Medical Products Market Access: Favorable Advisory Opinion Reaffirms Discounting Flexibilities

1. Upfront discounts. These are discounts made at the time of sale involving Vaccine A (reimbursed under Medicare Part B) that are designed as a percentage reduction off of the list or contract price of the vaccine and, in some cases, are contingent on the customer meeting a specified volume or market share threshold during a prior measurement period (i.e., a single-product time bundle).⁴
2. Upfront bundled discounts. These are discounts made at the time of sale on all or some combination of Vaccines A, B, and C that provide a specified percentage reduction off of the list or contract prices of the products and are contingent on the customer meeting specified volume or market share thresholds during a prior measurement period.⁵ These bundles may include products reimbursed under different reimbursement methodologies (i.e., a combination of products reimbursed by both Medicare Parts B and D).⁶ 
3. Bundled rebates, including rebates with terms not fixed in advance. These are rebates paid after a purchase in the form of a specified percentage reduction off the list or contract prices for all or some combination of Vaccines A, B, and C, where, in many cases, the rebate percentages and terms are disclosed to the customer in writing in advance of the initial purchase and are contingent on the customer satisfying defined volume or market share requirements for two or more vaccines during a specified measurement period.⁷ Like the upfront bundled discounts, these bundled rebates may include products reimbursed under different Medicare reimbursement methodologies. Notably, some of the requestor’s rebate arrangements include contractual provisions under which the requestor informs customers that the requestor may adjust the rebate terms (either the purchase requirement or the amount of the rebate) during the contract term to remain competitive in the market.⁸

The requestor certified that it maintains various safeguards to mitigate potential fraud and abuse, including providing customers with the information necessary to meet their reporting obligations under the safe harbor and notifying customers of those obligations in written agreements and invoices, complying with all pharmaceutical government price reporting obligations, refraining from tying the price concessions to the customer undertaking any services or agreeing to exclusivity, as well as other compliance steps.⁹

The Agency’s Analysis

OIG determined that, even though not all of the contemplated arrangements squarely fit within the technical confines of the discount safe harbor, the arrangements presented a low risk of fraud and abuse, and it would not impose administrative sanctions for the reasons discussed below.¹⁰

Requestor Satisfies “Seller” Obligations Under Safe Harbor

As a threshold matter, OIG concluded that the requestor met the obligations of a “seller” under the AKS discount safe harbor and that, based on the requestor’s certifications, the requestor was in compliance with the safe harbor disclosure and reporting elements.¹¹

In the remainder of the opinion, OIG evaluates whether each category of price concession meets the definition of a “discount” or “rebate” under the safe harbor.

Upfront Discounts 

With respect to the upfront discounts, OIG concluded that such price concessions, including discounts contingent on meeting market share or volume requirements over a prior measurement period, meet the definition of “discount” and are protected under the discount safe harbor.¹² OIG emphasized, however, that it would have reached a different conclusion if customers were required to perform any services (e.g., marketing services or product switching) in order to qualify for the discounts.

Upfront Bundled Discounts

With respect to upfront bundled discounts, OIG concluded that the bundled price concessions do not meet the definition of a “discount” under the safe harbor because the bundles may include products reimbursed under different Medicare payment methodologies.¹³

OIG explained that it has historically expressed concern about bundled discounts involving products reimbursed under different methodologies where improper cost-shifting occurs that results in the inability of federal healthcare programs (FHCPs) to take advantage of the benefit of the discounts or rebates. This is the case, where, for example, a product is offered for free or at a significant discount to induce purchases of other products for which FHCPs pay the full price.¹⁴ To illustrate, OIG references arrangements in which a manufacturer offers a discount on items reimbursed under Medicare Part A (which are generally not separately reimbursed and where providers have an incentive to lower their costs) to induce the purchase of items reimbursed under Medicare Part B (which are separately reimbursed).¹⁵

OIG distinguished the requestor’s bundled discount offers from these higher-risk scenarios and concluded that the requestor’s bundled discounts pose a low risk of fraud and abuse under the AKS for several reasons.

First, the bundled discounts (which entail a consistent percentage discount across all products in the bundle) are readily attributable to each item in the bundle and each FHCP reimbursement system benefits equally when the customer earns the bundled discount.¹⁶ This is a key safeguard to mitigate the risk of cost-shifting between reimbursement systems noted above, as it prevents increasing FHCP costs through the misalignment of reimbursement amounts for a particular item and the actual acquisition costs.¹⁷ Notably, while the offers discussed in the opinion had uniform percentage discounts, OIG did not affirmatively state that the discount rate must be uniform across all products to remain low risk.

Second, OIG was also persuaded by the fact that each of the vaccines at issue has at least one competing alternative product with a similar list price, reducing the ability for the offer to perversely incentivize a customer to choose the requestor’s products over other options and distinguishing the arrangements from higher-risk bundled discounts involving combinations of drugs.¹⁸

Bundled Rebates, Including Rebates With Terms Not Fixed in Advance

OIG concluded that rebates with terms that are not fixed at the time of initial purchase — because the manufacturer may adjust purchase thresholds or rebate percentages to meet competition — do not meet the definition of a “rebate” under the safe harbor.¹⁹

However, OIG stated that these rebates present a low risk of fraud and abuse because (1) customers are informed at the time of the initial purchase that the rebate terms may be adjusted, and (2) in the agency’s view, allowing adjustments to meet competition may increase patient choice (e.g., by enabling customers to stock both the manufacturer’s and competitors’ products).²⁰ It is unclear from the text of the opinion whether OIG is suggesting that rebate terms may be modified and applied retroactively.

Finally, OIG applied the same analysis to bundled rebates where the products subject to the bundle are reimbursed under different methodologies as it did to bundled upfront discounts, finding the arrangements present low risk of fraud and abuse because the price concessions are readily attributable to each item in the bundle and each FHCP reimbursement system benefits equally when the customer earns the bundled discount.²¹ 

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