AKS Hypothetical Discount Allocation

APPLICATION OF THE ANTI-KICKBACK STATUTE DISCOUNT SAFE HARBOR TO BUNDLED SALES

Purchases of Equipment, Consumables, and Data Access made under Sofia (and Virena) Agreements (the “Agreement”) constitute a bundled sale arrangement, whereby the receipt of goods and services at reduced or no charge is conditioned upon the purchase of other goods or services, as described by the regulatory discount safe harbor to the federal Anti-Kickback Statute, 42 C.F.R. § 1001.952(h).  Through execution of such Agreement, Customer has agreed to fully and accurately disclose the discounts, premiums, credits, or other value received from Quidel in connection with the Agreement in cost reports or claims submitted for reimbursement to Medicare, Medicaid, or other federal health care programs requiring such disclosure, and to provide such documentation to the Secretary of the Department of Health and Human Services and state agencies upon request.  See 42 C.F.R. § 1001.952(h).  If Customer is required to file cost reports under a federal or other health care program, Customer is solely responsible for properly filing such reports. To aid Customer in meeting its above mentioned obligations, Quidel provides the following hypothetical example, which identifies a discount allocation formula and explains a method by which the apportioned discount applicable to Customer purchases may be calculated. Please note that, despite the provision of this hypothetical example, Customer is solely responsible for the method used, and the calculation performed, by Customer to allocate and disclose any discounts, premiums, credits or other value received from Quidel under the Agreement, and Customer should consult with its own legal counsel in carrying out these responsibilities.

Hypothetical Example: Discount Allocation

Bundled Terms. Assume Quidel offers to provide Customer use of the Sofia Fluorescent Immunoassay Analyzers and Virena Wireless Router System (“Equipment” or “Equipment Use”) and Data Access, for a term of two (2) years, free of charge in exchange for Customer’s purchase of Quidel Consumables for use with the Equipment. This offer creates a bundled sale arrangement, whereby the provision of Equipment Use and Data Access at no charge is contingent upon the purchase of the Consumables.

Unbundled Terms. Assume Quidel sells its Consumables to Customer for $10 per unit of Consumable, and that Customer purchases 2,000 units of Consumables for the year. Customer’s total purchases are $20,000 for the year ($10 x 2,000 = $20,000). The annual use of a unit of Sofia Fluorescent Immunoassay Analyzer used with the Consumables has an undiscounted annual price of $1,000.  The annual use of a unit of Virena wireless router system has an undiscounted annual price of $100. Data Access has an undiscounted annual price of $250.

Discount Allocation. Where a bundled sale arrangement exists, the bundled discount must be allocated to all the items in the bundle. If Customer were to acquire items under unbundled terms, the total annual cost would be $21,350 ($20,000 + $1,000 + $100 +$250). If Customer acquires items under the bundled terms, the total cost is $20,000. The difference between the unbundled combined purchase amount ($21,350) and the bundled combined purchase amount ($20,000) is the bundled discount amount ($1,350). The bundled discount of $1,350 must be allocated to all items in the bundle based on their unbundled terms.

To determine the proper discount allocation, Customer can calculate the total Discount Rate, which is the ratio between the discounted combined purchase amount ($20,000) and the undiscounted combined purchase amount ($21,350), which is 0.9368, and then multiply the Discount Rate by each of the unbundled terms. Thus, the annual apportioned discounted price for the Sofia Fluorescent Immunoassay Analyzer is $936.80 ($1,000 x Discount Rate), the annual apportioned discounted price for the Virena Wireless Router System is $93.68 ($100 x Discount Rate), and the annual apportioned discounted price for the Data Access is $234.20 ($250 x Discount Rate).  The apportioned discounted price for the Consumables is $18,736 ($20,000 x Discount Rate). The formula for this calculation is reflected in Chart 1 below, and an example calculation is reflected in Chart 2.

Discount Allocation Formula

Discount Allocation Calculation

This annual unbundling allocation should be performed for each grouping of Equipment Use, Data Access and Consumable, for as long as the bundled sale arrangement exists, and in this example, until the Equipment Use and Data Access are no longer provided to Customer in connection with Customer’s purchase of the Consumables.