Sources: 42 U.S.C. § 1320a-b(b)(3)(A) and 42 C.F.R. § 1001.952(h)
3. Discounts on Items or Services
Statutory exception, plus a regulatory safe harbor if all of the following five standards are met:
discounts must be earned based on purchases of the same good or service (as the discount is applicable to) within a single fiscal year of buyer (however, discounts offered on one good or service to induce the purchase of a different good or service (e.g., discounts on multiple items included in a hospital DRG) is also permitted provided the goods and services are reimbursed by the same federal program using the same methodology, and the reduced charge is fully disclosed to the federal program);
buyer must claim the discount in fiscal year earned or the following year;
buyer must report the discount in cost report;
buyer must provide invoices evidencing discounts to federal programs upon request; and
seller or offeror must report the discount on invoice and must inform buyer of buyer’s obligations under (iii) and (iv) in a manner reasonably calculated to give notice to buyer (but seller or offeror can satisfy this safe harbor even if buyer does not fulfill its obligations so long as seller or offeror is not complicit in buyer’s noncompliance).
Note that “buyers” protected under this safe harbor include charge-based buyers who enjoy discounts in the form of rebates so long as the terms of the rebate are fixed and disclosed at the time of the first sale of the good or service to which the rebate applies. Charge-based buyers are not required to report discounts in cost reports. However, documentation of discounts must be made available to federal programs upon request.