The Department of Health and Human Services Office of Inspector General (OIG) recently released Advisory Opinion 25-04, concluding that a medical device manufacturer’s proposal to pay for third-party compliance screening and monitoring services required or requested by its hospital and surgery center customers could violate the federal Anti-Kickback Statute (AKS) if the requisite intent were present.

Under the proposed arrangement, the manufacturer would engage a third-party company to conduct compliance screening and monitoring, including initial and ongoing screenings for exclusion from Federal health care programs and evaluating the manufacturer’s compliance with other legal requirements, such as compliance with Medicare Advantage plan requirements. In exchange for these services, the manufacturer would pay the company an annual subscription fee on a per-customer basis for each customer that requested to receive the monitoring reports. The manufacturer estimated that, based on its existing customer base, it would pay approximately $450,000 in fees annually to the company.  

OIG concluded that the proposed arrangement implicates the AKS and does not satisfy a safe harbor. Based on its facts and circumstances analysis, and acknowledging that there may be ways to structure such an arrangement that would not raise the same concerns, OIG concluded that the payment by the manufacturer to the company for these services, which are services the manufacturer’s customers would otherwise have to obtain, was not low risk enough for OIG to issue a favorable opinion. OIG’s decision reinforces its longstanding position that when a manufacturer or other party pays for a service that relieves a health care provider of a duty or financial obligation the provider otherwise would have to satisfy, that payment may constitute prohibited remuneration under the AKS.

OIG’s Analysis

The AKS prohibits offering or receiving remuneration to induce referrals for items or services reimbursable by federal healthcare programs. OIG has confirmed that any free services that relieve a health care provider of an obligation will be considered remuneration and likely implicate the AKS, even if a third party provides the service, because the manufacturer is paying for it and it otherwise would be an obligation of the health care provider. See, e.g., OIG Special Fraud Alert: Arrangements for the Provision of Clinical Laboratory Services (Oct. 1994) (highlighting anti-kickback risk where laboratory-provided phlebotomist performs activities that are normally the responsibility of physician office staff).

Typically, health care providers (e.g., the manufacturer’s customers) are responsible for screening vendors to avoid doing business with excluded entities and for verifying compliance with applicable legal requirements. See 42 C.F.R. § 1001.1901(b).

Under the proposed arrangement, the company’s performance of the monitoring and screening function alleviates the health care providers’ responsibility to complete those services. Because the manufacturer would pay for the costs associated with the company’s screening and monitoring, rather than the customers covering those costs, the OIG concluded that the manufacturer would be satisfying the financial burden that otherwise would be incurred by the health care providers and, thus, could induce the customers to refer federal health care program business to the manufacturer. OIG confirmed that the proposed arrangement implicates the AKS, even when the service is provided by a third party, as the manufacturer would still fund the benefit on behalf of its customers.

In addition, OIG expressed concern that the screening vendor could function as a “gatekeeper,” with health care providers, potentially conditioning their business on manufacturers’ agreement to engage the vendor and pay these fees. This dynamic could create unfair competition and incentivize health care providers to favor manufacturers willing to absorb these compliance-related costs. While OIG acknowledged that alternative structures for allocating responsibilities might receive a favorable opinion, it ultimately issued an unfavorable decision here, finding that this proposed arrangement presented more than minimal risk and would generate prohibited remuneration under the AKS if the requisite intent were present.

Key Takeaways

• Paying for health care providers’ responsibilities can trigger AKS risk. OIG reaffirmed the longstanding principle that when manufacturers relieve health care providers of an obligation for which the provider is responsible, that relief may constitute prohibited remuneration under the AKS – even where the service is delivered by a third party. The manufacturer’s funding of the service is sufficient to implicate the statute.
• Vendors acting as “gatekeepers” raise red flags. OIG cautioned that health care providers might condition their business on whether a manufacturer pays these fees, creating both anti-competitive dynamics and referral risks.
• Per-customer payment structures bring heightened risk. The individualized nature of this payment structure appears to be central to OIG’s concern, with the structure itself posing a greater risk than the total dollar amount. That is, the manufacturer would be responsible for a higher annual subscription fee depending solely on the number of customers that requested the screening and monitoring services.
• Reliance on opinion. While OIG advisory opinions only bind the requesting party, this opinion reinforces OIG’s position that manufacturers should not provide “free” services that shift responsibilities to themselves in a way that could induce referrals. Careful structuring of such arrangements remains critical to AKS compliance. Of note, OIG has the ability to withdraw advisory opinions during the drafting process, suggesting that this opinion was sought by the manufacturer as a business tactic to mitigate the substantial third-party vendor fees required by certain of its customers.

Reed Smith will continue to monitor developments in federal fraud and abuse enforcement and OIG’s advisory opinions. If you have any questions about this advisory opinion or its implications, please contact the health care lawyers at Reed Smith.