backOn December 18, 2025, the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) published Advisory Opinion 25-11, a favorable opinion regarding discount structures proposed by a pharmaceutical manufacturer in connection with selling different vaccines.1OIG, OIG Advisory Opinion 25-11 (December 18, 2025), available at https://oig.hhs.gov/compliance/advisory-opinions/25-11/. OIG analyzed four categories of discount arrangements across three different vaccines. These included market share discounts and various bundled discounts and rebates where the vaccines are not reimbursed under the same reimbursement methodology.
On first read, the Advisory Opinion appears to be an early holiday gift for pharmaceutical and medical device manufacturers (companies), as it gives the green light for different types of discount arrangements that do not fit squarely within the Discount Safe Harbor or, in some cases, even OIG’s previous guidance. With this new Advisory Opinion, OIG expressed that various discounts proposals – including certain market-share discounts, rebates with adjustable terms, and broader bundled discounts – raise low risk of harm to federal healthcare programs (“FHCPs”).
Despite this welcome news, companies are still left with questions and uncertainty around how OIG will apply the Discount Safe Harbor and assess risks of arrangements that fall outside safe harbor protection. The Advisory Opinion reiterates OIG’s previous guidance in many respects but provides additional considerations specific to the proposed arrangements that could make it difficult to replicate in other arrangements. This all comes at a time when the Department of Justice and OIG have stated that an enforcement priority of their reconstituted False Claims Act Working Group will include “discounts, rebates, service fees, and formulary placement.”2Department of Justice, Press Release, DOJ-HHS False Claims Act Working Group (July 2, 2025), https://www.justice.gov/opa/pr/doj-hhs-false-claims-act-working-group.
Discount and Rebate Proposals
The requestor of the Advisory Opinion is a biopharmaceutical manufacturer that manufactures, among other things, three (3) types of vaccines. Two of the vaccines are reimbursed under Medicare Part B and one vaccine is reimbursed under Medicare Part D. Each of the vaccines is purchased by different types of buyers including group purchasing organizations, long-term care facilities, and healthcare providers and physician practices. There is competition for each vaccine on the market.
The requestor proposed discount/rebate arrangements across four (4) categories:
- Category 1 - Upfront Discounts. Upfront discounts are discounts based solely on a certain percentage off the list price or a contract price that is known and applied at the time of purchase. These arrangements include, for example, prompt-payment discounts expressed as a percentage off the contract price for non-retail buyers that remit payment within a designated period, and supply reservation discounts (which are incremental upfront discounts for non-retail buyers that reserve units of the vaccine for the upcoming vaccination season prior to the current season). Each would be reflected on the sales invoice.
- Category 2 - Upfront Discounts with a Purchase Requirement (including Volume and Market Share Discounts). The second category is a subset of upfront discounts that involve offering a certain percentage off the list price, which is known and applied at the time of purchase and contingent on having satisfied certain purchase requirements (i.e., market share or volume purchase requirements) during a prior measurement period. For example, the requestor may give an upfront market share discount on purchases in a given quarter for buyers 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. The proposed tiers range from less than 60%, 60% - 80%, and over 80% market share.
- Category 3 - Bundled Upfront Discounts with a Purchase Requirement. The third category includes offers of a specified percentage off the vaccine’s list price that are known and applied at the time of purchase and contingent on satisfying certain purchase requirements across a bundle of products (i.e., market share or volume purchase requirements for two or more of the vaccines) during a prior measurement period. This category includes: (a) bundles of products reimbursed by the same FHCP using the same methodology (i.e., vaccines that are all reimbursed under Medicare Part B) and (b) bundles of products reimbursed by the same FHCP using a different methodology (i.e., where some vaccines are reimbursed under Medicare Part B and others are reimbursed under Medicare Part D). An example includes a discount expressed as price protection where a buyer maintains specified minimum market share tiers for all three vaccines in each time period. The same incremental rebate rates apply to each vaccine in the bundle.
- Category 4 - Bundled Rebates. Under the fourth category, the Requestor offers bundled rebates across different products that involve offering a certain percentage off the vaccines list (or contract) prices where: (i) the percent and terms are fixed and disclosed in writing in advance of any purchase (although some terms may be adjusted for market dynamics); (ii) the rebates are contingent on satisfying certain purchase requirements (i.e., market share or volume purchase requirements) during a measurement period; and (iii) the rebate is provided for units purchased during the measurement period. This category of rebates includes: (a) bundles of products reimbursed by the same FCHP using the same methodology; and (b) bundles of products reimbursed by the same FCHP using a different methodology (i.e., a combination of Medicare Parts B and D).
With respect to all discount categories, the requestor certified that it complies with all price reporting requirements for pharmaceutical manufacturers and provides buyers with the information necessary to ensure buyers can properly disclose and appropriately report the discounts on cost reports or claims, as may be required by law.
Additionally, the requestor certified that its personnel are prohibited from: (a) discussing grants, service agreements, quality programs, or any other items of value in connection with discount arrangements, (b) “marketing the spread,” and (c) engaging in swapping arrangements. Further, written discount agreements all include contractual terms clarifying that discounts are not contingent on any performance, switching, or conversion requirements.
OIG’s Analysis of the Discount Proposals
OIG concluded the each of the proposed discount/rebate arrangements was either protected by the Discount Safe Harbor or otherwise would pose a low risk of fraud and abuse for the reasons described in the following bullets.
- Category 1 - Upfront Discounts. The upfront discounts are protected by the Discount Safe Harbor because they meet the definition of discount. OIG highlights that the discounts are calculated solely as a certain percentage off the vaccine’s list price or reflected as a reduced price on the invoice with the buyer and are known to the buyer at the time of sale.
- Category 2 - Upfront Discounts with a Purchase Requirement (including Volume and Market Share Discounts). Similarly, OIG concluded that the various discount arrangements falling within Category 2, including the proposed market share discounts (which include a discount tier available to buyers with market share above 80%), meet the definition of discount and are protected by the Discount Safe Harbor. OIG stressed that buyers are not required to perform any services to qualify for the discounts. Prohibited services might include, for example, engaging in promotional activities or switching patients from one product to another. OIG noted that it would have come to a different conclusion if any services would be required to qualify for the discounts.
OIG also stressed that the discount arrangements do not require product exclusivity. OIG acknowledged that market share or preferred status discounts might give the impression that they incentivize buyers to switch products, but reasoned that well-structured market share or preferred status discounts do not necessarily inappropriately incentivize product switching. Rather, market share or preferred status discounts incentivize buyers to stock a particular product but do not require the buyer to select the product for a patient that might not be in the best interest of a patient (i.e., buyers only need to buy the product to receive the discount; the buyer does not need to use the product). Further, OIG reasoned that market share or preferred status discounts do not impede the buyer from buying a competitor’s product because the discount arrangement does not require the product to be exclusive.
- Category 3 - Bundled Upfront Discounts with a Purchase Requirement. OIG concluded that discount arrangements falling within Category 3 raised low risk of harm to FHCPs but did not qualify for protection under the Discount Safe Harbor because some of the bundles could include vaccines that would be reimbursed under a different reimbursement methodology (e.g., Medicare Parts B and D). In focusing on the reimbursement methodology, OIG analyzed whether the bundled discounts would shift costs among reimbursement systems or distort the true costs of all items in the bundle. OIG explained that discounts are unlikely to shift costs among reimbursement systems or distort product costs when the net value is readily determined and can be properly reported.
With respect to the proposed discount arrangements, OIG found that the proposed discounts were readily attributable to each separate billable item and each reimbursement methodology (Medicare Parts B and D) benefits equally from the discount if the preconditions are met. Specifically, if the buyer achieved the specified market share threshold on all vaccines, each vaccine, regardless of whether the vaccine would be reimbursed under Medicare Part B or D, would be discounted at the same discount rate. As a result, OIG reasoned that the proposed discount arrangements were distinguishable from higher risk bundles where a seller offers a deep discount on one product to induce the full price purchase of a different product. Additionally, OIG noted that there was competition for each vaccine, so it is less likely the Requestor could obfuscate the pricing of any vaccine to raise prices or maintain a higher list price.
- Category 4 - Bundled Rebates. OIG did not distinguish between upfront discounts and rebates, concluding that Category 3 upfront bundled discounts still would be low risk even if they were structured as rebates.
Notably, OIG also analyzed whether the requestor could adjust either the purchase requirements or the amount of the rebate percentage during the term of the rebate agreement, including in relation to purchases that would have already been made pursuant to the previous rebate terms. OIG unexpectedly concluded that the risk of fraud and abuse is sufficiently low in this case because the buyer is aware before the time of initial purchase that adjustments may be made to the rebate terms, because permitting the terms to be adjusted to meet competition might increase patient choice. For example, if the requestor lowers the number of units a buyer must purchase to qualify for a rebate, then the buyer may be more likely to keep both requestor’s and its competitors’ vaccines in stock rather than being incentivized to stock and sell more of requestor’s vaccines (instead of a competitor’s vaccines) to meet the pre-set volume or market share requirements to obtain the rebate. OIG’s opinion on this issue is striking, considering that similar arguments can be made to suggest that such arrangements could create unfair competition and decrease patient choice.
- Category 4 - Bundled Rebates. OIG did not distinguish between upfront discounts and rebates, concluding that Category 3 upfront bundled discounts still would be low risk even if they were structured as rebates.
Notably, OIG also analyzed whether the requestor could adjust either the purchase requirements or the amount of the rebate percentage during the term of the rebate agreement, including in relation to purchases that would have already been made pursuant to the previous rebate terms. OIG unexpectedly concluded that the risk of fraud and abuse is sufficiently low in this case because the buyer is aware before the time of initial purchase that adjustments may be made to the rebate terms, because permitting the terms to be adjusted to meet competition might increase patient choice. For example, if the requestor lowers the number of units a buyer must purchase to qualify for a rebate, then the buyer may be more likely to keep both requestor’s and its competitors’ vaccines in stock rather than being incentivized to stock and sell more of requestor’s vaccines (instead of a competitor’s vaccines) to meet the pre-set volume or market share requirements to obtain the rebate. OIG’s opinion on this issue is striking, considering that similar arguments can be made to suggest that such arrangements could create unfair competition and decrease patient choice.
Additional Considerations and Open Questions
In Advisory Opinion 25-11, OIG repackaged its existing guidance around discounts, reiterating public policy favors price concessions and that companies have broad discretion to offer and structure discounts within certain defined perimeters. The Advisory Opinion should provide comfort to companies exploring the possibilities of new types of discount and rebate arrangements, including market share discounts and creative bundled discount arrangements. There are several key guardrails around discounting arrangements that OIG emphasizes in Advisory Opinion 25-11 and that companies should take note of in exploring new possibilities:
- Discounts and rebates should not be contingent on the customer providing any additional services or promotional activities. Buyers should not be required to take any steps to promote any the products purchased or disadvantage competing products (e.g., implementing utilization management techniques or other actions that would impede use of a competing product). OIG emphasized more than once in the opinion that it would have reached a different conclusion on the proposed arrangements if the buyers would be required to provide any services in connection with the purchases.
- Discounts and rebates should not be contingent on product exclusivity. This is intended to help respect patient choice/need and avoid any pressure or incentives to switch products. However, OIG did not define a point at which a market share contingency could become in effect an exclusivity term. Is there a point where the market share threshold would essentially make the arrangement an exclusive arrangement? The Advisory Opinion suggests a market share threshold of 80% and above does not create an exclusive arrangement that offends OIG; but what about 95% or 99%? Under OIG’s logic, purchasing requirements do not equate to exclusive use because the buyer can merely stockpile products and continue buying competitor products; so, potentially any threshold requirement is less important to OIG if companies can demonstrate competition and patient choice is not unduly impeded.
- When products are bundled together in discount and rebate arrangements, it is important to ensure that such arrangements are not intended to distort the true net costs of products in the bundle and that each product’s net price can be calculated by the buyer. This is to ensure that costs are not shifted or distorted among different reimbursement systems. OIG approved of the proposed bundling arrangements in the Advisory Opinion based in part on the fact that the discounts were 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. OIG is focused on ensuring that the net value can be properly reported, which it believed was applicable to the bundles proposed by the requestor.
- It is important to accurately document discounts and rebates and make sure that buyers have the information they need to meet any of their reporting requirements. These elements are not explored in detail in Advisory Opinion 25-11, but OIG highlights that the requestor provides customers the information necessary (i.e., all discount terms) and notification of their reporting obligations in written agreements and invoices to ensure customers can properly disclose and appropriately reflect the discounts on applicable cost reports or claims submitted to FHCPs.
Notably, the Advisory Opinion does not fully address the nuances of the Discount Safe Harbor and does little to provide additional guidance around the unique aspects of these arrangements that would enable sellers to replicate the low-risk circumstances that OIG assessed in the Advisory Opinion. There are also several open questions in the wake of Advisory Opinion 25-11:
- For instance, with market share discounts, the Advisory Opinion does not address how to enforce any market share discount arrangements. Implicit in any conditional discount is the requirement to demonstrate that the pre-condition has been met and failure to meet the pre-condition would preclude the buyer from benefiting from the discount. This raises the question: How can companies demonstrate they meet the market share requirement if the discount cannot be conditioned on the buyer performing any services? Arguably, requiring the buyer to submit documentation regarding product purchases of competitor products, which would generally be necessary to validate market share, would be a conditional service and something of value for the seller, who essentially would be receiving market data from buyers. Nowhere in the Advisory Opinion does OIG contemplate how a company who chooses to offer market share discounts can or should validate and confirm the prerequisite condition, without having the buyer perform services.
- With respect to bundled discounts, OIG again failed to clearly address common questions that plague companies when implementing bundled discount arrangements. OIG continued to express potential concerns around bundled arrangements that include items reimbursed under different reimbursement methodologies and companies shifting costs between FHCPs or between different parts of the same program. OIG clarifies its belief that Medicare Parts B and D are themselves distinct reimbursement methodologies, such that bundles of products across both Parts B and D do not qualify for protection under the Discount Safe Harbor. Conversely, OIG also opined that a bundled discount across two vaccines that are both reimbursed by Part B can qualify for protection under the Discount Safe Harbor.
OIG also did not address this issue in light of today’s reimbursement environment where fewer reimbursement models are based on a fee structure, and more reimbursement models are value-based or capitation-based and the net cost of an item is less important in setting reimbursement rates. What it means to be reimbursed under the same methodology today is not always clear, nor is it clear how much companies can truly distort program costs through discounts under new reimbursement methodologies, assuming the reimbursement would be made by the same FHCP.
- Lastly, appearing to permit adjustable rebate terms is the most surprising holding by OIG in the Advisory Opinion. That suggestion potentially allows for circumstances where the terms of a rebate might not need to be fixed during the rebate period, which departs from OIG’s past guidance and the Discount Safe Harbor. OIG also does little to provide guardrails around this activity. The Advisory Opinion merely notes the adjustments to the rebate terms may be low risk because buyers are aware adjustments are possible, and it could promote patient choice. However, OIG does not define when adjustments may be permissible. Could companies adjust rebate terms for a single buyer to ensure the buyer satisfies the rebate conditions (i.e., guarantee the buyer gets the rebate), or do adjustments need to be made across the board to all similarly situated buyers with similar rebate agreements? Could companies reduce rebate rates and thereby increase the net price of the products during a rebate period? Arguably, this could increase costs for FHCPs if purchasing decisions were made to ensure a certain rebate, only for the rebate to be reduced later.
Ultimately, the takeaway is that Advisory Opinion 25-11 opens the door to consider different discount and rebate arrangements, but it does not give companies free range to offer any type of discounts and rebates they desire. Each discount and rebate arrangement needs to be independently assessed against the Discount Safe Harbor, OIG’s guidance around discounts and rebates, and the specific facts and circumstances presented.
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King & Spalding is an industry leader in helping Life Sciences Companies comply with fraud and abuse laws, including the federal Anti-Kickback Statute. We routinely consult with companies on compliance issues and assist with developing and evaluating potential discount arrangements. We also regularly work with OIG in many capacities, including through the OIG advisory opinion process. King & Spalding is happy to assist companies with developing innovative discounting arrangements, with or without obtaining an OIG advisory opinion, to ensure companies meet government expectations and take necessary steps to help avoid government scrutiny.