HHS OIG Advisory Opinion 25-11: Navigating the Discount Safe Harbor for Complex Pharmaceutical Arrangements

Key Takeaways

• Safe harbor protection turns on program design details. Whether a pharmaceutical discount qualifies for protection depends on how precisely the arrangement is structured, disclosed, and applied.
• Upfront, transparent discounts are most likely to be protected. Percentage-based discounts known and applied at the time of sale can meet the discount safe harbor when not tied to services or promotion.
• Bundled discounts raise risk, especially across reimbursement systems. Discounts involving products reimbursed under different Federal methodologies will fall outside safe harbor protection, but possibly can be structured to mitigate enforcement risk.

The Department of Health and Human Services, Office of Inspector General (“OIG”) recently released a favorable advisory opinion, OIG Advisory Opinion No. 25-11 (“AO 25-11” or the “Opinion”) addressing a biopharmaceutical manufacturer’s discount structure for various vaccines. The manufacturer (the “Requestor”) sought guidance on whether its discount arrangements would constitute grounds for sanctions under the exclusion authority at section 1128(b)(7) of the Social Security Act or the civil monetary penalty provision at section 1128A(a)(7), as those sections relate to the federal Anti-Kickback Statute (“AKS”). OIG concluded that although the arrangement would generate prohibited remuneration if the requisite intent were present, it would not impose sanctions.

The Advisory Opinion

The Requestor manufactures three vaccines (Vaccines A, B, and C) reimbursable by federal healthcare programs. Specifically, Vaccines A and C are reimbursed under Medicare Part B, while Vaccine B is reimbursed under Medicare Part D, with each also reimbursable by other federal healthcare programs. Each vaccine has at least one competing vaccine with similar list pricing.

The Requestor’s discount structure encompasses four broad categories of price reductions (collectively, the “Discounts”) offered to various customers: (1) upfront discounts; (2) upfront discounts with purchase requirements; (3) bundled upfront discounts with purchase requirements; and (4) bundled rebates.

• Upfront discounts are straightforward price reductions based solely on a percentage off list or contract prices known and applied at the time of purchase. Examples include flat upfront discounts, prompt-payment discounts for customers remitting payment within designated periods, and supply reservation discounts for customers reserving vaccine units prior to vaccination seasons.
• Upfront discounts with purchase requirements involve percentage discounts contingent on satisfying market share or volume purchase requirements during prior measurement periods. These arrangements include market share discounts structured in tiers (with increasing discounts available as market share tiers increase) and contract prices incorporating discounts based on actual market share during prior six-month periods.
• Bundled upfront discounts with purchase requirements and bundled rebates are more complex arrangements that tie together multiple vaccines with different reimbursement methodologies. These include offers where customers receive incremental bundled discounts on purchases if they achieve specified market shares for multiple vaccines during measurement periods. The bundled rebates involve similar structures but with terms fixed and disclosed in advance. In certain bundled rebate cases, the Requestor might adjust the purchase requirements or rebate percentage during the customer’s contract term, yielding the precise rebate terms unknowable at the time of the sale.

The AKS makes it a criminal offense to knowingly and willfully offer remuneration to induce referrals or purchases of items reimbursable under federal healthcare programs. The statute has been interpreted to cover any arrangement where one purpose of the remuneration is to induce referrals for items or services reimbursable by a federal healthcare program. OIG observed that the Discounts implicate the AKS because they are remuneration to customers in exchange for customers’ agreement to purchase the vaccines.

OIG has promulgated “safe harbor” regulations that specify certain practices that are not treated as an offense under the AKS. The discount safe harbor interprets a statutory exception for discounts properly disclosed and appropriately reflected in costs claimed by providers. The safe harbor imposes different requirements for sellers and buyers of discounted offerings, but the safe harbor’s protection is afforded only to arrangements that precisely meet all conditions.

OIG concluded that the Requestor would meet all obligations of a seller under the safe harbor. The Requestor certified it provides customers necessary information and notification of reporting obligations in written agreements and invoices, sends explanations of discount program tiers and entitlements, and refrains from impeding buyers’ reporting obligations. The requestor also certified compliance with all price reporting requirements for pharmaceutical manufacturers under federal and state healthcare programs.

OIG next considered whether each of the categories of the Requestor’s Discounts met the relevant safe harbor definitions. Under the discount safe harbor, a “discount” is a reduction in the amount a buyer is charged for an item or service based on an arms-length transaction. Compliant discounts cannot offer goods or services at a reduced or no charge to induce the purchase of another good or service unless the goods or services are reimbursed by the same federal healthcare program using the same methodology, and the reduced charge is fully disclosed to the federal healthcare program. A “rebate” is a type of discount with terms fixed and disclosed in writing at the time of initial purchase but not given at the time of sale.

• The upfront discounts, which Requestor calculates solely as percentage reductions off list price and known to customers and applied at time of sale, meet the definition of discount and are protected by the safe harbor.
• The upfront discounts with purchase requirements also meet the definition. Key to OIG’s approval was Requestor’s certification that it did not require services from the vaccine purchasers, such as marketing Requestor’s products. OIG emphasized that if services were required, the price reductions would not be protected and likely would not merit a favorable opinion.
• Conversely, the bundled upfront discounts with purchase requirements were not “discounts” for purposes of the safe harbor because the bundle could include vaccines reimbursed under two different methodologies. OIG has expressed concerns about bundled discounts when items are reimbursed under different systems, as reduced prices on one item may induce full-price purchases of other products, potentially distorting costs and shifting expenses among reimbursement systems.
• Similarly, the bundled rebates were not always “rebates” under the safe harbor because, in certain circumstances, the terms might change after the initial purchase is made (in contravention of the requirement that terms be fixed and disclosed in writing to the buyer at the time of the initial purchase to which the discount applies). Even so, OIG determined that the risk of fraud and abuse was sufficiently low — in part because the customer in those instances is aware before the time of initial purchase that the adjustments might be made, and allowing the terms to be adjusted to meet competition might increase patient choice.
• Notwithstanding the bundled arrangements’ respective failures to meet safe harbor definitions of “discount” or “rebate,” OIG believed the risk of fraud and abuse was sufficiently low because:

Analysis

OIG Advisory Opinion 25-11 is the agency’s most recent guidance on structuring compliant discount programs under the AKS. While AO 25-11 focuses on a biopharmaceutical manufacturer’s vaccine discount arrangements, OIG has previously addressed similar issues in other opinions, offering useful context for healthcare organizations.

• AO 02-10 (2002): OIG approved a dialysis supplier’s uniform discount based on the aggregate annual purchases by the purchaser of “any and all” dialysis equipment and supplies sold by the supplier, despite differing Medicare reimbursement methodologies for the products disqualifying the arrangement from discount safe harbor protection. OIG found low program abuse risk because the different methodologies capped reimbursements at roughly equal amounts. However, OIG disapproved of another proposed discount that required the purchaser to buy a minimum quantity of one or more of certain items, the identity of which was subject to change, because the payment methodology for the required purchase item was unknown. OIG therefore could not determine whether the dialysis goods would be supplied at a reduced charge in order to induce the purchase of the required purchase item(s), nor could OIG determine whether the federal healthcare programs would share appropriately in the discounts.
• AO 13-07 (2013): OIG approved discount safe harbor protection a manufacturer’s tiered rebate program for ophthalmologic surgical products. All purchases of the products — whether or not reimbursable by federal healthcare programs — would be aggregated to determine the percentage amount of the rebate. Because the discount on one product was not contingent on the purchase of another, it was not essential for the products to be reimbursable under the same methodology. Moreover, the manufacturer’s customer contracts explained the terms of the rebate program such that the customer would know the types of products involved and the purchasing volume required to reach each tier of the rebate program at the time of the initial purchase.
• AO 21‑14 (2021): OIG evaluated a chiropractic clinic’s proposed discount program offering discounted pricing on multiple bundled services, some individually reimbursable by federal healthcare programs and others not. Because access to the discounted price would be available only if the patient received all services in the bundle, and all services would not be reimbursed by the same methodology, the discounted price would not meet the definition of a “discount” for purposes of the safe harbor. However, OIG determined the risk of fraud and abuse was low because

• AO 24‑04 (2024): OIG approved a pharmaceutical affiliate’s proposed discount and refund programs for a one-time, potentially curative therapy for an ultra-rare disorder. The discount program offered upfront price reductions that met the discount safe harbor because they were based on arms-length transactions and they did not meet any exceptions to the “discount” definition. The refund program — which would waive or refund payment if insurance coverage was denied or delayed — did not fit within a safe harbor but was deemed low risk due to safeguards:

Together, these advisory opinions provide guidance on structuring compliant discount programs.

• Ensure clarity and transparency. Clearly define discount or rebate terms upfront so customers understand eligibility criteria and purchasing thresholds at the time of initial purchase.
• Avoid bundled arrangements that mix reimbursement methodologies. Bundled discounts involving items reimbursed under different systems generally fall outside safe harbor protection and raise inducement concerns.
• Apply safeguards when safe harbor compliance is not possible. Structures that cannot meet safe harbor definitions should incorporate measures such as proportional allocation of discounts, utilization controls, and clear disclosure to reduce fraud and abuse risk.
• Prevent contingency on specific products or services. Discounts should not require the purchase of particular items or services; non-contingent, transparent arrangements are more likely to be viewed favorably.

Although OIG declined to impose sanctions in AO 25‑11, this Opinion — and others examining discount arrangements for federal healthcare program beneficiaries — demonstrates that safe harbor compliance often turns on nuanced distinctions in the structure of the discount program. Healthcare stakeholders should engage experienced counsel to carefully analyze proposed arrangements and ensure they withstand scrutiny under fraud and abuse laws. For more information on OIG Advisory Opinion No. 25-11 or other issues addressed herein, please contact AGG Healthcare attorney Lisa Churvis.