OIG Issues Advisory Opinion 13-07

On June 24, 2013, the Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) released Advisory opinion 13-07 regarding a proposed rebate program. The OIG ruled that the proposed arrangement would not generate prohibited remuneration under the Anti-Kickback Statute (“AKS”) because it qualified for safe harbor protection under the discount safe harbor, and therefore no administrative sanctions would be imposed on the requesting party (“Requestor”).

The Requestor, an ophthalmologic products manufacturer, proposed to establish a tiered percentage rebate program based on the total annual purchases of surgical supplies and devices of a customer. The proposed rebate program would make no distinction between purchases that were directly or indirectly reimbursed by a Federal health care program and those that were not. Importantly, the Requestor certified that it would notify all customers of their obligation to report any portion of a rebate applicable to products reimbursed by a Federal health care program. Three methods of notifying the customer would be employed:

1. A contract would be executed prior to an initial qualifying purchase. The contract would describe the program and categories of products, notify the customer of customer obligations under the discount safe harbor, and provide an explanation of how to calculate the portion of the rebate that could relate to products reimbursed by a Federal health care program;
2. Invoices would disclose that items may later be included in a rebate, thus triggering reporting obligations under the discount safe harbor; and 3. An end-of-year report would be distributed, providing a summary of all qualifying purchases, the rebate tier for which the customer qualified, and a calculation of the customer’s total rebate – information sufficient to allow the customer to be able to determine and accurately report rebate amounts on products reimbursed by a Federal health care program.

At the outset, the OIG distinguished the proposed rebate program from “reward” programs (e.g. computers or travel vouchers in return for certain purchasing volumes). In determining that the proposed rebate program qualified for safe harbor protection, the OIG first determined that the rebates offered met the definition of “discount” under the discount safe harbor because a discount on one product was not contingent on the purchase of any other product and discounts were readily attributable to items purchased (i.e. the rebate for a particular item could be quickly determined by multiplying its price by the applicable rebate percentage). The OIG also noted that the proposed program met the definition of rebate as well: “Any discount the terms of which are fixed and disclosed in writing to the buyer at the time of the initial purchase to which the discount applies, but which is not given at the time of sale.”
Because the Requestor proposed to provide notification to customers of their obligations to report under the discount safe harbor via the three methods outlined above, and because the Requestor certified that it would not impede the customer from meeting its obligations under the safe harbor, the OIG determined that the proposed rebate program met the requirements of the safe harbor and would not generate prohibited remuneration under the AKS.

For more information about OIG Advisory Opinion 13-07 or for questions regarding AKS, please contact Adrienne Dresevic, Esq. or Clinton Mikel, Esq., also available at (248) 996-8510.