Medtech Advisory Opinion Highlights Scrutiny of Physician Product Line Royalty Arrangements

On May 13, 2026, the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG), issued Advisory Opinion 26-10, an unfavorable advisory opinion addressing a proposed “product line” royalty arrangement for consulting services between an orthopedic medical technology company and physicians. HHS-OIG concluded that the royalty compensation methodology under the proposed arrangement would not be sufficiently low risk under the federal Anti-Kickback Statute (AKS) to provide prospective immunity to the requestor through a favorable advisory opinion.

HHS-OIG’s main focus in the advisory opinion was on the proposal to pay the physician-consultants royalties tied to a percentage of sales across broad product lines. The Agency recognized, however, that medical device companies can, under appropriate circumstances, enter into consulting arrangements with physicians for bona fide services as well as royalty arrangements tied to specific product and IP contributions. 

The Proposed Arrangement

The requestor is an orthopedic medical technology company that develops, manufactures, and distributes implant and replacement products in multiple orthopedic specialties, including hip, knee, shoulder, spine, and sports medicine (each a “Product Line”). The requestor has existing written agreements with physicians under traditional product development agreements tied to the design, development, and evaluation of specific products.

Under the proposed arrangement, the physician consultants would be engaged to provide a broad range of consulting services relating to specified product lines. These services would include teaching, training, and proctoring related to the products within the applicable product line; reviewing and providing feedback on clinical results, designs, testing, and technologies; attending meetings concerning product design features and technologies; advising on strategic product line initiatives; and evaluating implants, instruments, and prototypes while providing written clinical assessments.

Under the proposal, the physician consultants would be required to satisfy minimum annual service-hour requirements and provide services at a satisfactory level as determined by an internal evaluation panel. Additionally, requestor certified that consultants would be required to submit time records certifying that the documentation of services does not reflect any time that is covered by a separate agreement involving the requestor and the physician. Consultants who failed to meet these requirements would receive only an hourly fair market value payment for documented services performed. However, consultants who satisfied the service requirements in an applicable quarter would receive a “Product Line Royalty” payment calculated as a percentage of the net invoice price for all products sold within the applicable product line for that quarter.

The requestor certified that if it were to receive a favorable advisory opinion, it would commission a third-party valuation expert to determine the fair market value royalty payment amount. The requestor also proposed excluding certain categories of sales from the royalty calculation — such as products used by the consultant in procedures or sold to facilities where the consultant practiced or held ownership interests. Under the arrangement, a physician consultant could receive royalty payments tied to products within the product line even where the consultant had not provided services in furtherance of the development of one or more of the products in the product line.

Notably, the requestor certified that it does not view the services under the arrangement as marketing or promotional activities intended to generate revenue, but the requestor was unable to certify that none of the services would contribute to the generation of revenue from the products. 

The Agency’s Analysis

As a threshold matter, HHS-OIG concluded that the proposed arrangement would not satisfy the elements of the AKS safe harbor for personal services and management contracts and outcomes-based payment arrangements. Specifically, HHS-OIG determined that the arrangement would fall outside of these safe harbors because the proposed royalty methodology for compensating the services would “take into account the volume or value of referrals or other business generated between the parties.”

In reaching this conclusion, HHS-OIG emphasized that the requestor could not certify that the consulting services would not contribute to generating revenue from the products and noted that the royalty payment calculation incorporated revenue resulting from physician recommendations to others. Specifically, HHS-OIG noted that notwithstanding the requestor’s certification that the Product Line Royalty payments would be fair market value and would not take into account the consultant’s referrals to the requestor, the Product Line Royalty payments could still financially motivate the consultants to recommend the requestor’s products. HHS-OIG noted the risk that consultants would recommend requestor’s products to others was heightened given the nature of the specific services that would be provided under the proposed arrangement (i.e., teaching, training, and proctoring). Accordingly, HHS-OIG concluded that the compensation methodology improperly took into account “business otherwise generated” between the parties.

In issuing the opinion, HHS-OIG also concluded that the proposed arrangement presents several other prudential risk factors, including skewed clinical decision making, patient steering, unfair competition, inappropriate utilization, and increased costs to Federal health care programs. 

Importantly, the opinion addresses only consulting and advisory arrangements with respect to broader product line performance that involve compensation based on product line royalties and does not address more traditional product royalty arrangements where a physician sells or licenses his or her rights to, or otherwise contributes, intellectual property to a medical device manufacturer to commercialize. The opinion also does not address standard physician consulting arrangements compensated on an hourly fee basis or other nonroyalty methodology.

While the opinion reiterates a number of HHS-OIG’s longstanding concerns regarding certain manufacturer payments to physicians in a position to influence product selection decisions, the agency expressly acknowledges that royalty payments and consulting arrangements may be designed such that they either satisfy a safe harbor or otherwise present low AKS risk.

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Like all advisory opinions, this opinion applies only to the specific requestor. However, it outlines the agency’s concerns with service arrangements that are compensated based on royalties that are tied to the performance of a broad product line and serves as a reminder that medtech companies should regularly review their compensation arrangements with physicians to assess defensibility and ensure they include appropriate safeguards.