OIG Issues Unfavorable Advisory Opinion on Royalty-Based Consulting Arrangement with Medical Device Manufacturer

The OIG found that the proposed arrangement would not satisfy an applicable safe harbor under the Federal Anti-Kickback Statute (AKS) and otherwise would pose unacceptable fraud and abuse risk. Specifically, the OIG determined that royalty payments could motivate consultants to recommend the manufacturer’s products over a competitor’s products even though the latter’s products may be more clinically appropriate, and royalty payments may actually be a payment-for-referrals scheme. Indeed, the manufacturer could not certify that the consultants’ services would not contribute to the generation of revenue from the products.

The OIG concluded that, generally, consulting arrangements may serve legitimate beneficial interests when structured in a way that does not encourage referrals. However, the proposed arrangement lacked appropriate safeguards against fraud and abuse risk and would be prohibited under the AKS if the requisite intent to induce referrals is present.