Office Of Inspector General Highlights Flat Fee Structures Not Immune From Anti-Kickback Statute

Highlights

• The U.S. Department of Health and Human Services Office of Inspector General (OIG) published Advisory Opinion 25-08 (Opinion) on July 7, 2025, highlighting the limitations of the often-leveraged Personal Services and Management Contracts Safe Harbor to the federal Anti-Kickback Statute, even when the remuneration in question is structured as a flat annual fee.
• The unfavorable Opinion relates to a proposed arrangement between a medical device company that sells surgical devices to hospitals, health systems and ambulatory surgical centers and a software vendor that facilitates the sale of the device.
• This Holland & Knight alert reviews the OIG Opinion and potential ramifications on this and similar proposed arrangements.

The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) published a new Advisory Opinion 25-08 (Opinion) on July 7, 2025, which highlights the limitations of the often-leveraged Personal Services and Management Contracts Safe Harbor to the federal Anti-Kickback Statute (AKS), even when the remuneration in question is structured as a flat annual fee.

The Opinion relates to a proposed arrangement between a medical device company that sells surgical devices to hospitals, health systems and ambulatory surgical centers (ASCs) and a software vendor that facilitates the sale of the device.

As further examined below, the Opinion serves as a reminder that when analyzing the facts and circumstances of a service arrangement under the AKS, the effect on competition among healthcare providers and overall commercial reasonableness of the arrangement must be taken into account, even when the compensation is set in advance and does not vary based on referrals or business generated.

Proposed Arrangement

Under the proposed arrangement, a medical device company that offers certain surgical devices to hospitals, health systems and ASCs proposed to enter into an arrangement with a software vendor. The vendor offers software that connects medical device companies with surgical providers who purchase the devices (e.g., hospitals, health systems and ASCs) and facilitates the purchasing process for the surgical providers.

The software offers many benefits to the purchasing surgical providers, such as capturing purchasing data, routing the bill to the appropriate personnel, securing approval of the bill and issuing purchase orders to the medical device companies – all of which results in savings for the surgical providers. The software vendor charges a separate unknown fee to the surgical providers in return for these services.

On the other hand, the Opinion notes that the software does not identify "any appreciable benefits or services" that the software vendor would offer the medical device manufacturers other than allowing the manufacturers to sell its products through the software. The medical device manufacturers would simply log in and submit invoices through the software and receive purchase orders without a tangible additional benefit. The Opinion notes that the medical device company already has a well-established accounts receivable process and the software is "redundant to the [device company's] existing activities and operations[.]"

Under the proposed arrangement, the medical device company would pay the software vendor a flat annual fee for each license (unique to each individual user) to be able to use the vendor's software. The OIG notes that although the per-license fee would be $395 per year, the aggregate fee would be around $1.2 million per year. Based on the Opinion, it does not appear that the fee would be contingent upon successful purchases of the manufacturer's products through the software.

OIG's Analysis

The OIG issued an unfavorable opinion regarding the proposed arrangement. First, the OIG notes that the proposed arrangement implicates the AKS because the medical device company would pay the vendor to use the software through which the vendor arranges for the sale of the company's medical devices to surgical providers. Moreover, the OIG notes that the AKS is further implicated because the medical device company's payment to the vendor and use of the software (rather than direct sales to the purchasers) allow surgical providers to purchase the devices while saving costs, which may constitute remuneration to the surgical providers in return for purchasing the medical devices.

Second, the OIG quickly, and without much rationale, states that the arrangement would not meet the Personal Services and Management Contracts Safe Harbor because the medical device company "cannot certify that the aggregate services contracted for would not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the service" in accordance with the safe harbor.¹ Notably, the OIG does not provide a rationale for why the device company could not certify to the reasonableness requirement.

Further, under a facts-and-circumstances analysis, the OIG notes, again, that the fees that the medical device company pays to the software vendor are for services that are "redundant" to the company's existing accounts receivable processes and personnel, and that the "substantial fees" to the vendor are part of their efforts to retain and potentially expand business from surgical providers who purchase medical devices through the software. In other words, the OIG views the payments to the software vendor as being "for the purpose of accessing referrals" from the surgical providers.

Finally, the OIG also analyzed the potential for anti-competitive behavior and the risks associated with inappropriate steering. The OIG concluded that because the software has real value to surgical providers who purchase devices through it, the payments made by the medical device company to the software vendor could inappropriately steer providers toward the medical device company, disadvantaging competitors who are not able or willing to pay these fees. Accordingly, the OIG held that the proposed arrangement is "not sufficiently low risk for the OIG to issue a favorable advisory opinion."

Takeaways

When structuring service arrangements under the AKS, parties that seek to minimize regulatory risks often utilize a flat fee structure when the services could, even arguably or optically, be viewed as generating business for the party paying the compensation. This is because one of the most important requirements under the Personal Services Safe Harbor and Management Contracts Safe Harbor (and many other relevant safe harbors) is that the service fee is "not determined in a manner that takes into account the volume of value of any referrals or business otherwise generated between the parties[.]"² By utilizing a flat fee rather than, for example, a per-click or percentage-of-revenue model, the parties can often ensure that the payment does not increase based on referrals or other business generated.

While this restriction still remains as one of the most important, the Opinion serves as a reminder that the analysis does not stop there, particularly where the fees could potentially be viewed as a "pay-to-play" type of arrangement that could impact competition among healthcare providers and suppliers.

The proposed arrangement does not appear to involve fees that would vary based on the value or volume of referrals; the medical device company would pay the same annual licensing fee for the software regardless of whether any, or how many, customers purchased the device company's products through the software. Nor does it appear to vary based on the total value of purchases by the customers of the devices through the software.

Notwithstanding, the Opinion highlights an independent requirement under the Personal Services and Management Contracts Safe Harbor – that the "aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services" (emphasis added). This often overlooked restriction requires parties to look at the overall service arrangement based on the nuanced and individualized facts and circumstances.

In the Opinion, the OIG repeatedly emphasizes that access to the software provides the medical device company no tangible benefits and that any capabilities of the software for the medical device company are "redundant." In other words, paying the vendor for access to the software confers no real benefit to the device company other than "the purpose of accessing referrals" from the surgical providers purchasing through the software. As such, the OIG concludes that "the Proposed Arrangement does not serve a commercially reasonable purpose for the [device company]."

Parties structuring service arrangements should always analyze the business purpose of the service arrangement holistically, regardless of the specific compensation structure. To minimize regulatory risk, parties should look at whether the services are in return for reasonable, bona fide services, other than the generation of business. Of course, whether a specific service and service arrangement could be viewed as reasonable remains an extremely fact-specific inquiry, because as the OIG notes in the Opinion, "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."

For more information or questions on this matter, please contact the author.

Footnotes

1. See 42 C.F.R. § 1001.952(d)(1(vi).

2. See 42 C.F.R. § 1001.952(d)(1(iv).