May 29, 2026
By: Edgar Bueno & Matt Wilmot, as published by The National Law Review
The Department of Health and Human Services, Office of Inspector General (OIG) has issued a new Advisory Opinion directed at medical device manufacturers who pay “product line” royalties to physician consultants. The OIG found that the proposed arrangement would generate prohibited remuneration under the Federal Anti-Kickback Statute. According to the OIG, the proposed royalty payments may actually serve as a payment-for-referral scheme.
OIG Advisory Opinion No. 26-10
The requestor of the opinion is a company that manufactures a broad range of orthopedic implants and replacement products for hip, knee, shoulder, spine, and sports medicine. The company collaborates with consultants who are often orthopedic physicians who purchase and use the company’s products on their patients, including Medicare patients. Under these arrangements, the consultant is involved in the design, development, and evaluation of a particular product line. In return, the consultant is paid for their services, and the payment is set at fair market value. The written agreement requires the consultant to perform, among other things, the following tasks: provide teaching and training, review products and designs, provide written feedback, and attend meetings with company personnel. The consultant must provide such services for a minimum number of hours per year and at a satisfactory level that is closely documented and monitored.
Specifically, as to payment, the consultant would receive “royalty payments” equal to a specified percentage of the net invoice price for all products sold within the applicable product line for which the consultant provided services.
Analysis
Despite acknowledging that consulting arrangements are common and can be beneficial in the medical device industry, and that royalty payments can be structured to present a low compliance risk under the Anti-Kickback Statute (AKS), the OIG still found this arrangement problematic and issued an unfavorable opinion.
- The OIG initially noted that the arrangement would not satisfy the safe harbor for personal services and management contracts.
- The OIG found that the product line royalty payments “would be determined in a manner that takes into account the volume and value of referrals or other business generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs.”
- The OIG’s conclusion stands in contrast to the company’s express certification that the royalty payments would be consistent with fair market value and would not take into consideration the volume or value of referrals.
- According to the OIG, the royalty payments “still could financially motivate Product Line Consultants to recommend [the company’s] products over competing products.”
- The payments would include purchases of service line products that resulted from the consultants’ recommendations to others.
- Moreover, the payments to physician consultants “may skew their clinical decision making in favor of their own and the company’s financial interests rather than the patient’s best interests.”
- The OIG concluded that the arrangement “presents not only [a] risk of skewed clinical decision making, but a host of other risks, including patient steering, unfair competition, inappropriate utilization, and increased costs to Federal health care programs.”
Compliance Considerations
The following considerations are particularly relevant for medical device companies and physician consultants in light of this recent OIG guidance:
Review Consulting and Royalty Arrangements. Whether you are entering into a new arrangement or have an existing one, consulting agreements that include product line royalty payments deserve a close look. Have them reviewed by legal counsel, as this recent OIG guidance may affect their compliance status.
Avoid Compensation Structures Tied to Referral Volume. Even when consulting agreements include built-in exceptions and safeguards, if physician compensation can arguably be viewed as taking into account the volume or value of referrals or other business generated between the parties, then AKS liability is still at issue.
Aim for Safe Harbor Protection. Arrangements with the lowest compliance risk are those that satisfy one of the enumerated safe harbors under the Anti-Kickback Statute.
Do Not Rely on FMV Alone for AKS Compliance. While fair market value (FMV) compensation is important and required under some safe harbors, it is not the only factor to consider for AKS liability. The limitation of FMV protection was recently highlighted by the OIG in an update to its online “Frequently Asked Questions” that addresses common inquiries concerning the Federal fraud and abuse laws (including the AKS). Accordingly, the legality of an arrangement is determined by the overall facts and circumstances, including the parties’ intent.
Don’t wait until a problem arises. If you have questions about this Advisory Opinion or would like assistance reviewing a consulting arrangement, please contact Edgar Bueno or Matt Wilmot at HunterMaclean at 912.236.0261.
