On May 18, 2026, the Office of Inspector General (“OIG”) issued Advisory Opinion No. 26-10, which concluded that a proposed royalty arrangement between an orthopedic medical technology company and its physician consultants could violate the Federal Anti-Kickback Statute (“AKS”), underscoring the OIG’s continued scrutiny of physician consulting arrangements with life sciences companies.
Proposed Arrangement
The requestor was a medical technology company that manufactures implant and replacement products in the orthopedic specialty areas. It proposed entering into consulting agreements with physicians who have expertise in those specialty areas and who purchase and use the requestor’s products in providing services to patients, including Federal health care program enrollees.
Under the arrangement, physician consultants would advise on an entire product line rather than a specific product and perform various services including teaching, training, reviewing clinical outcomes, attending product line meetings, advising on strategic initiatives, and evaluating product designs. Physicians who met a minimum number of hours per year and were deemed “royalty eligible” based on satisfactory performance by an evaluation panel would receive royalty payments based on a percentage of the net invoice price of all products sold within the applicable product line with certain exclusions.
To address potential compliance concerns, the requestor proposed excluding from the royalty payment calculation the sales of a product for use in medical procedures performed by the physician consultants or their immediate family members, sold to a hospital or other facility in which the physicians perform procedures or have an ownership interest, and for which the physician consultant already received a royalty under another agreement with the requestor. The requestor also certified that consultant compensation would be fair market value and would not be paid in exchange for referrals. While the requestor indicated that the consulting services were not marketing or promotional in nature, it could not certify that none of the services would contribute to revenue generation from the products.
OIG Analysis
While the OIG acknowledged that physician consulting arrangements can serve legitimate purposes when they provide specialized clinical or technical expertise, the OIG concluded that the proposed arrangement would involve prohibited remuneration under the AKS if the requisite intent were present.The OIG determined that the proposed arrangement was not protected by an AKS safe harbor.
The OIG also took a position that the compensation methodology would be calculated in a manner that took into account business generated between the parties because royalty payment calculation considered the purchases that potentially resulted from the physician consultants’ recommendations to other providers. According to the OIG, although the requestor would exclude certain sales of the products from the royalty payment calculation, the royalty payments would still incentivize loyalty to, and advocacy for, the products in a manner that could generate additional business for the requestor. The OIG observed that the royalty structure created financial incentives for consultants to favor the company’s products over competing products. The OIG also highlighted that teaching, training, and proctoring activities place consultants in positions to influence other providers’ purchasing and utilization decisions. The OIG concluded that the arrangement posed risks of skewed clinical decision-making, patient steering, inappropriate utilization, and increased costs to Federal health care programs.
Takeaways
OIG advisory opinions are not the law, are applicable only to the requestor, and technically cannot be relied on by others. Nevertheless, the OIG’s analysis in the advisory opinions provides important insights on the OIG’s views.
Advisory Opinion 26-10 highlights the OIG’s longstanding concerns regarding payments by device manufacturers to physicians in a position to influence the purchases of their products and indicates that compensation arrangements that vary with product sales can be subject to regulatory scrutiny. At the same time, the Advisory Opinion acknowledges that royalty payments and consulting arrangements are common in the medical device industry and that such arrangements may be structured in a manner to either satisfy an AKS safe harbor or otherwise present low risk under the AKS.
While physician consultants play an important role in product development and clinical innovation, this Advisory Opinion serves as a reminder that compensation structure with consulting physicians should be carefully analyzed from a regulatory perspective and structured to minimize compliance risks.
