Medical device companies should brace for some unintended consequences now that the Centers for Medicare & Medicaid Services rules on the Physician Payment Sunshine Act are set: the overhead costs associated with compliance were slighted in the government insurance agency’s reckoning.

Jonathan Kellerman, compliance and risk assessment manager at Pricewaterhouse Coopers, told MassDevice.com that the CMS underestimated the total overhead costs companies face from complying with the final Sunshine Act rules.

That’s because CMS omitted the costs associated with new account information systems, human resources and roll-out time, Kellerman told us, citing PWC’s analysis of the newly issued Sunshine Act regulations.

Released earlier this month, a full 15 months behind schedule, the measure requires companies to track all interactions with physicians and start reporting the data to CMS by March 31, 2014.

Device makers in Massachusetts and other states with strict reporting rules will have a leg up during the transition, Kellerman said. The "make-it-or-break-it" variable that will influence costs is a company’s data management system, he explained, because more mature, consistent and high-quality systems will have an easier time reporting to CMS.

Although Kellerman said it’s impossible to estimate total costs to any 1 company, some smaller companies might have an easier time than their larger brethren, simply because they have less data to report.

despite the excise tax and heavy administrative costs, it may actually be easier for smaller companies to be compliant because data streamlining will be more insulated.

MassDevice.com spoke with Kellerman to get a breakdown of the Sunshine Act’s potential impact on the medical device industry. Here’s an edited teranscript of our chat:

MassDevice: What are the key points medical device makers need to be looking out for?

Kellerman: The main point is the issue of preemption, the clarity of final rule provided around preemptions. Preemption only really exists if the state is asking for the same data at the same level of detail; otherwise, the states continue to ask for different data.
One big impact the final rule clarifies is the level of data the medical device companies are going to be required to capture on the [healthcare provider] in particular, and that’s data that is not commonly captured today.

So the final rule has a direct operational impact. There’s also a process element that needs to change and a little bit of cultural change that needs to happen. There’s also a direct impact on technology and those systems are going to need to be updated to capture this data.

MassDevice: Is it possible to give an estimate on administrative costs for different-sized companies, especially when coupled with the excise tax already being imposed on all device companies?

Kellerman: There are so many different variables that it’s impossible to say a numerical figure for the total costs. The numbers presented by CMS tend to frustrate the industry, because they tend to underestimate the figures in terms of what it takes to be compliant and how much it’s going to take to sustain this over time. There are a lot of elements to this that are not necessarily captured in that cost analysis.

It’s my belief personally that their impact analysis does not take everything into account and is underestimating the total costs to companies. It does not take into account information systems and all the costs associated with human resources and the time it’s going to take to [become compliant]. The biggest variables are, 1, maturity and consistency of data and, 2, the quality data that the companies have – these are the top 2 things that will impact costs to each company.

MassDevice: Are contract manufacturers also subject to the Sunshine Law? What are the implications for that segment of the medical device industry?

Kellerman: It depends on whether that company is defined as an "applicable manufacturer." We suggest that companies get a formal legal interpretation of the formal rule and how it applies to them.

It depends on physical location; the companies must be engaged in preparation of [a medical] device or be an entity under common ownership of a company that does that. There could be a situation in which contract might not fall under that definition.

However, they are farther behind on the curve, in terms of readiness. I think you’ll find that most manufacturers on the med-device side are farther along. They may need to make some additional investments to ramp up for the Aug. 1 deadline. Third-party vendors are not as mature as the manufacturers themselves.

MassDevice: Given that more than ½ of doctors have expressed concerns about the Sunshine Act, what is the most important thing for device company CEOs to keep in mind when facing all the administrative changes and associated costs of the Sunshine Act?

Kellerman: I think it’s important to note that companies are obviously going to be spending a lot of time over the next 6 months keenly focusing on data processes. There’s a lot of tactical work that needs to be done at the operations level.

I think companies need to not lose sight of their interactions with their customers, the healthcare providers. This [Sunshine Act] gives [providers] an opportunity over a 60-day window to dispute data in advance. Companies need to have processes in place to triage those requests and those disputes in data with providers.

Those engagements are the lifeblood of the industry. These companies need to manage these relationships, so we don’t want to lose sight on the importance of managing and maintain the relationships with those healthcare providers.