Key Points
- The Office of Inspector General of the Department of Health and Human Services (OIG) has issued Advisory Opinion No. 25-04 (AO 25-04), its first advisory opinion of the year addressing a proposed arrangement by a medical device manufacturer.
- In this unfavorable opinion, OIG concluded that the medical device company’s (Requestor’s) proposal to pay costs that its customers would otherwise incur to conduct exclusion and compliance screening of the Requestor did not present a sufficiently low enough fraud and abuse risk under the federal Anti-Kickback Statute (AKS).
- OIG acknowledged that screening for exclusion from federal health care programs is not a statutory or regulatory mandate, but made clear its view that monthly screening is a best practice and the way to “best minimize[] potential overpayment and [civil monetary penalty (CMP)] liability.”
- Life sciences manufacturers should exercise caution when considering any arrangement that shifts costs away from or provides financial benefits to referral sources, particularly where the arrangement results in increased access to such sources, as these may trigger scrutiny and potential sanctions under the AKS.
The Proposed Arrangement
In AO 25-04, the first advisory opinion of the year addressing a proposed arrangement by a medical device manufacturer,1 Requestor sought OIG guidance on a proposed arrangement involving its customers — hospitals, health systems and ambulatory surgery centers.
Under the proposal, the Requestor would pay a third-party service provider (the Company) to perform initial and ongoing exclusion screenings of the Requestor, as well as screenings of Requestor’s compliance with certain Medicare Advantage plan requirements, on behalf of certain of Requestor’s customers.
Of particular note, the Requestor indicated that it would enter into the proposed arrangement at the request or by requirement of its customers, as a condition of doing business with them.
The Requestor proposed to pay the Company an annual, per-customer subscription fee (Fees) for the screening services. According to the OIG, this service would relieve Requestor’s customers “of a financial burden they otherwise would bear.” The Requestor estimated that it would annually pay approximately $450,000 in Fees directly to the Company to cover the customers who received screening and monitoring reports.
In describing the proposed arrangement, the OIG reiterated that, although there is no statutory or regulatory obligation to screen for exclusion from federal health care programs, doing so “each month best minimizes potential overpayment and CMP liability” for contracting with an excluded party. In other words, the proposed arrangement would result in the Requestor assuming its customers’ cost for a critical compliance measure.
OIG’s Legal Analysis and Rationale
Because no AKS safe harbor applied, the OIG evaluated the proposed arrangement based on the totality of the facts and circumstances.
OIG focused primarily on whether payment to a third party — here, annual payments to a third party to conduct compliance screening — could serve as an inducement to customers to purchase items or services from Requestor that may be reimbursable by a federal health care program, and concluded that it could.
Specifically, the OIG noted:
- The proposed arrangement could encourage customers to favor the Requestor’s products because they would save the costs of screening and monitoring, disadvantaging competitors that are unwilling or unable to offer similar benefits.
- The third-party Company could essentially serve as a “gatekeeper of referrals,” incentivizing the Requestor to pay Fees to the Company because customers had conditioned their business on Requestor doing so.
- The proposed arrangement ran afoul of OIG’s long-standing and continuing concerns regarding the provision of free items or services by manufacturers to referral sources that could lead to the referral or ordering of an item or service payable by federal health care programs.
Takeaways
AO 25-04 sounds another cautionary note regarding the AKS risks inherent in providing free items or services to referral sources, and highlights that this may include offers of support that relieve a financial burden for those sources. The OIG views such arrangements as presenting the same level of risk as direct payments, particularly when they could influence purchasing decisions or create anti-competitive dynamics.
Of note, however, AO 25-04 acknowledged that there are numerous ways to structure business arrangements, and that other permutations that would involve the Requestor paying for screening and monitoring costs might be permissible, depending on the specific facts and allocation of responsibilities.
Importantly, the OIG’s analysis focused on the fact that, in the proposed arrangement, the manufacturer’s payment of per-customer Fees was a prerequisite for accessing customer business, heightening concerns about inappropriate inducement and steering.
Life sciences manufacturers should therefore exercise caution when considering any arrangement that shifts costs away from or provides financial benefits to referral sources, particularly where the arrangement results in increased access to such sources, as these may trigger scrutiny and potential sanctions under the AKS.
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1 On June 30, 2025, OIG posted its second advisory opinion of the year addressing a proposed arrangement by a medical device company. In Advisory Opinion 25-05, OIG concluded that a proposed arrangement pursuant to which a medical device manufacturer would reimburse purchasers (up to a cap) for actual costs incurred associated with an injury caused by the failure of its device was protected by the safe harbor for warranties.
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