Fair Market Value and the Sunshine Act: Preparing for Mandatory Disclosure

Published by RX Compliance Report

It is now imperative for all life science company executives to understand the Fair Market Value (FMV) requirement and appropriate methodologies for determining payments to physicians. Beginning January 1, 2012, manufacturers of drug, device, biological or medical devices must report virtually any transfer of value or payment to physicians and/ or teaching hospitals. This new requirement is due to the Physician Payment Sunshine Provision in Section 6002 of the Patient Protection and Affordable Health Care Act (Sunshine Provision). The payment information will be reported to the Secretary of Health and Human Services on an annual basis and will be available on a public, searchable website.

The Sunshine Provision is the major catalyst to the transparency and disclosure movement in the life sciences industry. However, it is important to recognize that establishing a system for reporting these payments should only be part of a company’s transparency initiative. Ensuring the payments are considered FMV will be critical to withstand regulatory scrutiny. This article will discuss valuation guidelines for determining FMV and compliance considerations to prepare for the Sunshine Provision.

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