Sunny Skies Turn Dark as Sunshine Act Enforcement Ramps

After a long drought, the government has been busy prosecuting manufacturers for alleged Physician Payments Sunshine Act (a.k.a., Open Payments) violations.

Heretofore, other than the 2019 Life Spine case where the Sunshine Act was merely mentioned (see below), the only Sunshine Act enforcement came in the form of reminder letters sent to companies prompting them to report.

More recently—there have been three DOJ settlements, one in late 2020 and two last month. These cases all involved alleged violations of the Sunshine Act as well as the Anti-Kickback Statute and False Claims Act. Penalties for violating the Sunshine Act are clearly no longer merely theoretical. For those out of compliance, storm clouds loom dark on the horizon.

This recent enforcement activity signals increased government interest in prosecuting violations of the Sunshine Act. Tacking on penalties for Sunshine Act violations are “low-hanging fruit” in Anti-Kickback Statute and False Claims Act cases. Since Federal prosecutors learn from one another, we expect such prosecutions to continue and even ramp up.

Recent Sunshine Act cases:

• Medicrea (May 2021)
  • Allegations: Provided meals, alcoholic beverages, entertainment, and travel expenses to U.S. based physicians at events in Lyon, France in 2013 in violation of Anti-Kickback Statute and False Claims Act and failed to report per Sunshine Act.

• • Settlement: Medicrea International (French manufacturer) and its U.S. affiliate, Medicrea USA, Inc. agreed to pay $1M to resolve Anti-Kickback Statute and False Claims Act whistleblower allegations and $1M to resolve Sunshine Act violations for failing to report physician expenses.

• Medical Designs LLC & Sicage LLC (May 2021)
  • Allegations: device distributorships made illegal payments to neurosurgeon-owner of distributors to induce the use of certain medical devices, in violation of the Anti-Kickback Statute. The government also claimed that as a result of the alleged bribes, claims for reimbursement were submitted to federal payors for medically unnecessary surgeries. This case is tied to the Medtronic case below.

• • Settlement: Medical Designs LLC and Sicage LLC (medical device companies) reached a $4.4M settlement to resolve Anti-Kickback Statute, False Claims Act, and Sunshine Act allegations. They agreed to pay $100,000 in penalties to settle allegations that the companies violated the Sunshine Act by failing to report physician ownership interests and payments made to covered recipients. The parties involved were also excluded from participating in federal healthcare programs for six years.

• Medtronic (November 2020)
  • Allegations: Medtronic violated the Anti-Kickback Statute and False Claims Act by paying kickbacks to a neurosurgeon-owner of the Carnaval Brazilian Grill in South Dakota. In summary, the government claims that Medtronic funneled bribes to the physician in question through his steakhouse by holding company events at his restaurant. In exchange, the physician agreed to purchase Medtronic intrathecal infusion pumps used to deliver medication to patients.

• • Settlement: This was the first settlement under the Sunshine Act—although the Sunshine Act/Open Payments requirements were discussed in the Life Spine case (see below). Medtronic agreed to pay $9.2M, which included $8.1M for the alleged Anti-Kickback Statute and False Claims Act violations and $1.11M for alleged failures to report under the Sunshine Act.

• Life Spine (2019)
  • Allegations: Government claimed that Life Spine “paid kickbacks in the form of millions of dollars of consulting fees, royalties, and intellectual property acquisition fees to surgeons to induce them to use Life Spine’s spinal implants, devices, and equipment” and as a result violated the Anti-Kickback Statute and False Claims Act. The government also claimed that Life Spine failed to report over $7M in payments to surgeons in violation of the Sunshine Act.

• • Settlement: The settlement did not include specific penalties related to the Sunshine Act. But, the company did agree to pay $5.99M to settle the Anti-Kickback Statute and False Claims Act claims.

These recent enforcement actions serve as an important reminder to medical technology and pharmaceutical manufacturers—a health care compliance program must be designed to not only prevent fraud and abuse but also to ensure accurate and timely reporting under the Sunshine Act, as well as state and municipal requirements related to transparency reporting, compliance, and marketing.

State Laws

California, Massachusetts, Minnesota, Nevada, Connecticut, Vermont, D.C., Chicago, and Miami-Dade County, FL, all have reporting and registration deadlines and/or other marketing requirements—some of which are approaching or have already past for this year. Failures to report under state and municipal requirements can result in fines as high as $10,000 per violation. Other states have rules on the provision of food, e.g., New Jersey, Vermont, New York, Pennsylvania, Louisiana, Washington, Utah, Wyoming, Colorado, Indiana, Iowa, Idaho, Oregon, Hawaii, among others.

Changes to Sunshine Act

Among other changes, the definition of “covered recipient” was recently expanded under the Sunshine Act to cover certain advanced practice nurses. New nature of payment categories were added. Affected manufactures must have policies and procedures updated to reflect this change or run the risk of failing to report.