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What Is the Discount Safe Harbor?

discount safe harbor

The Anti-Kickback Statute (AKS) is a criminal law that prohibits the knowing and willful payment or receipt of any form of remuneration to influence (i) the referral of an individual for an item or service for which payment may be made by a federal health care program or (ii) the purchase, lease, order, or arrangement for or recommendation to purchase, lease, or order any good, facility, service, or item for which payment may be made by a federal health care program.  See 42 U.S.C. § 1320a-7b(b).

Availability of the Discount Safe Harbor

One of the recognized safe harbors to the Anti-Kickback Statute is “a discount or other reduction in price obtained by a provider of services or other entity under [Medicare or Medicaid] if the reduction in price is properly disclosed and appropriately reflected in the costs claimed or charges made by the provider or entity.”  See 42 C.F.R. 1001.952(h). A classic example is where a distributing company contracts with suppliers to purchase products to then sell those products to other entities. Typically, the distributing company serves as a wholesaler or a group purchasing organization. If the distributing company receives a discount on those products or if the buyers from the distributing company receive a discount, the discount safe harbor may be implicated.

Unprotected Discounts

However, Pursuant to 42 C.F.R. 1001.952(h), a discount does not include: (i) cash payment or cash equivalents (other than certain rebates); (ii) supplying one good or service without charge or at a reduced charge to induce the purchase of a different good or service, unless the goods and services are reimbursed by the same federal health care program using the same methodology and the reduced charge is fully disclosed to the federal health care program and accurately reflected where appropriate, and as appropriate, to the reimbursement methodology; (iii) a reduction in price applicable to one payer but not to Medicare, Medicaid or other Federal health care programs; (iv) a routine reduction or waiver of any coinsurance or deductible amount owed by a program beneficiary; (v) warranties; (vi) services provided in accordance with a personal or management services contract; or (vii) other remuneration that is not a reduction in price for items or services.

Practical Considerations

In practice, it is advisable to document the pricing for the products in question as well as any discount on those products. For example, parties should collect the invoice and the underlying contract to have documentation supporting the existence and nature of the discount as well as the negotiation steps that led to a discount. At a minimum, a well drafted written contract between supplier and hospital/purchaser need to be in place. With respect to the amount of discount, both parties must ensure that the final (discounted) amount does not significantly differ from the estimated fair market value. Thus, to avoid anti-kickback scrutiny, the discounted amount has to be commercially reasonable and has to be negotiated at arms-length. Furthermore, buyers, sellers and other parties must comply with certain disclosure and reporting requirements.  Parties need to be particularly wary of any discount deals that involve multiple products or multiple payors and treat those products and payors in disparate fashions.

Contact Information

Compliance with the Anti-Kickback Statute can be difficult and the consequences of failure to comply can be extreme. Anytime parties base the legality of a healthcare transaction on a safe harbor and anytime the Anti-Kickback Statute may apply, it is strongly recommended to consult with experienced attorneys to make sure the transaction will not create attention of law enforcement. The attorneys of Oberheiden, P.C. are former federal healthcare prosecutors and other well informed lawyers that routinely advise large and small entities, hospitals, distributors, business owners, and medical professionals on healthcare compliance issues. Call us any time, including weekends, to see how we can apply our experience to help you enter a safe transaction. Initial consultations are free and confidential.

  • Nick Oberheiden has represented clients in Qui Tams, False Claims Act, Medicare Fraud, Tricare Fraud, Stark Law, and anti-kickback proceedings before virtually all federal agencies including but not limited to the Office of Inspector General (OIG), the Department of Health and Human Services (HHS), the Department of Defense (DOD), the Department of Justice (DOJ), and the Department of Labor (DOL). Dr. Oberheiden is trained in negotiations by Harvard Law School and holds a Juris Doctor from the University of California, Los Angeles, as well as a Ph.D. in law.
Oberheiden, P.C.
Litigation – Compliance – Defense
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This information has been prepared for informational purposes only and does not constitute legal advice. This information may constitute attorney advertising in some jurisdictions. Reading of this information does not create an attorney-client relationship. Prior results do not guarantee similar future outcomes. Oberheiden, P.C. is a Texas LLP with headquarters in Dallas. Mr. Oberheiden limits his practice to federal law.

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