The U.S. Department of Health and Human Services Office of Inspector General (“OIG”) recently determined that a proposed tiered rebate program would not constitute grounds for sanctions under the federal health care program anti-kickback statute (42 U.S.C. § 1320a-7b(b)(7)), or the civil monetary penalty provision of the Social Security Act (42 U.S.C. § 1320a-7a(a)(7)). In Advisory Opinion 13-07 (issued June 24, 1013, and posted on July 1, 2013), the OIG evaluated a discount program in which rebate tiers would be reached based on the combination of purchases of both federally reimbursable products and non-federally reimbursable surgical supplies and devices (the “Surgical Products”). The proposed rebate tiers would be determined based on a customer’s total annual purchases of Surgical Products, regardless of whether those Surgical Products were reimbursable by federal health care programs such as Medicare and Medicaid. The OIG determined that the proposed arrangement would fit within the “discount safe harbor” to the federal health care anti-kickback statute, based on a number of factors. Accordingly, the OIG determined that it would not seek to impose sanctions.

The Advisory Opinion is the first published OIG advisory opinion analyzing the application of the discount safe harbor to a tiered rebate arrangement. Notably, the OIG determined, based on the facts, that the proposed rebate arrangement was not “bundled” and the value of the rebates could be properly allocated across products.

As with all OIG advisory opinions, Advisory Opinion 13-07 may not be relied upon by any entity other than the requester. However, the opinion serves as useful guidance regarding the OIG’s current “thinking” to pharmaceutical and device manufacturers (as well as their customers) seeking to properly structure tiered rebate arrangements. The opinion does not purport to offer any guidance as to the application of other laws to a tiered rebate arrangement, including, without limitation antitrust laws and government price reporting laws. Because of the legal complexities associated with drug and device rebate arrangements, health care entities seeking to structure such arrangements should consider seeking legal counsel in doing so.

Posted by Kathleen Peterson

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