In a recent Advisory Opinion, No. 25-11 (“AO 25-11”), the Office of Inspector General (“OIG”) provided some of the more robust guidance to date on application of the Antikickback Law discount safe harbor to various discount structures. Although AO 25-11 was directly related to discounts and rebates offered by a biopharmaceutical manufacturer, the OIG’s analysis and commentary are instructive for a broad range of discount and rebate arrangements.
AO 25-11 was requested by a biopharmaceutical manufacturer in connection with several proposed discount structures for three categories of vaccines which would be offered to a variety of customers, including pharmacies, group purchasing organizations, mass immunizers, physicians and other healthcare providers. The proposed discounts included:
- Upfront discounts (e.g., flat upfront discounts, which are price reductions expressed as a certain percentage off the list price);
- Upfront discounts with a purchase requirement (e.g., upfront market share discounts on purchases in a given quarter for customers whose purchases in the prior quarters met specified percentages of market share);
- Bundled upfront discounts with a purchase requirement (e.g., upfront discounts expressed as price protection where a customer maintaining specified minimum market share tiers for all three vaccines in a specified period retains access to the reduced contract price); and
- Bundled rebates (e.g., retail customers may earn a rebate on purchases made on the vaccines if they meet the market share requirements during a specified time period).
In reviewing the discount and rebate structures proposed by the requestor, the OIG provided commentary on the types of discount arrangements that can meet the discount safe harbor, the features of discount structures outside of the safe harbor that the OIG believes are low risk and the features that would not be considered as low risk. For example,
- The OIG opined that the upfront discounts calculated as a certain percentage off a product’s list price which are price reductions known to the customer and applied at the time of sale, meet the definition of “discount” and are protected by the discount safe harbor.
- The OIG outlined features of bundled discounts and rebates that present a low risk of fraud and abuse even if they do not meet the safe harbor requirements, including:
- Discounts are readily attributable to each separately billable item, and each Medicare reimbursement system benefits equally from the discount;
- Discount is offered for each product in the bundle as opposed to a deep discount being offered on one product to induce the full price purchase of a different product;
- Each product has at least one competing product with a similar list price.
- The OIG made clear that discounts that require providing some level of services from a purchaser (e.g., marketing products or switching patients from one product to another) fall outside the discount safe harbor and likely would not be considered sufficiently low risk for OIG to issue a favorable advisory opinion.
While the OIG advisory opinion is limited to the requestor, the opinion provides helpful insight on how the OIG views the discounts and offers guidance for structuring the compliant discount arrangements.
