When Customer Requirements Create Kickback Risk: Lessons From OIG Advisory Opinions 25-04 and 25-08

Introduction

In reviewing 2025 trends from advisory opinions issued by the Department of Health and Human Services’ Office of Inspector General (OIG), we identified two noteworthy opinions to medical device companies regarding an increasingly common scenario: customers, consisting of healthcare provider entities, requiring as a condition of doing business that companies engage specific third parties, at their cost, to facilitate routine billing or supplier qualification processes with the customer.

In both scenarios, OIG issued negative opinions, concluding that these arrangements would generate prohibited remuneration under the Anti-Kickback Statute (AKS) if the requisite intent were present, because the arrangements would provide financial benefits to sources of federal healthcare program business and create significant anti-competition and steering risks. These specific opinions address payments by medical device companies to third parties for exclusion screening services and access fees for billing portals used by the companies’ customers, but the opinions have broader implications for how life sciences companies and provider entities should evaluate AKS compliance in customer-required arrangements. This client alert analyzes these two advisory opinions and distills key compliance lessons for medical device companies, other types of life sciences companies and provider entities.

Advisory Opinions 25-04 and 25-08

In Advisory Opinion 25-04 (AO 25-04), a medical device company selling federally reimbursable items sought OIG’s opinion on a proposal to pay a third party to continually screen the company for exclusion from federal healthcare programs and compliance with other legal requirements, such as compliance with requirements of a particular Medicare Advantage plan. The company would pay the third party an annual subscription fee for each customer receiving the screening and monitoring reports. These customers — hospitals, health systems and ambulatory surgical systems — asked or required the arrangement as a condition of doing business.

Even though the arrangement was intended to otherwise meet recognized compliance obligations (i.e., exclusion screening), OIG concluded that the proposed arrangement implicated the AKS because it relieved customers of a financial burden they otherwise would bear to screen vendors for exclusion from federal healthcare programs.

OIG observed that no safe harbor protected the arrangement and concluded that the totality of the facts and circumstances was not sufficiently low risk and would result in prohibited remuneration, if the requisite intent were present. OIG’s primary concerns related to the arrangement’s anti-competition and steering risks; i.e., the arrangement could inappropriately steer customers to purchase federally reimbursable products from the company over competitors that do not enter into the arrangement.

In Advisory Opinion 25-08 (AO 25-08), a medical device company proposed to pay a third-party billing software company to access a billing platform used by its provider customers — hospitals, health systems and ambulatory surgical centers — to purchase “bill-only” surgical products from the company, which are products ordered in real time on the day of or shortly before a surgery. Under the proposal, the company’s representatives would access the third-party billing platform to process bill-only items for a customer. The company did not otherwise require this software as it had its own systems for generating invoices and securing payment from customers. Nevertheless, customers had begun requesting or requiring the company to use the platform, instead of the company’s typical process, as a condition of doing business. To enable its sales representatives to access the platform, the company would pay a fixed annual fee for each of the representatives. The company certified that its customers also pay to access the platform and that the third party had represented that the company’s payment amount would not influence or be used to offset customer fees.

OIG concluded that the proposed arrangement implicated the AKS for two separate reasons: First, the medical device company would pay fees to the third party to use a platform through which the third party would arrange for purchases of the company’s products; and second, the company’s agreement to use and pay for the portal would allow customers to use the portal to purchase the company’s products — a process that may result in cost savings to the customers, and therefore potentially prohibited remuneration.

Significantly, OIG found that the AKS’s safe harbor for personal services and management contracts (PSMC) did not protect the arrangement because it was not “commercially reasonable.” 42 C.F.R. § 1001.952(d). OIG noted that the portal was redundant to the company’s pre-existing billing systems and provided no appreciable benefits or services other than meeting the customer’s requirements to access its own selected systems.

Like in AO 25-04, OIG concluded that the arrangement presented significant anti-competition and inappropriate steering risks and therefore would generate prohibited remuneration under the AKS if the requisite intent were present, and it was not sufficiently low risk for a favorable opinion. OIG explained that customers may be steered to the company over competitors that do not use the billing software.

Compliance Lessons for Life Sciences Companies and Provider Entities

1. Customer Requests or Requirements May Be Prohibited ‘Remuneration’ Under the AKS

The AKS’ definition of “remuneration” is broad, and these opinions reinforce OIG’s longstanding position that “remuneration” to customers, including provider entities, that are ordering products which will be reimbursed by federal healthcare benefit programs includes payments to third parties that indirectly confer financial benefits to the customer — even when those benefits relate to other compliance aims (e.g., exclusion screening) or appear to provide efficient billing processes for the customer (e.g., billing portal). In each case, OIG viewed these payments as relieving costs that would otherwise be borne by the customer and hence constituted remuneration capable of inducing the purchase of federally reimbursable items or services.  Life sciences companies and providers should recognize that interposing a third-party vendor between a life sciences company selling federally reimbursable items or services and the customer does not eliminate remuneration when the third party’s service enables customer orders (e.g., preventing contracting with an excluded supplier or facilitating product orders and billing) and the company’s payment ultimately reduces the customer’s costs or obligations.

2. Customer-Required Third-Party Fee Arrangements May Enhance Anti-Competitive Effects and Steering Risks

A critical fact pattern in both opinions — that each customer requested a third-party fee arrangement as a condition of doing business — supported OIG’s concern that the arrangements raise the type of anti-competitive and steering concerns that elevate AKS risk. In OIG advisory opinions, OIG typically evaluates arrangements that implicate the AKS according to the risk of fraud and abuse presented and considers whether the arrangement may do any of the following: (i) interfere with or skew clinical decision-making, (ii) increase costs to federal healthcare programs, (iii) harm competition by disadvantaging companies that are unwilling to pay kickbacks or (iv) increase the risk of overutilization and inappropriate utilization. The “condition of doing business” dynamic in AO 25-04 and AO 25-08 implicated the competitive harm factor and the associated steering effects.  When customers condition product purchases on the manufacturer or seller paying fees that the customer might otherwise shoulder, , this creates competitive advantages favoring companies willing to pay the fees over competitors who decline such arrangements. OIG is concerned that customers will make purchasing decisions based on a company’s willingness to assume costs rather than the quality, price or clinical appropriateness of their products. Therefore, life sciences companies facing requests from customers for third-party fee arrangements as a condition of doing business should recognize that such arrangements may raise heightened concern for OIG if the customer is ordering items that will be reimbursed by federal healthcare benefit programs.

3. Commercial Reasonableness Analysis Under the Personal Services and Management Contracts Safe Harbor Requires Demonstrable Business Justification Beyond Customer Access

AO 25-08 provides important guidance on the PSMC safe harbor’s requirement that compensation for personal services and management contracts serves a “commercially reasonable purpose.” As noted earlier, OIG concluded that the PSMC did not apply because the medical device company in AO 25-08 could not certify that the arrangement served a commercially reasonable purpose, as the portal was redundant and provided no appreciable benefits or services other than enabling sales to customers that required use of the portal. This analysis reveals that when a service arrangement’s only justification is to access a customer’s business and does not otherwise provide reasonable value, the arrangement may not satisfy the safe harbor’s requirements.

Life sciences companies should be prepared to document specific, legitimate business justifications for third-party fee arrangements required by customers ordering products that will be reimbursed by federal healthcare benefit programs, recognizing that customer access may not satisfy safe harbor requirements. Life sciences companies should also note that the fixed nature of the fee per representative did not appear to resolve OIG’s concerns. Although OIG’s analysis did not link these fixed payments to the volume or value of the orders, the fixed nature of the payment also did not shield the arrangement from scrutiny as prohibited remuneration.

Conclusion

Both AOs 25-04 and 25-08 noted that, “there are myriad ways for parties to structure business arrangements to allocate responsibilities and there may be different fact patterns that would result in OIG reaching a favorable conclusion in an advisory opinion.” Accordingly, life sciences companies should carefully evaluate arrangements where customers require or condition the purchase of items reimbursed by federal healthcare programs upon arrangements that involve: (i) payment of fees to a third party, (ii) assumption of the customer’s obligations or (iii) use of a particular platform or service. Life sciences companies and provider entities should evaluate whether these arrangements indirectly confer financial benefits to the customer, such as by relieving them of a financial burden or generating significant cost savings for the customer. They should also proactively consider how to structure arrangements like these to satisfy every element of a potentially applicable safe harbor, including, as applicable, commercial reasonableness, and how to mitigate anti-competition, steering, or other fraud and abuse concerns.