8-26-25 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. 25-08 (“Opinion”) on July 1, 2025 regarding a proposed arrangement in which a medical device company (“Requestor”) would pay a third-party vendor (“Vendor”) to access a billing platform utilized by some of its customers (the “Proposed Arrangement”). Specifically, the Requestor inquired whether the Proposed Arrangement, as discussed below, would warrant sanctions under Section 1128(b)(7) or Section 1128A(a)(7) of the Social Security Act (“SSA”) as they relate to the federal Anti-Kickback Statute[1] (“AKS”).

The Opinion concludes that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS (if the requisite intent were present) and therefore would constitute grounds for administrative sanctions under Sections 1128A(a)(7) or 1128(b)(7) of the SSA.

Factual Background

The Requestor is a medical device company that supplies surgical products, including “bill-only” items, to hospitals, health systems, and ambulatory surgery centers (“Customers”). These “bill-only” devices are not part of a Customer’s standard inventory but are selected in real-time, often the day of surgery, by the operating surgeon. Some of the procedures using these items may be reimbursable by Federal health care programs.

Traditionally, the Requestor’s billing process involved coordination directly with the Customer: the Customer’s staff would record device usage, generate a purchase order, receive an invoice from the Requestor, and then issue payment. This process did not require the involvement of any third-party vendor. However, some Customers have engaged the Vendor to facilitate their purchasing of bill-only devices through an electronic billing platform (the “Bill-Only Portal”).

Under the Proposed Arrangement, the Requestor would pay the Vendor an annual licensing fee (approximately $395 per sales representative) to access the Bill-Only Portal. The Requestor estimated that, if implemented broadly, this would result in approximately $1.2 million in annual fees. The Requestor would not be a party to any agreements between Customers and the Vendor, and the Requestor would have no visibility into the specific amounts the Vendor charges Customers that use its services.

The Requestor indicated that it received no transparency into the pricing arrangements between the Vendor and Customers and could not certify that the proposed fees were commercially reasonable. Although the Vendor’s platform offers various services to Customers—such as data capture, purchase approval workflows, and routing of purchase orders—the Requestor certified that it would receive no direct benefits, acknowledging that the Vendor’s system would be redundant to its existing billing and invoicing processes, which it would continue to operate in parallel. The Requestor’s only incentive to use the Bill-Only Portal would be to avoid being excluded from Customers’ preferred vendor lists and to maintain its ability to sell devices to Customers that mandate Vendor participation as a condition of doing business.

The Law

1. Federal Anti-Kickback Statute.

The AKS[2] 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.

The statute includes certain safe harbors, including one for personal services and management contracts and outcomes-based payment arrangements (the “PSMC Safe Harbor”). To qualify, the arrangement must meet several criteria, including: the agreement must be in writing; services must be clearly specified; compensation must be set in advance and consistent with fair market value; and the services must not exceed those reasonably necessary for a legitimate business purpose.

Legal Analysis

The OIG concluded that the Proposed Arrangement implicates the AKS. Specifically, the Requestor’s payment to access the Bill-Only Portal—when that platform is used by Customers to purchase items reimbursable by Federal health care programs—constitutes remuneration that could induce such purchases.

Notably, the OIG emphasized that no safe harbor applied because the Requestor could not certify that the Vendor’s services were necessary to accomplish a commercially reasonable business purpose. Rather, the Requestor admitted that the Bill-Only Portal was duplicative of its own existing processes and that its only motivation to pay the Vendor was to preserve its business relationships.

Further, the OIG expressed concern that the Arrangement presented anti-competitive risks and could result in inappropriate steering. Because the Vendor’s system offered cost-saving benefits to Customers, the Requestor’s payment of licensing fees might provide indirect remuneration to induce Customers to purchase its products over competitors’ offerings.

The OIG highlighted that the Proposed Arrangement here does not serve a commercially reasonable business purpose for Requestor because the payments the Requestor would make to the Vendor appear to be for the purpose of accessing referrals from Customers that are the Vendor’s clients.

Conclusion and Limitations

The OIG concluded that the Proposed Arrangement, if undertaken, would generate prohibited remuneration under the AKS and constitute grounds for administrative sanctions under Sections 1128A(a)(7) or 1128(b)(7) of the Act.

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 reasoning stated therein is useful to keep in mind when considering different avenues in which to provide products, services, and incentives.

If you have any questions or if we may be of further assistance regarding compliance under the AKS or other health law matters, please feel free to contact Bill Kalogredis, Esq. or Sonal Parekh, Esq.

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

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

[2] 42 U.S.C. § 1320a-7b(b).

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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other healthcare 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 healthcare transactional matters and a broad range of healthcare regulatory-related issues on behalf of healthcare systems, physicians, dentists, and other healthcare 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.