or other

transfer of value as having been provided on behalf

of the covered recipient.


Accredited CME

• The law gave an exemption to speaking at CME events

• CMS Saw the Value of Accredited CME and the systems in

place for independent content

– “Accredited and certified continuing education that complies

with applicable standards of the accrediting and certifying

entities generally includes safeguards designed to reduce

industry influence, so we believe that, when reportable (that is,

when the payments or transfers of value do not meet the

conditions delineated at § 403.904(g)(1)(i) through (iii)),

payments or transfers of value made to support accredited and

certified continuing medical education should remain in a

distinct category from unaccredited or non-certified continuing


Exemption Criteria for CME Programs

The guidance released by CMS for the reporting of payments related to CME programs to covered

recipients, outlines three criteria that must be met in order for a CME program to be exempt

from reporting.

1. The CME program is accredited by the ACCME, AOA,



2. The manufacturer does not make a payment or transfer

of value directly to speakers/faculty or attendees/

participants that are deemed covered recipients.


3. The manufacturer does not select or influence the

selection of speakers/faculty or attendees/participants.

Note: If a payment or transfer of value is made directly or indirectly to a Teaching Hospital, the

payment or transfer of value must be reported, regardless of the above guidelines.



• Meals

– Reportable, based on rules

for meals

• Travel

– Reportable including


• Speaking Fees

– Reportable

• Steering Committee

– Reportable

ACCREDITED–meets 3 cond.

• Meals

– Not Reportable

• Travel

– Not Reportable

• Speaking Fees

– Not Reportable

– Identity inapplicable after

grant awarded

• Steering Committee

– Not Reportable



• Meals

– Reportable, based on rules

for meals

• Travel

– Reportable including


• Educational value

– Reportable, including slides,

materials, items

ACCREDITED–meets 3 cond.

• Meals

– Reportable, for meals where

the cost is separately


• Travel

– Prohibited under SCS

• Educational value

– Not reportable if part of CME

activity, meets conditions

Recently Answered Questions for

Continuing Medical Education

• Other Accreditations

(NP’s, PA’s, International)

• Fellows vs. Residents

• Travel, Lodging and

Meals Speakers

• Educational Materials

• Meals for Physician


• Only five (5)


• Only residents, not


• Completely exempt;

included in


• Exempt, four (4) reqs.

• Exempt if group setting

Is this Event


for Physician


Lessons learned from initial implementation,

compliance with CIA's and state reporting requirements

• SOP’s

– Prioritization

– Determine Simple FMV

– Collection

– Accuracy

– Attestation/Audit

– Training

– Tools

Beyond Sunshine: Implications of Public

Disclosure of Payments

• HHS OIG – Medicare Part D Data

• Implications for FCA, AKB, Stark


• International Bribery Acts

• Media

• State Examples

– Oregon Case – Non disclosure

• Qui Tam Cases

• IRS and Other Agencies

• Employers

• Payers

• Academic Medical Centers

For More Information

• Thomas Sullivan,


202-309-3507 and

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