On June 24, 2013, the U.S. Department of Health & Human Services, Office of Inspector General (“OIG”) issued Advisory Opinion 13-07 regarding whether a Proposed Arrangement in which a rebate program that provided a tiered, percentage rebate based on purchase of surgical supplies and devices would generate prohibited remuneration under the anti-kickback statute and constitute grounds for sanctions. The OIG concluded that the Proposed Arrangement would not generate prohibited remuneration under the anti-kickback statute because the arrangement qualified for safe harbor protection and accordingly, the OIG would not impose administrative sanctions.
The Requestor of the advisory opinion is a corporation that manufactures
products used to treat ophthalmologic disorders and to improve vision,
including pharmaceutical products, surgical equipment, vision aids, and related
products. Some of the Requestor’s products are reimbursable directly or
indirectly by Federal health care programs. The Requestor proposed an
arrangement by which it would establish a rebate program that would provide a
tiered, percentage rebate based on purchases of surgical supplies and devices.
The rebate would be calculated based on a customer’s total annual purchases of
these surgical products. The Requestor certified that the rebate amount would
not vary based on the number of Federally reimbursable products a customer
purchases. The Requestor also certified that it would notify all customers
receiving rebates of their obligation to report any rebates received based on
sales of Federally reimbursable surgical products. The notification would be
presented in the contract, the invoices the Requestor would send to
participating customers, and the year-end report that would be given to each
participating customer.
The OIG stated that The Department of Health and Human Services has promulgated safe harbor regulations found at 42 C.F.R. § 1001.952 that define practices not subject to the anti-kickback statute because the practices would be unlikely to result in fraud or abuse and the discounts encourage price competition that benefit Federal health care programs. To determine if the Proposed Arrangement would qualify for protection under the safe harbor, the OIG engaged in a multi-part analysis beginning by (1) determining if the proposed rebate program involves a “discount” as defined in the safe harbor, and then (2) determining whether the Requestor would meet the requirements of a seller under the safe harbor.
In determining that the Proposed Arrangement involved a “discount,” the OIG referenced the preamble to the 1999 final rule, which noted that “discounts offered on one good or service to induce the purchase of a different good or service where the net value can be properly reported do not pose a risk of program abuse and may benefit the programs through lower costs or charges achieved through volume purchasing and other economies of scale.” See 64 Fed. Reg. 63,518, 63,5302 (Nov. 19, 199). The OIG found that this principle also applies to the Proposed Arrangement. Under the Proposed Arrangement, because a discount on one product would not be contingent on the purchase of another product and the discount would be readily attributable to each item purchased, the OIG deemed the rebates offered to meet the definition of “discount” under the safe harbor.
The OIG also
found that the rebates offered in the Proposed Arrangement met the definition
of “rebate” because the program description provided in the contract would
explain the terms of the rebate program, the types of products involved, and
the purchasing volume required to reach each tier of the rebate program.
Finally, the OIG discussed the requirements of the safe harbor that sellers
have certain notification requirements, depending on the type of buyer. See
42 C.F.R. § 1001.952(h)(2). The safe harbor regulations mandate that where the
value of the discount is not known at the time of sale, the seller must report
the existence of a discount program on the invoice, coupon or statement
submitted to the buyer and inform the buyer in a reasonably calculated manner
to give notice of its obligations. Id. When the value of the discount
becomes known, the seller must provide the buyer with documentation of the
calculation of the discount identifying the specific goods or services
purchased. Id. The Requestor certified that it would meet all of the
obligations of a seller under the safe harbor by providing a program
description to customers describing the terms of the rebate program and a
notification of their obligations to report the rebate applicable to Federally
reimbursed products, providing invoices to customers that the items included on
the invoice may trigger reporting obligations, and providing a year-end report
summarizing the customer’s total qualifying purchases, explaining the tier for
which the customer qualified, and calculating the total rebate to which the
customer is entitled. As such, the OIG found that the Requestor had committed
to meet the seller’s requirements.
Ultimately, the OIG concluded that the Proposed Arrangement would not generate
prohibited remuneration under the anti-kickback statute because it qualified
under the safe harbor regulations. Of importance though, is the OIG’s point to
reiterate their concern about discounts on bundled items. However, the Proposed
Arrangement at issue is not a “bundle” because a discount on one product would
not be contingent on the purchase of another product.
If you have any questions regarding this Advisory
Opinion, please contact Brian Heaton at (317) 238-6354 or bheaton@kdlegal.com or Tom Hutchinson at
(317) 238-6254 or thutchinson@kdlegal.com.