Impact on Startups
The Proposed Rule purports to cover manufactures that distribute or sell covered products. The use of the word "distribution"
in addition to sale in the Proposed Rule definition would seem to capture companies that are in the premarket approval stage
of the life sciences development spectrum and are distributing covered drugs, devices, biologics, or medical supplies in connection
with conducting clinical trials. The Proposed Rule does not clarify this particular point, although such an interpretation
appears consistent with the Proposed Rule's discussion of research on new products. If CMS does intend for these regulations
to apply under such circumstances, a wide range of startup companies and well-capitalized biotech companies would be affected.
Financial Relationship Management Responsibility
Life sciences companies have already established mechanisms for tracking financial relationships and ensuring that such financial
relationships are for bona fide transactions consistent with fair market value. Some state laws additionally require tracking
of all expenses, including things such as meals. The Proposed Rule would capture all of these financial relationships on a
national basis. Moreover, the Proposed Rule's "all or nothing" approach and the proposed inclusion of foreign entity expenditures,
funds that may support U.S. activities in some fashion, will exponentially add to the level of investment and tracking required.
Indeed, the Proposed Rule makes clear that compliance with these state and federal anti-fraud and abuse provisions is not
sufficient to meet either the letter or spirit of the Proposed Rule.
R&D and Clinical Investigation Provisions
The Proposed Rule seeks to address separately financial relationships attendant to "clinical investigations," "research,"
and "development." The Proposed Rule's approach to distinguishing, however, between these three categories does not easily
track how such terms are used by life sciences companies and researchers. The distinctions drawn by the Proposed Rule matter,
as they may affect whether a life sciences company can avail itself of the delayed publication pathway intended to protect
the proprietary interests of a life sciences company for a reasonable period of time by delaying the public reporting of certain
financial relationships that might reveal otherwise confidential pipeline development information. CMS notes that the ACA
appears to distinguish between the scope of delayed publication rights for payments related to "research" as opposed to payments
for "development" or "clinical investigations." For research, for example, the ACA extends delayed publication to new products
and new applications for existing products. For development and clinical investigations, however, the ACA appears to afford
delayed publication only to new products—and not to new applications for existing products. CMS's proposed solution, however,
is to treat the terms "research" and "development" similarly with respect to delayed publication, but to treat "clinical investigations"
as distinct from research or development. Despite CMS's conviction that clinical investigations can be consistently and meaningfully
distinguished from research or development, manufacturers, in particular, may have difficulty tracking the distinctions in
light of real-world operations and everyday usage.
Impact on Immediate Family Members
The ACA mandates that manufacturers and GPOs report on investment and ownership interests held by physicians and their immediate
family members and transfers of value to such individuals. CMS proposes the following definitions for 'immediate family member:'
» Natural or adoptive parent, child, or sibling;
» Step-parent, step-child, step-brother, or step-sister;
» Father-, mother-, daughter-, son-, brother-, or sister-in-law;
» Grandparent or grandchild; and/or
» Spouse of grandparent or grandchild.
Notably, the Proposed Rule would not include domestic or same-sex partners and does not specify whether same-sex couples married
under state law would qualify as "spouses" for the purpose of this federal law. In any case, the inclusion of such a broad
net of immediate family members will place a significant and complicated responsibility on manufacturers and GPOs to identify
investors, and owners who qualify as immediate family members of physicians. This will require information-capture mechanisms
beyond those which are required for typical fraud and abuse compliance. In addition, the immediate family members, who may
themselves not be physicians and may have no knowledge of the Proposed Rule, may be surprised to find their otherwise private
financial relationships a matter of public record.
The Proposed Rule is a genuine attempt to implement the Sunshine provisions in a balanced way. However, some of its proposals
may result in an expansion of the key provisions of the ACA and should be closely scrutinized by life sciences companies.
The additional expense associated with implementing the law will be great. The bigger impact, however, may be to the life
sciences business model—once the people who invest in, work with, and work for the industry begin to feel its impact.
Glenn M. Engelmann is Senior Counsel at McDermott, Will & Emery. He can be reached at firstname.lastname@example.org
Jennifer S. Geetter is a Partner at McDermott, Will & Emery. She can be reached at email@example.com
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