OIG’s Perspective on Discount and Refund Programs

The U.S. Department of Health and Human Services Office of Inspector General (HHS OIG) recently issued Advisory Opinion No. 24-04, which primarily addressed a Refund Program offered by a U.S. pharmaceutical company affiliate. The Refund Program aimed to reduce financial barriers for a one-time, high-cost, potentially curative drug for an ultra-rare pediatric condition. Although the facts of this Advisory Opinion are quite specific and binding only on the requestor, it offers insights into compliance considerations for FDA-regulated companies considering implementing similar programs.

Key Aspects of the Refund Program

The Refund Program was designed to mitigate financial risks for treatment centers, which purchase and administer the drug to patients, by offering a refund or waiver of the drug's wholesale acquisition cost (WAC) if an insurer denied reimbursement after initially approving the drug. The Refund Program also allowed for delayed payment terms if reimbursement from the insurer was delayed. Although programs like this may raise concerns under the Anti-Kickback Statute (AKS), the OIG ultimately concluded that it would not impose administrative sanctions based on the specific safeguards integrated into the Refund Program.

Insights and Key Takeaways for FDA-Regulated Companies

1. Limited Scope and Patient Population: The drug in question was a one-time, potentially curative therapy for a rare, life-threatening pediatric condition. The OIG emphasized that the limited scope of the drug, combined with its rare use and single administration, reduced the risk of inappropriate overutilization—often a concern under the AKS.

• Key takeaway: Companies with products targeting narrow indications, limited use, or rare diseases may face lower risks of improper inducements or fraud, as these factors naturally limit potential overuse.

2. Pre-Conditions to Trigger Refunds: Refunds were only available after specific conditions were met. For example, treatment centers needed to obtain prior written approval from the insurer before administering the drug. This condition helped minimize the risk of fraud or abuse by ensuring financial clearance before the drug was used.

• Key takeaway: Setting clear pre-conditions, like insurance approval, can reduce compliance risks in refund programs by ensuring that financial assistance is only provided under legitimate circumstances.

3. Transparency and Safe Harbor Alignment: Although the Refund Program did not squarely meet an AKS safe harbor, it aligned with safe harbor principles. The company ensured transparency by reporting the refund on invoices, and treatment centers reflected the waived payments in their cost reports.

• Key takeaway: Even when a program doesn’t squarely meet a safe harbor, structuring it with transparency and ensuring alignment with the intent of regulatory guidelines can reduce compliance risks.

Practical Implications for FDA-Regulated Companies

This Advisory Opinion provides important insights for structuring discount and refund programs, particularly in avoiding violations of the AKS, False Claims Act (FCA), and Beneficiary Inducements Civil Monetary Penalties (CMP). Here are the key actions companies should consider:

• Fact-Specific Risk Mitigations: The OIG evaluates programs based on several factors, such as the product’s indication, pricing, administration, use, and availability. Tailoring risk mitigations based on these factors may help ensure compliance and reduce regulatory risks.

• Transparency is Critical: Ensure all program terms, conditions, and financial support are clearly communicated in writing. This includes documenting insurer approvals and refund terms to reduce the risk of misinterpretation.

• Safe Harbor Alignment: Even if a program doesn’t fully meet a safe harbor, structuring it with principles from relevant safe harbors—such as transparency and clear documentation—may mitigate regulatory scrutiny.

• Document Criteria for Refunds: Refund and discount programs should have clear, objective criteria (e.g., based on insurance denials), ensuring they are not tied to product utilization or sales volume.

• Monitor Reimbursement Changes: Keep track of changes in reimbursement policies to ensure your program remains compliant.

Contact Gardner Law

If your company has or wants to implement a discount or refund program related to reimbursement denials or delays, it is important to ensure compliance with the AKS, FCA, and other relevant healthcare fraud and abuse laws. Gardner Law can assist in assessing your program's structure and minimizing compliance risks. Contact us here.