Gifts, big and small, can have an impact on how we feel and what we do. We all know it. When your co-worker unexpectedly gives you a holiday box of chocolates, you feel guilty and petty about snubbing him because he stole your stapler.

And no one knows more about using gifts to win people’s hearts than the drug industry. In what may be a surprise to many patients, the majority of doctors accept some kind of payment, gift, drug samples, meal, or other gift from the drug industry. These range from the free lunches delivered to their hard-working office staff, to hundreds of thousands of dollars in consulting or speaking fees. A 2009 survey found that 84 percent of doctors had some interaction with a drug company that involved payment, gifts, travel, consultancy or speaking fees, drug samples, or other reimbursements or payments.

While some exchanges, like samples or legitimate research are generally appropriate, other relationships are problematic. And some of these relationships have landed drug companies in hot water, leading to over seven billion dollars in settlements with the federal government over the last four years. For instance, Allegan, the manufacturer of Botox, created phony advisory boards “to reward hundreds of [the drug’]s top injectors,” according to a federal prosecution settled for $600M in 2010. How did 200 of these physicians ‘advise’ Allergan? By flying an oceanfront resort in Newport Beach, California in 2005 and 2006, and getting paid $1,500 to listen to presentations on unapproved, off-label uses of Botox. But Allergan is not alone. Forest labs paid doctors $1,000 for letting a salesman follow them around all day, while prompting the doctor to prescribe Forest’s anti-depressants Celexa and Lexapro. A Forest subsidiary pleaded guilty to one felony and two misdemeanors, and Forest paid the feds a $313 million settlement. Other examples  abound.

So last week,  the Centers for Medicare and Medicaid Services (CMS) gave patients, consumers, and others a different kind of gift – strong draft regulations on public disclosure and transparency of drug and device industry payments and gifts to doctors to implement the Physician Payments Sunshine Law, the ground-breaking transparency law passed in 2010 as part of the Affordable Care Act. This law will allow anyone to see when and how much their doctor is being paid or given gifts by the drug companies.

The scope of what drug companies must report – any “payment or transfer of value” – is  very broad, and will include nearly anything that has any value: a coffee mug, pens, dinner at a nice restaurant, or a big consulting contract. But the law allows for a number of exceptions: drug samples, educational materials for patients, and small items under $10 in value, so long as the total value in a calendar year doesn’t add up to more than $100.

But when a drug maker doesn’t make a payment directly and the money goes through a third party, to a doctor or hospital, what happens? 

Under the law, the payment is not reported if the drug manufacturer is unaware of the identity of the doctor or teaching hospital that receives the payment made indirectly via a third party. This is potentially a significant loophole that could encourage pharma to simply farm-out their gift-giving to marketing firms, etc. and attempt to sidestep the public transparency purpose of the law.

The good news is CMS wants to narrow this loophole as much as possible, and has proposed a strong standard to prevent the loophole from undermining the law. The draft rule has defined being “unaware” of a doctor’s identity to be when the manufacturer does not actually “know . . . the identity of the covered recipient,” so long as the manufacturer has not tried to act in “deliberate ignorance”  or “reckless disregard” of learning the identity doctors or hospitals that received payments from them via a third party. So a drug company cannot simply turn a blind eye to where their funds are being distributed by third parties.

CMS has further advised that if the names of the recipients are ‘publicly available,’ then the manufacturer is deemed to know the identity and must report these payments. Similarly, if an “agent” of the manufacturer, such as a staff member, employee, or paid consultant knows these identities, then the manufacturer must report.

How might this work? Well, if Pfizer paid a medical education company to pay for the travel and registration costs for all the cardiologists at a state university medical school, Pfizer would need to report these payments. Similarly, if Merck paid an event planner a lump sum that was intended to cover the travel costs of all the doctors presenting at a professional conference, Merck would need to report these transfers of value because the identities of these doctors would be publicly available, or would likely be easily available to conference attendees,

A recent blog by Daniel Carlat looks at how this will affect disclosure of industry payments to continuing medical education companies that then pay doctors to speak.

While there are a lot of details that must be worked out, CMS is setting the stage for broad transparency to bring the financial relationships to light. This is a nice year-end gift for patients, consumers, health plans, and advocates who are eager to know about and better understand the relationship that drugmakers have with their doctors and hospitals.

Wells Wilkinson, Director, Prescription Access Litigation project