Insights & Resources

As vaccine manufacturers look for an edge in an increasingly competitive environment, the use of discounts and rebates is becoming more popular. Against this backdrop, the U.S. Department of Health & Human Services, Office of Inspector General (OIG) issued a favorable advisory opinion (25-11) regarding an arrangement under which a vaccine manufacturer (Manufacturer) proposed to offer four types of discounts and rebates (collectively, Discounts) on three selected vaccines (A, B, and C) (Select Vaccines) to its retail and non-retail customers.

Manufacturer’s Select Vaccines are reimbursed under Medicare Parts B or D, among other Federal health care programs, and there is at least one competing vaccine on the market with a similar list price to each of the Select Vaccines. Manufacturer’s Discounts consisted of the following:

1. an upfront discount for Vaccine A based solely on a certain percentage off the list or contract price that is known and applied at the time of sale;
2. the upfront discount for Vaccine A, described above, is also contingent on satisfying certain purchase requirements (e.g., market share or volume) during a prior, specified time period (e.g., within the past six months, prior quarter, etc.);
3. an upfront bundled discount based on a specified percentage off Vaccine A, B, and/or C’s list price that is known and applied at the time of purchase and contingent on satisfying certain purchase requirements for two or more Select Vaccines during a prior, specified time period; and
4. a bundled rebate offering a certain percentage off the list or contract price for Vaccines A, B, and/or C where the:

• • percent and terms are fixed and disclosed in writing in advance of any purchase;
  • rebate is contingent on satisfying certain purchase requirements during a prior, specified time period; and
  • the rebate is provided for units purchased during the prior, specified time period.

These proposed Discounts implicate the Federal Anti-Kickback Statute (AKS), but OIG determined that it would not impose sanctions because these arrangements either fit squarely within the discount safe harbor to the AKS or for those that did not, the risk of fraud and abuse was sufficiently low enough to support a favorable opinion.

OIG relied heavily on Manufacturer’s numerous certifications regarding how the Discounts would be structured, documented, and monitored in reaching this favorable opinion. Those certifications included, but were not limited to:

• providing customers necessary information about all Discount terms;
• notifying customers of their reporting obligations in written agreements and invoices, as applicable, to ensure customers could properly disclose the Discounts on cost reports or claims submitted to Federal health care programs;
• not requiring customers to promote or market the Select Vaccines in order to get the Discounts; and
• conducting internal training for Manufacturer’s personnel on its compliance program policies and procedures.

OIG found that Discounts (1) and (2) above generally satisfied the discount safe harbor to the AKS. However, with regard to the bundled discounts in (3) and (4), OIG found that the discount safe harbor did not apply because the purchasing requirements tied together two or three of the Select Vaccines, which meant that the bundle could include vaccines reimbursed under two different payment methodologies. OIG further noted that when the bundled items are reimbursed under two different reimbursement systems, there is a potential risk that a reduced price on one item is used to induce purchases of other products for which the Federal health care programs pay the full price. OIG expressed concern that such situations could distort the prices of both products.

Despite those concerns, OIG found the risk of fraud and abuse sufficiently low enough because Manufacturer’s bundled Discounts were transparently attributable to each Select Vaccine, the percentage reductions were clear, and the Manufacturer discounted each item in the bundle (as opposed to steeply discounting one item to induce full-price purchases of another). OIG also noted that the customer is aware before the initial purchase that adjustments may be made to the terms of the bundled Discounts. According to OIG, allowing adjustments to the terms of the bundled Discounts to meet competition might also increase patient choice. OIG cautioned that its analysis was dependent on Manufacturer’s certifications and that any changes to those certifications may yield an unfavorable opinion.

Manufacturers interested in offering discounts or rebates to customers should proceed with caution. While such arrangements may be possible, the potential risk of violating the AKS is significant and review by qualified legal counsel is essential. The full advisory opinion is available here.

Should you have any questions regarding the above or wish to have a proposed arrangement evaluated for compliance with applicable laws, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].