Legal Intelligencer article by Lamb McErlane Health Law Attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

The HHS Office of Inspector General (“OIG”) issued Advisory Opinion No. 25-11 (“Opinion”) on December 15, 2025 regarding certain discount structures that a pharmaceutical manufacturer (“Requestor”) offers on particular vaccines (the “Arrangement”). The Requestor sought guidance on whether the Arrangement would constitute grounds for sanctions under Sections 1128(b)(7) or 1128A(a)(7) of the Social Security Act (“SSA”) as those sections relate to the Federal Anti-Kickback Statute[1] (“AKS”).

Notably, though the Arrangement does not fit squarely within a regulatory safe harbor, and therefore technically would generate (if the requisite intent were present) prohibited remuneration under the AKS, the OIG concluded that it would not impose administrative sanctions on Requestor in connection with the Arrangement, demonstrating the OIG’s willingness to exercise enforcement discretion where economic realities, program safeguards, and structural controls sufficiently mitigate fraud and abuse risk.

Factual Background

The Requestor is a biopharmaceutical manufacturer that produces, among other things, various vaccines (hereinafter referred to individually as “Vaccine A,” “Vaccine B”, or “Vaccine C, and collectively as the “Vaccines”). Vaccine A and C are reimbursed under Medicare Part B and Vaccine B is reimbursed under Medicare Part D.[2] Each of the Vaccines has at least one competing vaccine with a list price that is similar to Requestor’s Vaccines.

Under the Arrangement, the Requestor would offer “Upfront Discounts” and “Rebates” (collectively, “Discounts”) to its retail customers[3] (e.g., retail pharmacies) and non-retail customers (e.g., group purchasing organizations (“GPOs”), integrated delivery networks (“IDNs”), long-term care facilities, physician buying groups (“PBGs”), mass immunizers, and additional customers in various areas of the health care industry, including health care providers and physician practices). The Requestor’s Discounts on one set of products are conditioned on the purchases of the other products, thereby effectively creating a bundled pricing structure across product lines.

The Discounts offered by Requestor are categorized as follows.

• Upfront Discounts – These discounts are based solely on a certain percentage off the Vaccine A list price or a contract price that is known and applied at the time of purchase. These include flat price reductions as a percentage off the list price, prompt-payment discounts, and supply reservation discounts for an upcoming vaccination season.
• Upfront Discounts with a Purchase Requirement – These involve offering a certain percentage off Vaccine A’s list price that is contingent on having satisfied certain purchase requirements during a prior measurement period (e.g., a previous quarter). Some Upfront Discounts have purchase requirements that are based on the purchaser achieving a specified percentage of market share, while others involve achieving certain “tier” of market share. Two examples of this type of discount were provided as follows.

1. 1. Upfront market share discounts on purchases in a given quarter for customers whose purchases in the quarter that is two quarters prior met specified percentages of market share, structured into market share percentage tiers, with an increasing discount available as the market share tier increases.
   2. Contract prices where a discount is presented as a contract price rather than a percentage off the listed price for Vaccine A based on a customer’s actual market share during a prior 6-month period and pursuant to the set market share tiers.

• Bundled Upfront Discounts with a Purchase Requirement – These provide a specified percentage off the Vaccine A list price and the Vaccine B and/or Vaccine C list prices so long as certain purchase requirements are satisfied (i.e., market share or volume purchase requirements for two or more of the Vaccines) during a prior measurement period. This type of discount applies to and includes: (i) bundles of products reimbursed by the same Federal health care program using the same methodology, and (ii) bundles of products reimbursed by the same Federal health care program using a different methodology (i.e., a combination of Medicare Parts B and D).
• Bundled Rebates – These involve offering a certain percentage off the Vaccine A list/contract price and the Vaccine B and/or Vaccine C list/contract prices where: (1) the percent and terms are fixed and disclosed in writing in advance of any purchase; (2) the Rebates are contingent on satisfying certain purchase requirements during a measurement period; and (3) the rebate is provided for units purchased during the measurement period. This type of discount applies to and includes: (i) bundles of products reimbursed by the same Federal health care program using the same methodology, and (ii) bundles of products reimbursed by the same Federal health care program using a different methodology (i.e., a combination of Medicare Parts B and D).

Here, the Discounts would be offered to sophisticated, institutional counterparties rather than individual prescribers or patients. The Arrangement would not involve payments to physicians, nor would it directly reward prescribing behavior. Instead, the economic benefit would flow through commercial entities operating within established reimbursement and reporting systems.

The Law

The AKS[4] makes it “a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for… any item or service reimbursable under a Federal health care program.” The prohibition extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program. Here, remuneration includes the transfer of anything of value. The statute applies to any arrangement where at least one purpose of the remuneration is to induce referrals for items or services reimbursable by a Federal health care program. Violations of the AKS constitute a felony punishable by a maximum fine of $100,000 and/or up to 10 years of jail time, as well as exclusion from Federal health care programs and potential imposition of fines by the OIG.

The statute includes certain safe harbors, including the “Discount Safe Harbor.”[5] The Discount Safe Harbor protects certain price reductions so long as they are properly disclosed and reflected in claims submitted to Federal health care programs. However, the Discount Safe Harbor is highly prescriptive (relative to requirements of sellers, buyers, and offerors of discounted items and services) and does not easily accommodate bundled discounts spanning multiple products or reimbursement streams, particularly where allocation of discounts across products is complex.

Legal Analysis

The Discounts under the Arrangement implicate the AKS because Requestor offers remuneration to customers (in the form of Discounts) in exchange for customers’ agreement to purchase the Vaccine(s) (which may be paid for by a Federal health care program). Because the OIG noted that Requestor would meet all obligations of a seller under the Discount Safe Harbor, the OIG’s analysis turned on whether each type of Discount and Rebate offered by Requestor would fit within the statutory definitions of discounts and rebates under the Discount Safe Harbor.

With respect to each type of Discount offered by Requestor, the OIG’s found the following results.

Upfront Discounts – The OIG found that the Upfront Vaccine Discounts fall within the Discount Safe Harbor.

Upfront Discounts with a Purchase Requirement – Based on Requestor’s certification that it prohibits buyers from providing any additional services or promotional activities (e.g., marketing the products or switching patients form one product to another) in connection with the Arrangement, the OIG concluded that these Discounts were protected by the Discount Safe Harbor.

Bundled Upfront Discounts with a Purchase Requirement – Because these bundled Discounts involved the purchasing of multiple types of Vaccines, including Vaccines which are reimbursed under two different methodologies, the OIG concluded that this category of Discounts does not meet the definition of “discount” to be protected by the Discount Safe Harbor. The OIG’s general concern with bundled discounts is that bundled discounts shift costs among reimbursement systems or distort the true cost of all items. However, the OIG distinguished the Discounts from others previously contemplated in that the Discounts here are readily attributable to each separately billable item and each Medicare reimbursement system (e.g., Medicare Parts B and D) benefits equally from the Discount if the preconditions are met. According to the OIG, the fact that each of the Vaccines has at least one competing vaccine with a list price similar to that of Requestor’s Vaccines only lowers the risk that these non-safe harbored bundled discounts serve to obscure the pricing of any Vaccine in the bundle to raise prices or maintain a higher price list, and thus distinguishes them from a higher-risk bundling arrangement. Accordingly, while bundled Discounts do not meet the definition of discount in the Discount Safe Harbor, the OIG concluded the risk of fraud and abuse presented by them is sufficiently low under the AKS.

Bundled Rebates – The statutory definition of “rebate” is applicable to some bundled Rebates in the Arrangement, but not for the Rebates where terms change after the initial purchase is made does not. However, the OIG concluded that where the terms are not fixed at the time of the initial purchase (i.e., the agreement specifies that there may be changes and the changes are made to meet competition), the risk of fraud and abuse is sufficiently low for the OIG to issue a favorable opinion. The OIG’s conclusion was based on the fact that (i) the customer is aware, prior to the time of the initial purchase, that adjustments may be made to the terms of the Discount; and (ii) allowing the terms to be adjusted to meet competition might increase patient choice.

OIG Analysis Takeaways

Consistent with prior advisory opinions, the OIG reiterated that failure to satisfy a safe harbor does not automatically render an arrangement unlawful. Instead, the OIG assessed whether the arrangement posed a material risk of inducing inappropriate utilization, increasing program costs, or corrupting clinical decision-making.

A central factor in the OIG’s favorable opinion was the lack of direct or indirect remuneration to prescribers. The Discounts were not structured to reward individual physicians, nor were they tied to prescribing thresholds or volume-based incentives at the clinician level. This significantly reduced concerns that the arrangement would distort medical judgment.

The OIG also examined whether the bundled discounts would improperly “lock in” purchasers or foreclose competition. The agency found that the arrangement preserved purchaser choice, did not require exclusivity, and did not penalize purchasers for sourcing competing products. These factors mitigated concerns that the discounts would function as de facto kickbacks through economic coercion.

Although the Arrangement involved Part D drugs, the OIG was persuaded that existing reporting and compliance mechanisms, combined with the sophistication of the counterparties, reduced the likelihood that the discounts would result in inflated claims or masked remuneration. The absence of spread pricing or hidden rebates further supported this conclusion.

Conclusion and Limitations

Based on the specific factual certifications made by Requestor, the OIG concluded that although the Arrangement would generate prohibited remuneration under the AKS, if the requisite intent were present, the OIG will not impose administrative sanctions on Requestor in connection with the Arrangement under Sections 1128A(a)(7) or 1128(b)(7) of the SSA.

It is important to note that the Opinion is limited in scope to the specific Arrangement and is not to be relied upon by any person other than the Requestor. The Opinion is also subject to any additional limitations set forth at 42 C.F.R. Part 1008. While the Opinion may not be specifically relied upon for other arrangements, the reasoning stated therein is useful to keep in mind when considering different avenues in which to provide products, services, and incentives.

If you have any questions or if we may be of further assistance regarding compliance under the AKS or other health law matters, please feel free to contact Bill Kalogredis, Esq. or Sonal Parekh, Esq.

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[1] See Section 1128B(b) of the SSA.

[2] The Vaccines are also reimbursable by other Federal health care programs.

[3] Here, retail customers specifically excludes pharmacy benefit managers (“PBMs”).

[4] 42 U.S.C. § 1320a-7b(b).

[5] 42 C.F.R. § 1001.952(h).

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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare professionals and their businesses as to contractual, regulatory and transactional matters for over 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This article is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, any health care matter, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.