Emerging Enforcement Trend: Sunshine Act Penalties Coupled With False Claims Act Settlement

On May 19, 2021, the U.S. Department of Justice (DOJ) signaled its continued focus on enforcement of the federal Physician Payment Sunshine Act (Sunshine Act) when it announced the second major settlement involving Sunshine Act allegations in just over six months. Under the settlement, which also resolves claims asserted in a qui tam lawsuit, Medicrea International, a French medical device manufacturer, and its American affiliate, Medicrea USA Inc. (Medicrea), agreed to pay $1 million to resolve allegations that it failed to fully report certain payments and transfers of value under the Sunshine Act as well as $1 million to resolve alleged violations of the federal Anti-Kickback Statute (AKS) and federal False Claims Act (FCA). 

The Sunshine Act requires manufacturers of certain products that are reimbursed by Medicare, Medicaid, or the Children’s Health Insurance Program to track and annually report all payments and other transfers of value made to certain healthcare providers and U.S. teaching hospitals, collectively referred to as “covered recipients,” unless an exception applies. See 42 U.S.C. § 1320a-7h; see also 42 C.F.R. § 403.904.

The claims released by the settlement agreement arise from allegations that during an ex-U.S. medical professional society meeting in 2013 in Lyon, France, Medicrea provided meals, alcoholic beverages, entertainment, and coverage of travel expenses to U.S.-based physicians to induce these physicians to purchase or order Medicrea’s spinal devices, resulting in the submission of false claims to the government, and failed to fully report such payments and transfers of value to the Centers for Medicare & Medicaid Services (CMS) as required under the Sunshine Act.

The professional society meeting was only briefly mentioned in the underlying qui tam complaint, amidst a host of other alleged misconduct, including other forms of kickbacks offered to healthcare providers, off-label promotion, and improper discounts and/or free products and services offered to certain providers. Furthermore, the complaint did not assert that any of the alleged AKS violations also violated Sunshine Act reporting requirements. Nonetheless, DOJ chose to pursue a settlement solely based on alleged kickbacks offered at a single event occurring outside the U.S. and the associated Sunshine Act reporting implications. While it is not uncommon for the conduct resolved through an FCA settlement to deviate from the scope of conduct alleged in the underlying qui tam complaint—which often presents multiple allegations of disparate purported misconduct—the difference between the settlement and the underlying allegations here is noteworthy. 

The announcement also represents the second public settlement involving a combination of AKS and Sunshine Act allegations in just over six months, coming on the heels of the government’s October 2020 settlement with another device manufacturer. There, the government focused on a series of payments totaling approximately $87,000 made to a restaurant owned by a neurosurgeon covered recipient and his wife. Specifically, according to the government, the manufacturer reported only the value of the food and drinks that individual physicians consumed at the restaurant in each physician’s own name rather than reporting the total amount paid to the restaurant as a payment or transfer of value to the neurosurgeon. The manufacturer ultimately paid $1.11 million to resolve the Sunshine Act allegations and $8.1 million to resolve other claims related to AKS and FCA violations.  

Taken together, these cases highlight DOJ’s increasing interest in pursuing AKS settlements—even on narrow, discrete violations—while partnering with CMS to layer on supplemental Sunshine Act penalties at the upper range of permissible amounts for knowing failure to report.

Until these recent settlements, there had been no public enforcement actions involving Sunshine Act violations. However, following Congress’s expansion of the Sunshine Act in October 2018 to include five new categories of “covered recipients” subject to reporting requirements, the Senate Finance Committee (Committee) requested in March 2019 that CMS review the Open Payments database for potential Sunshine Act violations and articulated its support for the imposition of penalties against violators. DOJ’s Medicrea press release framed the settlement as responding to the Committee’s request.

CMS also seems to have taken action to strengthen reporting obligations: In November 2019, CMS introduced three new categories for manufacturers to use in describing the “nature of payments” reported as part of the Sunshine Act: “debt forgiveness,” “long-term medical supply or device loan[s],” and “acquisitions.” The introduction of these additional payment categories confirmed CMS’s expectation that manufacturers will include such payments as part of their annual reports and signaled the agency’s continued focus on refining reporting entities’ obligations under the law.

These developments, in conjunction with the recent settlement announcements, suggest that the government is taking up Sunshine Act compliance as a new enforcement priority. Additionally, companies subject to Sunshine Act reporting requirements should consider evaluating their compliance controls for identifying reportable payments, including with respect to events outside the United States as well as potential indirect payments to family members of covered recipients.