Physician Payments Sunshine Act compliance: Everything you need to know

The introduction of the Physician Payment Sunshine Act was the beginning of a new chapter for the relationship between companies in the pharmaceutical, biotech, and medical devices sector, and physicians and teaching hospitals in the US. The Act was designed to provide visibility into the financial relationships between these two types of entities as mandated by the Centers for Medicare and Medicaid Services (CMS).

According to a study, around 94% of US doctors were financially involved with firms in these sectors: 83% received gifts, and 28% received payments for professional services such as consulting or research participation. Earlier, lavish business trips for doctors were regularly funded by these firms in hopes of increasing prescription rates. Though the figures of such transactions dropped drastically later, the US government has sharpened its focus on vetting the payments from pharma companies to providers for two reasons: to place patient welfare ahead of any financial benefits to physicians in clinical decision-making, and to prevent damage to the reputation of both firms and physicians.

It’s generally understood that the Sunshine Act requires firms to report any payments made to doctors at health care centers and teaching hospitals to CMS. However, many companies are still unfamiliar with the regulation and its conditions, which ultimately leads them to non-compliance. In this article, we will learn what reporting expenses under the Act looks like and how an expense management solution helps businesses remain compliant.

What is the Physician Payment Sunshine Act?

The Sunshine Act requires pharmaceutical companies, and manufacturers of medical devices, biological and medical supplies to track all the payments they make to physicians and teaching hospitals and submit a report of them every year.

In 2021, the program expanded to include payments to nurse practitioners, physician assistants, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants, and certified nurse-midwives.

What is the purpose of the Sunshine Act?

The Act was implemented to promote a transparent and accountable health care system in the US by increasing the transparency of financial relationships between physicians, teaching hospitals, and manufacturers of drugs and medical devices. The transactions between these firms and providers are recorded and made publicly accessible in the form of a federal database called Open Payments.

What expenses need to be tracked under the Sunshine Act?

Broadly speaking, two types of information have to be reported under the Act: (a) payments or transfers provided by manufacturers of drugs, devices, and medical supplies to the recipients mentioned in the previous section, and (b) ownership shares or investments in GPOs or manufacturers that are held by physicians or their immediate family members. Any payments or transfers of value in either of these categories that exceed $10 must be reported to the government, and all contributions exceeding $100 will be published on the public website.

The reportable expenses include:

• Consulting fees

• Research costs

• Education

• Honoraria for services

• Gifts

• Direct payments, grants, and investment interests

• Meals, travel, and entertainment

• Charity contributions

• Royalties and licenses

• Space rental or facility fees (for teaching hospitals only)

Manufacturers and other companies must submit annual reports of payments and transfers made to the listed types of recipients into Open Payments. The recipients then have 45 days to either approve the payments or dispute their legitimacy before the data is published and made accessible to the public.

Companies impacted by the Sunshine Act must consistently track the different types of expenses they incur in payments to physicians and other recipients. There still exist companies and hospitals that continue to manually manage expenses using spreadsheets and forms. Here’s why we discourage this method. 

Manual expense reporting and its drawbacks

The volume of funds involved is significant. According to a report by CMS, a whopping $9.35B was recorded in payments of ownership and investment interests to physicians and teaching hospitals.

The firms and hospitals are looking at a substantial volume of transactions incurred by a large list of recipients. Spreadsheets and forms are inadequate in managing every aspect of spend for hundreds of physicians and in tracking expenses to the level of granularity required by law. The complexity involved in breaking down each expense in detail is immense if done manually. This affects the seamless operation of business while leading to compliance issues.

Manually managing expenses is highly error-prone (which eventually puts a copious amount of money at stake) and offers limited visibility—and the failure to report expenses accurately, knowingly or unknowingly, can lead to heavy penalties: 

• The penalty for not reporting a payment or transfer of value/investment interest can range from $1,000 to $150,000.

• The penalty for knowingly failing to submit payment information ranges from $10,000 to $1,000,000.

Why is there a need for expense reporting software?

Pharma companies and medical device manufacturers can prevent non-compliance by investing in expense reporting software that allows employees to capture and report expenses as they’re incurred. This ensures that no transactions slip through the cracks. Accurate and consistent data is the key to staying compliant with the Act and ensuring hassle-free auditing.

Expense reporting software supports healthcare firms’ requirements by allowing admins to identify every single recipient in a sales transaction as a separate entity, record and track expenses incurred for them, and consolidate the data to report the cost per physician on an annual basis. The software also helps companies comply with exceptions to the rules and state-specific requirements. Altogether, this provides a streamlined on-the-go expense reporting process for both employees and finance teams to track and report expense data while also ensuring accuracy and compliance. At the end of the year, the admins can generate electronic reports that are easily downloadable and searchable to meet legislative requirements.

How does an expense management solution help?

Here are some benefits of having an expense reporting application in place:

Scan and store receipts

Paper receipts can easily be misplaced or destroyed—which is why it’s best to store them digitally. With expense reporting software, employees can simply capture an image of the receipt to record an expense. Most applications come equipped with OCR technology which scans the key data in the receipts like merchant name, date, and amount to populate the expense automatically.

Track attendees effectively

It can be tedious to verify whether the attendees of a business meeting or conference are healthcare professionals by manually checking their details against the National Provider Identifier (NPI) registry. To make this simpler, expense reporting applications that are integrated with the NPI master list can use AI to scan the names added as attendees and detect the medical professionals by cross-checking with the NPI list.

Add and monitor business expenses

Organizations subject to the Act are required to submit reports to state and federal agencies, including details like name and address of the healthcare professional (HCP), their National Provider Identifier (NPI), the amount of the payment or transfer, the event or meeting to which it relates, the date of payment, and the nature of payment. With expense reporting software, the list of HCPs and their NPI can be imported into the application in order to validate the recipients against the NPI master list and auto-populate details upon selecting a recipient. This saves the end-user from the hassle of entering the same data every time an expense claim is recorded, and they can instead record the expenses quickly and move on.

Enforce policies to ensure compliance

Admins and finance teams of healthcare firms can customize and configure expense policies in their expense reporting software to ensure compliance with the most intricate reporting requirements. For instance, the Sunshine Act offers an exemption for expenses that do not exceed $10—such expenses don’t have to be reported until the aggregate annual total per recipient reaches $100. Once this threshold is reached, all the payments must be disclosed to CMS. While cases such as this are hard to track manually, it’s easy to set a policy limit or alert using expense management software.

An expense application can also help in controlling costs by creating and enforcing spend limits per attendee or per expense, and in complying with the limits set by state and federal regulations. For instance, certain states do not allow gift giving at all—and in an expense reporting app, this rule can be set as part of the expense policy for that particular state by the admin.

Gain complete visibility into spending

Expense reporting software can ensure that employees are submitting itemized expense reports with receipts that give the finance team granular visibility into details like dates, amounts, and categories for each submitted expense. Administrators can monitor analytical reports like aggregate spend, or break the data down with customized reports showing spend by NPI, state, event, product or other categories. The reports generated to track spend patterns can also fulfill the requirements for reporting to CMS, reducing the need for redundant reports.

Here’s your takeaway

Sunshine Act expense reporting can get complex if not planned carefully. Since the data submitted to CMS will be made available to the public, healthcare firms need to manage and track their expense claims with the utmost care and accuracy to avoid embarrassingly visible mistakes. With expense management software like Zoho Expense, pharma companies and medical device manufacturers can ensure error-free expense reporting and compliance with the intricate regulations of the Act. Zoho Expense is integrated with the NPI Registry to help finance teams efficiently manage their expense claims and be ready to submit annual reports to CMS with just a few clicks.