Comments Regarding Sunshine Rule

February 17, 2012 Categories: Comments and Letters, Regulatory Issues


February 17, 2012

Centers for Medicare and Medicaid Services
Department of Health and Human Services
Attention: CMS—5060—-P
Mail Stop C4—26—05
7500 Security Boulevard
Baltimore, MD 21244-1850

RE: CMS-5060-P
Transparency Reports and Reporting of Physician Ownership or Investment Interests

Dear Acting Administrator Tavenner:

The American Clinical Laboratory Association (ACLA) appreciates the opportunity to provide comments to the Centers for Medicare & Medicaid Services (CMS) on issues related to the Transparency Reports and Reporting of Physician Ownership  or  Investment  Interests Proposed Rule (the “Proposed Rule”).

ACLA is an association representing clinical laboratories throughout the United States, including local, regional, and national laboratories. ACLA members perform various types of diagnostic testing. Clinical laboratories are health care providers that perform tests ordered by physicians and report results that aid in the assessment of a patient’s health and help to guide care.

As discussed below, ACLA does not believe that laboratories were ever intended to be covered by the Physician Sunshine provisions included in Affordable Care Act (ACA). In most instances, laboratories do not “manufacture” a “device” as required by the regulations. While many laboratory services are reimbursed by Medicare and Medicaid, this does not constitute reimbursement of a device, as required by the regulations. Further, these tests also do not typically require Food and Drug Administration (FDA) approval or clearance, as also mandated by the Proposed Rule. In sum, the test service does not constitute a device, let alone one that is reimbursed by Medicare or currently regulated by FDA. The comments below set out these concerns in greater detail.

  1. Laboratories Should Not be Considered “Manufacturers” of “Covered” Products Although ultimately enacted as part of the Affordable Care Act, so-called “physician sunshine” legislation was initially championed by Senators Herb Kohl and Charles Grassley. The Senate Special Committee on Aging held four hearings on the physician payment sunshine issue between 2007 and 2009, and a review of the transcripts reveals no mention of clinical laboratories. The hearings focused on the financial influence of pharmaceutical manufacturers and manufacturers of implantable surgical devices, such as orthopedic replacements and cardiac stents)     Laboratories  were  not  the  intended  targets  of  legislation   addressing  the  need  for improved transparency in physician relationships with manufacturers.

Both because of this legislative history, and for the reasons discussed below, we do not believe that laboratories should be considered “applicable manufacturers” required to file transparency reports. First, laboratories are health care service providers, not manufacturers of products offered for sale. Second, laboratory tests are services, not products or medical devices. Third, laboratory testing is reimbursed as a service rather than as a product. Finally, laboratory testing services are generally not regulated by the Food and Drug Administration (FDA).

Under the rule, in order to be required to report, an entity must meet four separate criteria. First, it must be considered a “manufacturer”; second, the product being manufactured must qualify as a “covered” product, e.g. a “medical device”; third, reimbursement for the product must be available under Medicare or Medicaid; and, fourth, if the covered product is a device, it must be a device that requires premarket approval by or notification to the FDA. As explained more fully below, laboratories simply do not meet these tests.

  1. Most Laboratory  Testing will Not  be Covered  under the Requirements  of the Law
  1. 1.          Laboratories Do Not Meet the Definition of “Manufacturer”

Under the proposed rule, entities would be subject to reporting requirements under the first part of the definition of “applicable manufacturer” if they are “[e]ngaged 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. . .“

Clinical laboratories are health care service providers, not manufacturers of products. Laboratories perform testing on human specimens ordered by physicians and other health care providers as an aid in the assessment of a patient’s health and to help guide care and treatment. Laboratories simply do not “produce, prepare,  propagate, compound or convert” a medical device when doing laboratory tests.

In the vast majority of cases, laboratories simply perform tests using test “kits” that they purchase  from medical device companies.   A medical device manufacturer can develop a test as a physical product and then package all of the necessary components together in a  “kit,” including the necessary reagents, materials, package insert, and directions for conducting the test.

Manufacturers sell these kits to laboratories, hospitals, and other health care providers who then use them to perform testing.  The testing performed using these kits is not a device or regulated as such, but is a process or service. When laboratories use kits to provide patient care, they purchase them as customers of medical device manufacturers.

Routine performance of testing services using kits sold by medical device manufacturers is clearly outside of the proposed definition of “manufacturing.” Thus, clinical laboratories are not “[e}ngaged 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.”

Laboratories do sometimes create “Laboratory Developed Tests (LDTs),” i.e., tests developed “in house” for use solely within their own laboratory. LDTs are performed within stand-alone clinical reference  laboratories or laboratories in facilities at other locations, such as hospitals, physician pathology practices, and university medical centers.  However,  even with regard to LDTs, the laboratory is not creating a “device”; rather LDTs are simply a description of a process,  a “recipe” for how that laboratory performs a particular test. As a result, laboratories utilizing LDTs do not create a physical product like a test “kit” that can be sold to other laboratories or users. Thus, LDTs are no different from any other laboratory services, and, as with other laboratory testing services, simply do not meet the requirements of the Proposed Rule.

  1. Laboratory Services Do Not Meet the Definition of “Covered” Medical Devices

As explained above, laboratories perform services; they do not manufacture devices. Further, the Proposed Rule lays out two other requirements, which also  must be met where a potentially “covered” product is a device. First, reimbursement for the product must be available under Medicare or Medicaid; and second, the product must require premarket approval by or premarket notification to the FDA. The first part  of this definition is taken directly from the statute. CMS proposes to add the second part as a limitation.

We believe that laboratory tests are not “covered” products under this definition. Laboratory tests are services, not products. The distinction between laboratory testing and medical devices is evident both in how laboratory tests are reimbursed under Medicare and Medicaid and in their treatment by FDA.

  1. Laboratory Services are Not Reimbursed as Medical Devices

The term “covered drug, device, biological, or medical supply” is defined in the statute as “any drug, biological product, device, or medical supply for which payment is available under title XVIII  or a State plan under  title XIX or XXI  (or a waiver  of such a plan).”

Further, laboratory tests are not reimbursed under Medicare or Medicaid as drugs, devices, or supplies, but rather as health care services. For example, under Medicare, most clinical laboratory services are paid based on a fee schedule in accordance with Section 1833(h) of the Social Security Act. This reimbursement schedule was originally set on the  basis of “charges” and does not reimburse for the cost of the inputs. Laboratories do not file cost reports or in any other way indicate the cost of producing the test result.  Thus,  laboratory reimbursements are not composite payments that include a service and a product, but rather a single payment for the service, just  as is true with any other health care service.

In sum, in conducting testing, labs do not produce a device,  and  there  is  no reimbursement for any such device that is available under Medicare or Medicaid. Based on its methodology  for clinical diagnostic test reimbursement, CMS should clarify that a laboratory test is not a “covered drug, biological, device, or medical supply” for purposes  of  transparency reports.

  1. Laboratory Tests are Generally Not Regulated by the FDA

Laboratory tests are further distinguished from “covered” medical devices based on their treatment by the FDA. The proposed “limitation” on the definition of “covered drug, device, biological, or medical supply,” as it pertains to devices and medical supplies, would limit it to “those devices (including medical supplies) that, by law, require premarket approval by or notification to FDA.” Laboratory testing is not typically regulated by the FDA.  While laboratories use medical devices in the testing they perform, and some  of those devices  may require FDA approval, laboratories do not manufacture  those  devices.  Rather,  laboratories simply purchase devices from other companies.   And even LDTs, which the FDA has suggested it may address in the future, are not currently regulated by FDA (and were clearly not, at the time the health  care reform  statute was passed.).2

En sum, the requirements of the regulations are not met with regard to laboratory testing services: (1) Labs do not “manufacture” (2) a medical device and, as a result, (3) there is no Medicare or Medicaid reimbursement available nor (4) is there any need for FDA approval or clearance of laboratory tests. Thus, laboratory services, including LDTs, simply do not meet the requirements  of the regulation.

B. Laboratories Could Nonetheless be Considered “Applicable Manufacturers” under the Proposed Rule 

The Proposed Rule includes a two-part definition of “applicable manufacturer.” As discussed above, we do not think a laboratory would be brought under the first part of the definition. Under the second part, additional entities would also be subject to the reporting requirements if they are under “common ownership” with a an entity characterized as a manufacturer under part one and provide “assistance or support to such entity with  respect to 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 United  States.”

2   FDA exercises “enforcement discretion” with regard to LDTs and therefore, no premarket approval or notification to FDA is required for L.DTs. The FDA also does not require laboratories using LOTs to go through registration and listing, which it requfres for medical device manufacturers, nor does it requfre laboratories to seek approval  or clearance for most LDTs.

Laboratories may be considered “applicable manufacturers” under part two of the definition, based on common ownership between a laboratory and a manufacturer.  This part of the definition depends largely on what it means to provide “assistance or support” to a manufacturer of a covered product. A laboratory could perform some type of services related in some small way to  the “production” or “preparation” of a covered product. For example, a laboratory may perform testing on tissue used by a sister company to manufacture a biologic. A laboratory may also engage in blood collection for blood products produced by sister company, or perform plasma donor screening that relates to the production of plasma products by a commonly owned company. We believe that “assistance and support” should be very narrowly defined so that only significant activities directly in fUrtherance of the production of a covered product would trigger the requirements of the regulations.

CMS proposes to define “common ownership” as when “the same individual, individuals, entity, or entities, directly or indirectly, own any portion of two or more entities” (emphasis added).   To the extent that laboratory  activities are viewed as providing “assistance  or support” to an applicable manufacturer, this proposed  definition would mean a laboratory with any level of shared ownership with a manufacturer would be required to report. We believe  that  the proposed “common ownership” definition is unnecessarily broad in light of the complexity of many ownership structures. As an alternative, CMS considered interpreting the meaning of “common ownership” such that entities would only be considered to be commonly owned if a 5% threshold was met. We are concerned that 5% is likely too Low, as, even with this threshold, the rule would capture many entities, including joint ventures and partnerships where the subsidiary has little relationship with the reporting entity. The proposed definition of common ownership could also create confusion where an entity has multiple  owners  but  no  majority owner. Further, serious logistical issues would arise relating to reporting of payments made by subsidiaries, which may have multiple owners. We are particularly concerned about situations where a single payment could be reported by multiple entities, potentially inflating the aggregate amount attributed to the povered recipient.

  1. Comments on Technical Aspects of the Proposed Rule

We now turn to comments on the technical aspects of the reporting requirements

      Laboratories  that  are Considered  “Applicable Manufacturers”  Should Not be required to report on all transfers of value to Covered Recipients

In the preamble to the Proposed Rule, CMS states that “all payments or transfers of value made by an applicable manufacture 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.”  As discussed above, we   are   concerned   that   the   breadth     of   the   proposed   rule   could   result   in   laboratories inappropriately  being considered applicable manufacturers,  based  on characterization of just  one test performed  by the laboratory  (out of what may be thousands  of tests offered as part of the laboratory’s menu of services) as a medical device, or limited activities that “assist or support” a commonly owned  company’s manufacture  of a covered product.

Despite the limited nature of any activities that would trigger reporting by a laboratory, under the Proposed Rule, the reporting burden would be enormous, as laboratories have significant interactions with covered recipients in their ordinary course of business. In sum, if just one product were considered covered, then every transfer of value made by the laboratory and all of its “assisting or supporting” affiliates under common ownership in the ordinary course of business would have to be reported.

CMS will receive an overwhelming amount of data based on the proposed requirement that, if the law applies to a laboratory  based on limited activities related to a single covered product, all payments or transfers of value made by a laboratory to a covered recipient would be reported, regardless of their association with the covered product. Much of the information that would be reported by laboratories under this proposed requirement would be totally unrelated to any covered products, with no nexus to the underlying purpose of the law. CMS should reject this approach as overly broad, and instead limit the reporting requirement to transfers of value directly related to a covered product.

      1. The Definition of “Covered Recipient” Should Exclude Physicians who Would be Employed but for Corporate Practice of Medicine Laws

Under the statute, the term “covered recipients” for purposes of reports on payment and other transfers of value excludes physicians who are “employees” of  the  applicable manufacturer. In the Proposed Rule, CMS discusses the meaning of the term “employee,” noting that the common law meaning of “employee” is discussed in CMS regulations. ACLA is concerned that, under the Proposed Rule, many laboratory-based pathologists would not be considered “employees” of the labs where they work, and therefore, that laboratories that are considered applicable manufacturers would be required to report transfers to these physicians.

Due to state “corporate practice of medicine” laws, laboratories are frequently prevented from directly employing physicians. Therefore, laboratories contract with separate entities that employ pathologists or contract directly with pathologist who serve as independent contractors. Under these arrangements, the pathologists are not directly employed by the laboratories, but are compensated for their services just as employees are compensated for  their  services.  CMS should clarify that the definition of a “covered recipient” does not include a pathologist whose principal occupation and source of income is providing or supervising services for one or more laboratory.

      1. Proposed   Requirements   Related   to  the  Form  and  Nature  of  Reporting  Pose Logistical  Concerns


CMS proposes that, for lump sum payments or other transfers of value, manufacturers break out the disparate aspects of the payment that fall into multiple categories for both form of payment and nature of payment. ACLA is concerned by this proposal, as this requirement will unnecessarily increase the reporting burden for applicable manufacturers. We recommend that CMS adopt an alternative proposal that would allow manufacturers to associate multiple “nature” or “form” categories with a payment or transfer rather than having to make  multiple  reports related to the same payment.


  1. Supplies Routinely Provided by Laboratories to Physicians Should be Excluded from Reporting Requirements


The Proposed Rule describes various categories of payments or transfers of value that would be excluded from reporting requirements. Laboratories, like many health care providers, must routinely provide physicians with supplies and items related to their services, such as vacutainer tubes, used to collect blood, cornier services, requisitions used to order tests, and other items related to test ordering and reporting. Many of these items are specifically excluded from the definition of “remuneration” for purposes of the Stark self-referral Law, and, therefore, ACLA believes they should likewise be excluded from the new reporting requirements. Specifically, “[t]he fi.irnishing of items, devices, or supplies (not including surgical items, devices, or supplies) that are used solely to collect, transport, process, or store specimens for the entity furnishing the items, devices, or supplies or are used solely to order or communicate the results of tests or procedures for the entity” is not considered to be remuneration.

If supplies routinely provided to covered recipients by laboratories  for  specimen collection, etc. are not excluded from reporting requirements, laboratories who must report as applicable manufacturers will essentially be required to disclose their entire customer lists.  This is proprietary information that should not be subject to public disclosure. We urge CMS to incorporate the Stark Law exception in order to avoid receiving data on these routine transfers that have historically been viewed as extremely low risk by the Secretary.


  1. The Definition of “Physician” for Purposes of Reports on Physician Ownership and Investment Interests is Overly Broad


The proposed definition of “physician” for purposes to reports of physician ownership and investment interests is very broad. CMS proposes that applicable manufacturers would have to report ownership and investment interests of all physicians, regardless of employment status, as well as ownership and investment interests of immediate family members of physicians. We struggle to understand how an applicable manufacturer would even be aware that an owner or investor was related to a physician without surveying all owners and investors and asking them to disclose such relationships.

F. Proposed Rules Regulated to Delay of Publication are Inadequate to Protect against Disclosure of Proprietary and Confidential information

ACLA appreciates the agency’s effort to protect confidential information related to research and clinical investigation. However, the proposed rules related to delayed publication for payments made pursuant to research and development provide insufficient protection. Under the Proposed Rule, CMS interprets statutory  references  to  “medical technology”  as including “any drug, device, biological  or medical supply.”  While CMS characterizes this interpretation as “broad” because it encompasses research on both new products and new applications of existing products, we are concerned that the interpretation actually limits the meaning of “medical technology.” Applicable manufacturers, including laboratories potentially captured by the term, may make payments pursuant to bona fide research that is not associated with a specific drug, device, biological or medical supply or laboratory test, but that is nonetheless proprietary. Research and development is frequently conducted on clinical processes that will not have to undergo FDA clearance or approval but which need secrecy because they may have a material impact on a laboratory’s business. Requiring the immediate public release of the names of researchers who receive payments based on a research or development agreement could result in loss of confidentiality and disclosure of trade secrets related to research efforts.

Further, under the Proposed Rule, a reported payment dated four years prior to the current year would be automatically published, regardless of whether the applicable manufacturer indicated that the payment should be delayed. The four-year rule may directly conflict with FDA confidentiality requirements, as many products take more than four years to gain FDA clearance or approval. Four years may also provide inadequate protection in the case of research related to products or services not regulated by the FDA. ACLA believes that CMS should maintain the confidentiality of reports related to research until FDA clearance  or approval  is final, market entry of a product or service (whether or not FDA-regulated), or the research is terminated.  

Thank you for the opportunity to comment on the Proposed Rule. If you have questions or need any further information, do not hesitate to contact us.



JoAnne Glisson
Senior Vice President


See Original PDF here.

Print page / Save as PDF