July Legal Intelligencer article by Lamb McErlane Health Law Attorneys Vasilios J. Kalogredis, Esq. and Sonal Parekh, Esq.

The HHS Office of Inspector General (“OIG”) issued Advisory Opinion No. 26-10 (“Opinion”) on May 13, 2026 regarding a proposed arrangement in which an orthopedic medical technology company (“Requestor”) entered into agreements with individuals (often physicians) who would provide consulting services for Requestor’s product lines (the “Proposed Arrangement”). Specifically, Requestor inquired whether the Proposed Arrangement would constitute grounds for sanctions under Sections 1128A(a)(7) or 1128(b)(7) of the Social Security Act (“SSA”) as those sections relate to the Federal Anti-Kickback Statute[1] (“AKS”).

Unlike many recent advisory opinions in which the OIG acknowledged AKS implications but nevertheless exercised enforcement discretion, the OIG concluded that the Proposed Arrangement here generated an unacceptable risk of fraud and abuse and therefore declined to provide prospective protection from administrative sanctions. Accordingly, the OIG concluded that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS and constitute grounds for administrative sanctions if the requisite intent were present.

The Opinion is significant for several reasons. First, it provides a clear discussion regarding the distinction between legitimate physician consulting arrangements and compensation methodologies that may improperly reward physicians for business generated through their influence over purchasing decisions. Second, the Opinion demonstrates that even extensive contractual safeguards, certifications regarding fair market value, exclusion of certain physician-generated sales, and detailed documentation requirements may not overcome an inherently problematic compensation methodology. Finally, the Opinion reinforces the OIG’s longstanding concern that financial relationships between medical device manufacturers and physicians require particularly close scrutiny because physicians frequently occupy positions that allow them to influence purchasing decisions, utilization patterns, and product recommendations affecting Federal health care program business.

For medical device manufacturers, physicians, health care attorneys, and compliance professionals, Advisory Opinion 26-10 serves as an important reminder that AKS compliance requires more than demonstrating that consulting services are legitimate or that compensation is commercially reasonable. Rather, the methodology used to compensate physician consultants must itself avoid creating financial incentives that directly or indirectly reward referrals, recommendations, or business otherwise generated between the parties.

Factual Background

Requestor develops manufactures, and distributes implant and replacement products (“Products”) across multiple orthopedic specialty areas, including hip, knee, shoulder, spine, and sports medicine (each, a “Product Line”). Pursuant to written agreements (the “Product Development Agreement”), Requestor currently collaborates and engages with various physicians possessing specialized clinical expertise (“Consultants”) in connection with product design, development, and evaluation (the “Development Services”).[2] These Consultants simultaneously utilize and purchase Requestor’s Products in treating patients, including beneficiaries of Federal health care programs.

Pursuant to the Proposed Arrangement, Requestor would additionally engage certain Consultants to advise and consult on a full Product Line, as opposed to a specific Product. Here, Requestor proposes to enter into a Product Line Agreement pursuant to which the Product Line Consultant would provide the following services (collectively, the “Product Line Services”):

1. 1. Teaching, training and proctoring services related to the Products in the relevant Product Line;
   2. Reviewing and providing feedback relative to a Product Line to contribute to the overall development thereof;
   3. Attending and contributing to regular meetings in which design features and/or relevant technologies would be discussed and reviewed relative to a Product Line;
   4. Meeting and discussing strategic initiatives regarding the Product Line’s design and development with Requestor’s personnel; and
   5. Reviewing and evaluating implant or instrument designs and prototypes within the Product Line and providing clinical evaluations thereof.

Though Requestor certified that the Product Line Services were not viewed as marketing or promotional activities intended to generate revenue, Requestor could not guarantee that the Product Line Services would not contribute to the generation of revenue from the Products.

The Product Line Agreement would require Consultants to provide Product Line Services for a minimum number of hours per year and to a satisfactory level (the “Product Line Requirements”). Time records would be strictly documented and verified (i) for accuracy and completeness, (ii) to ensure that Product Line Requirements were met, and (iii) to ensure there is no overlap with time covered under the Product Development Agreement or other similar agreement between the Consultants and Requestor. To assess whether the Product Line Services were performed to a satisfactory level, Requestor would create an evaluation panel (the “Evaluation Panel”) to assess each Consultant’s contributions by reviewing, on a quarterly basis, the Consultant’s time records, attendance, participation, and quality of interaction, as well as any novel, significant or innovative contributions made to the Product Line by the Consultant. The Evaluation Panel would have the sole decision-making authority to determine whether a Consultant provided Product Line Services to a satisfactory level. In the event the Evaluation Panel determined that a Consultant did not meet the Product Line Requirements in a given quarter, the Consultant would be paid an hourly rate (set in advance and in accordance with fair market value) for the Product Line Services actually provided and documented by the Consultant. If the Evaluation Panel determined that a Consultant met the Product Line Requirements for a particular quarter, then the Consultant would receive a “royalty” payment for such quarter equal to a specified percentage of the net invoice price for all Products sold within the applicable Product Line for which the Consultant provided Product Line Services (the “Product Line Royalty”). The granting of the Product Line Royalty would be based solely on the Consultant’s meeting of the Product Line Requirements and would not depend on services provided in furtherance of the development of one of more Products within a Product Line. To address fraud and abuse concerns, Requestor certified that such Product Line Royalty: (i) would be consistent with fair market value pursuant to a third-party valuation; (ii) would not take into consideration the volume or value of the Consultant’s referrals to Requestor; and (iii) would exclude the value of certain sales, including: (x) sales of a Product for use in a surgery or medical procedure performed by the Consultant or their immediate family members or sold to a hospital, ambulatory surgery center or other facility in which the Consultant performs medical procedures or has an ownership interest; and (y) the sales of Products for which the Consultant already receives a royalty or other payment for Development Services provided pursuant to the Product Development Agreement.

The Law

The AKS[3] makes it “a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce, or in return for, the referral of an individual to a person for… any item or service reimbursable under a Federal health care program.” The prohibition extends to remuneration to induce, or in return for, the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by a Federal health care program. Here, remuneration includes the transfer of anything of value. The statute applies to any arrangement where at least one purpose of the remuneration is to induce referrals for items or services reimbursable by a Federal health care program. Violations of the AKS constitute a felony punishable by a maximum fine of $100,000 and/or up to 10 years of jail time, as well as exclusion from Federal health care programs and potential imposition of fines by the OIG.

While statutory exceptions and regulatory safe harbors exist, protection is only available where all elements of a safe harbor are strictly satisfied. Arrangements that fall outside of safe harbor protection are subject to a fact-intensive, case-by-case analysis. Here, the OIG found that the safe harbor for personal services and management contracts and outcomes-based payment arrangements is potentially applicable to the Proposed Arrangement.[4]

Legal Analysis

In the Opinion, the OIG acknowledged that physician consulting arrangements and royalty payments are commonplace within the medical device industry and may, when properly structured, satisfy an applicable safe harbor or otherwise present sufficiently low fraud and abuse risk under the AKS. Nevertheless, the OIG concluded that the Proposed Arrangement presented a level of risk that precluded the issuance of a favorable advisory opinion.

A. Failure to Satisfy the Applicable Safe Harbor

As a threshold matter, the OIG concluded that the Proposed Arrangement would not satisfy the safe harbor for personal services and management contracts and outcomes-based payment arrangements. Despite Requestor’s certifications, the OIG focused on the fact that Requestor was unable to certify that none of the Consultant’s Product Line Services would contribute to the generation of revenue from Products. Although Requestor represented that the Product Line Services were not intended to constitute marketing or promotional activities, many of those services — including physician teaching, training, proctoring, strategic discussions, and ongoing collaboration regarding Product Line development — necessarily placed the Consultants in positions to influence the purchasing decisions of other providers. Consequently, the OIG concluded that the Product Line Royalty payments created an incentive for Consultants to promote loyalty to, and advocacy for, Requestor’s Products (over competing products) in a manner capable of generating additional business.

The OIG found that this incentive heightened the risk that the Consultants would recommend the Requestor’s Products to others who can order them and generate revenue for Requestor, including revenue from purchases paid for by Federal health care programs. Specifically, the OIG observed that, although Requestor proposed to exclude certain categories of sales from the Product Line Royalty calculation, the compensation formula nevertheless included revenue generated through purchases resulting from the Consultant’s recommendations to other providers. Because the Product Line Royalty increased based upon sales generated through those recommendations, the OIG concluded that the compensation methodology took into account business otherwise generated between the parties and therefore failed to satisfy an essential element of the safe harbor.

Accordingly, the OIG determined that the Proposed Arrangement fell outside of safe harbor protection.

B. The OIG’s Continued Focus on Physician Influence

The Opinion reflects the OIG’s longstanding concern regarding financial relationships between medical device manufacturers and physicians who occupy positions capable of influencing product utilization. The OIG pointed to previous studies and expressly emphasized that physicians receiving remuneration from a company may be more likely to recommend or utilize that company’s products and that such remuneration may improperly influence the physicians’ clinical judgment in favor of financial interests and benefits as opposed to the patient’s best interests.

According to the OIG, those concerns were amplified under the Proposed Arrangement because the Product Line Services themselves required Consultants to engage in physician education, training, and proctoring activities. Unlike consulting services performed exclusively behind the scenes in connection with research or product development, these responsibilities necessarily involved interactions with other providers capable of influencing purchasing decisions. Because a Consultant’s compensation would increase as additional Products within the applicable Product Line were sold, Consultants retained an economic incentive to recommend Requestor’s Products over competing products whenever they interacted with other physicians through teaching engagements, proctoring activities, or other Product Line Services. Consequently, the OIG concluded that the Product Line Royalty payments created a heightened risk that Consultants would recommend Requestor’s Products to physicians capable of ordering those Products, thereby increasing Requestor’s revenue and, in turn, increasing the Consultants’ compensation.

The OIG therefore identified multiple fraud and abuse concerns arising from the Proposed Arrangement, including patient steering, unfair competition, inappropriate utilization, and increased costs to Federal health care programs. The Opinion reflects the OIG’s view that these risks were not merely theoretical but instead arose directly from the manner in which the Product Line Royalty was structured. The Opinion also reinforced an important compliance principle: while fair market value remains a necessary component of many physician compensation arrangements, it is not independently sufficient to establish compliance with the AKS. Even where compensation reflects fair market value, the OIG will separately evaluate whether the methodology by which compensation is calculated creates incentives that directly or indirectly reward referrals, recommendations, or business otherwise generated.

OIG Takeaways and Compliance Principles

Consistent with prior OIG guidance and advisory opinions, Opinion 26-10 reinforces several important compliance principles.

1. 1. Fair Market Value Alone is Insufficient. Even where physician compensation is independently determined to be consistent with fair market value, the OIG will separately evaluate whether the compensation methodology rewards referrals or business otherwise generated between the parties.
   2. Compensation Methodology Matters. The OIG focused less on the amount of compensation and more on how that compensation was calculated. Compensation formulas tied to downstream product sales—even where certain sales are excluded—may implicate the AKS if they create financial incentives to influence purchasing decisions.
   3. Physician Influence Remains a Significant Enforcement Concern. Physicians who teach, train, proctor, or otherwise influence the purchasing decisions of other providers present heightened fraud-and-abuse risk where their compensation is linked to sales of the manufacturer’s products.
   4. Safeguards May Not Cure an Inherently Problematic Arrangement. Although Requestor incorporated numerous compliance safeguards, including written agreements, timekeeping requirements, qualitative performance evaluations, third-party fair market value analyses, and exclusions for certain physician-generated sales, those protections did not overcome the OIG’s concerns regarding the underlying compensation structure.
   5. Legitimate Consulting Arrangements Remain Permissible. Importantly, the OIG reaffirmed that bona fide physician consulting relationships continue to serve valuable purposes in the development, evaluation, and refinement of medical technology. The Opinion should therefore not be interpreted as discouraging legitimate consulting arrangements, but rather as emphasizing that such arrangements must be structured so that compensation does not directly or indirectly reward referrals or business generated by physician influence.

Conclusion and Limitations

Based upon the specific facts and certifications presented, the OIG concluded that the Arrangement would generate prohibited remuneration under the AKS and therefore constitute grounds for administrative sanctions if the requisite intent were present. In reaching this conclusion, the OIG determined that the Product Line Royalty methodology created financial incentives that could reward Consultants for business generated through their influence over product utilization and purchasing decisions, thereby presenting an unacceptable risk of fraud and abuse.

It is important to note that the Opinion is limited in scope to the specific Arrangement and is not to be relied upon by any person other than the Requestor. The Opinion is also subject to any additional limitations set forth at 42 C.F.R. Part 1008. While the Opinion may not be specifically relied upon for other arrangements, the Opinion provides meaningful insight for medical device manufacturers, physicians, and health care counsel by reinforcing that AKS compliance requires careful evaluation not only of the legitimacy of consulting services and the fair market value of compensation, but also of whether the compensation methodology itself creates incentives that may be viewed as rewarding referrals or business otherwise generated.

If you have any questions or if we may be of further assistance regarding compliance under the AKS or other health law matters, contact Lamb McErlane Health Law attorneys Bill Kalogredis, Esq. or Sonal Parekh, Esq.

Read the article on Law.com/Legal Intelligencer here.

[1] See Section 1128B(b) of the SSA.

[2] The OIG expressly declined to analyze or opine on the terms of the Product Development Agreements and existing arrangements.

[3] 42 U.S.C. § 1320a-7b(b).

[4] See 42 C.F.R. § 1001.952(d) and 42 C.F.R. § 1001.952(d)(1)(iv).

Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, veterinarians, and other health care professionals and their businesses as to contractual, regulatory and transactional matters for over 50 years. He is Chairman of Lamb McErlane PC’s Health Law Department. Bill can be reached by email at bkalogredis@lambmcerlane.com or by phone at 610-701-4402.

Sonal Parekh, Esq., is an associate at Lamb McErlane PC who focuses on health care transactional matters and a broad range of health care regulatory-related issues on behalf of health care systems, physicians, dentists, behavioral health providers, and other health care providers, and is a pharmacist by education and training. Sonal can be reached by email at sparekh@lambmcerlane.com or by phone at 610-701-4416.

*This article is for educational purposes only and is not intended to be legal advice. Should you require legal advice on this topic, any health care matter, or have any questions or concerns, please contact Vasilios J. (Bill) Kalogredis, Esq. or Sonal Parekh, Esq.