Among the types of inducements for referrals of federal health care program business which can implicate the Anti-Kickback Statute are discounts. Broadly speaking, a discount is a price reduction, either on the front end of a transaction or as a rebate. When vendors give nursing facility providers discounts, in any form, which are linked directly or indirectly to an agreement to refer other health care program business which is reimbursed in whole or in part by the federal government, they are offering an inducement which may be prohibited by the Anti-Kickback Statute.
However, the OIG recognizes that discounts may also serve the valuable public policy goal of reducing costs to federal health care programs. Because of this, certain types of discounts are permitted under the federal Anti-Kickback Statute. In prior sections of this compliance guidance, we’ve discussed “safe harbors,” which are regulations defining types of business arrangements which, on their face, seem to potentially violate the prohibitions of the Anti-Kickback Statute, but which the OIG has determined should be allowed when structured according to one of the “safe harbor” regulations. The OIG has issued, by federal regulation, a specific safe harbor for discount arrangements. For purposes of reference, the discount arrangement can be found at 42 Code of Federal Regulations 1001.952(h).
The OIG has issued several guiding principles about permissible discounts, including:
- Discounts given to providers must be properly disclosed on cost reports or other applicable payment claims forms submitted to federal health care programs;
- They must be accurately reported, in full;
- They must be in the form of a price reduction in the vendor’s goods or services based on an arm’s length transaction. In part, this means the discount should be the same type of discount the vendor would offer to other similarly-situated providers and not based on the unique volume or value of business between the provider and the vendor in the particular business transaction between the two parties;
- Providers who purchase goods or services from vendors under group purchasing arrangements with group purchasing organizations (“GPOs”) should also report these discounts on their facility’s cost reports and the arrangement should be structured to comply with all parts of the discounts safe harbor; and
- Providers should not confuse the safe harbor which exists for administrative fees paid by vendors to GPOs (i.e., fees paid to belong to the GPO) with the discounts safe harbor since the two have different purposes and differing requirements.
To assist you in understanding and complying with the discounts safe harbor, we have provided a summary of that regulation here:
The Discounts Safe Harbor (42 CFR 1001.952(h))
The Discounts Safe Harbor regulations establish separate rules for buyers, sellers and offerors (those offering discounts who do not fall into either the buyer or seller category). A buyer is divided into three categories:
- A competitive plan buyer such as an HMO;
- A cost report plan buyer that is required to submit cost reports to either the Department of Health and Human Services or a State health care program; and
- An individual or entity buyer that submits requests for payment on a per-charge basis.
The requirements which must be met to bring a buyer, seller or offeror under the discounts safe harbor differ based on what type of buyer is involved in the transaction. The requirements for each party are outlined below:
A buyer, based on its categorization, and must comply with the below requirements in order to fall within the Discounts Safe Harbor:
- A competitive plan buyer does not need to report a discount unless otherwise required by its risk contract.
- A cost report plan buyer must meet four requirements:
A per-charge basis buyer must meet two requirements:
- Earn the discount based on purchases of the same good or service within one fiscal year;
- Claim discount benefit in either the fiscal year in which it is earned or the following year;
- Make an accurate and full report of the discount in the applicable cost report; and
- If requested by the Secretary or a state agency, provide information from either the seller or the offeror which notified the buyer of the need to report the discount.
- At the time the good or service is sold, either 1) make the discount immediately, or 2) give to the buyer the rebate terms must be fixed and in a writing.
- If the buyer is submitting the claim, they must provide information from either the seller or the offeror which notified the buyer of the need to report the discount, if requested by the Secretary or a state agency.
The seller reporting requirements, depending on what type of buyer is involved in the discount, are as follows:
- If dealing with a competitive plan buyer, the seller does not need to report the discount amount to the buyer.
- If dealing with a cost report plan buyer, the seller must report the discount to the buyer and give notice of the buyer’s obligations to report the discount.
- If dealing with any other buyer, the seller must:
- a. If the seller submits the claim, provide, if requested, information concerning the notification of duty to report the discount given to them by the offeror.
- b. If the buyer submits the claim, the seller must report the discount to the buyer and notify them of the buyer’s obligations to report the discount.
A discount offeror is not a seller, but is someone who promotes the purchase of a service or good by a buyer. The offeror requirements for falling within the discounts safe harbor, also dependant on what type of buyer they are dealing with, are as follows:
- If dealing with a competitive plan buyer, the offeror does not need to report he discount to the buyer.
- If dealing with a cost report plan buyer or any other buyer, the offeror must inform them of their duty to report the discount and not impede the buyer from performing that duty.
Strict compliance with all regulatory elements of the discounts safe harbor, or any available safe harbor which my apply to a nursing facility’s business arrangements, is important to obtain the protection from prosecution for a federal kickback violation which the safe harbors are designed to provide. As such, providers should consult with legal counsel experienced in health care fraud and abuse to ensure their contractual arrangements, and the way the business deal is actually carried out in practice, meets all elements of the safe harbor.