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OIG Reports Surgical Products Rebate Program Qualifies for Safe Harbor Protection from Anti-Kickback Statute

On June 24, 2013, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued an advisory opinion announcing that by request of a surgical products manufacturer (the “Requestor”), based on the certifications and information provided, a proposed tiered rebate program will meet the requirements of the discount safe harbor of the anti-kickback statute (AKS) and will not generate prohibited remuneration under the AKS. Thus, the OIG concluded that it would not impose administrative sanctions in connection with the proposed arrangement.

The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. At the discretion of the OIG, a violation of the AKS may constitute a felony punishable by imprisonment fines, or both, possible exclusion from Federal health care programs, and possible administrative proceedings and civil monetary penalties. However, safe harbor protection may be afforded to arrangements that meet all of the conditions set forth in the applicable AKS safe harbor. The regulatory AKS safe harbor for discounts interprets the Social Security Act’s exception for discounts, which protects “a discount or other reduction in price obtained by a provider of services or other entity under a Federal health care program if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity under a Federal health care program.”

In this advisory opinion, the Requestor, a corporation that manufactures ophthalmologic products including pharmaceuticals, surgical equipment, and vision aids, sought an advisory opinion on whether a proposed arrangement would generate prohibited remuneration under the AKS. The Requestor’s proposed arrangement involved tiered, percentage-based rebates based on customer purchases of federally reimbursable and non-federally reimbursable surgical products. The rebate would be calculated based on a customer’s total annual purchases of such products regardless of whether such products are reimbursable by Federal health care programs and would not vary based on the volume of Federally reimbursable products purchased. In addition, the Requestor certified the various manners in which it would notify all customers receiving rebates of their obligation to report any rebates received based on sales of Federally reimbursable surgical products. Further, the Requestor certified that it would refrain from doing anything to impede the customer’s ability to meet its obligations under the AKS discount safe harbor.

The OIG evaluated whether the proposed tiered rebate program met the discount safe harbor requirements in a multi-part analysis. The OIG first analyzed and determined that the rebates offered under the proposed arrangement meet the definition of “discount” under the AKS discount safe harbor and do not involve improper bundling under the AKS. The OIG next analyzed and determined that the Requestor would meet the requirements of a seller under the AKS discount safe harbor. In conclusion, the OIG determined that the proposed arrangement met all of the requisite provisions of the AKS discount safe harbor.

As with all other OIG advisory opinions, this OIG advisory opinion is limited to the Requestor’s proposed arrangement and cannot be relied upon by any other entities. However, advisory opinions are instructive and provide guidance to the industry as to how the OIG may view similar situations, therefore, they are key in evaluating AKS issues. Stay tuned for future articles and blog entries on OIG advisory opinions which may impact your provider type. Wachler & Associates healthcare attorneys regularly advise healthcare providers on how to proactively address potential kickback violations. For further information on compliance with the AKS or any other healthcare regulations, including those affecting vendor and supply chain operations, please contact an experienced healthcare attorney at 248-544-0888.