When a medical device manufacturer or supplier enters into negotiations with a hospital, physician practice, or other prospective customer for the sale of products or services, scores of terms and conditions are subject to negotiation, including those relating to pricing, invoicing, exclusivity or preferred status, payment due dates, penalties for late payments, delivery, maintenance, support, training, warranties, returns, restocking fees, limitations on liability, termination rights, and so on (collectively, Purchase Terms).
HHS-OIG recently issued two advisory opinions—No. 25-04 and No. 25-08—regarding several, somewhat novel, Purchase Terms. In each advisory opinion, HHS-OIG concluded that the Purchase Term at issue (i) constituted “remuneration” within the meaning of the AKS, (ii) did not fit within an AKS exception or safe harbor, and (iii) posed a material risk of federal health care program (FHCP) fraud and abuse, such that sanctions would be warranted if the requisite intent under the AKS were present. These advisory opinions suggest that the agency may be taking a closer look at Purchase Terms, particularly those that may be new to the marketplace.
BACKGROUND
HHS-OIG has not addressed the AKS implications of Purchase Terms in a comprehensive fashion. Instead, the agency has tackled this issue largely on an ad hoc basis through periodic rulemakings (e.g., the creation of safe harbors) and sub-regulatory guidance (e.g., the issuance of special fraud alerts and advisory opinions).
For example, the agency has taken the position that where a product is payable by an FHCP and a manufacturer offers a customer a price reduction (e.g., a discount or rebate) or a warranty in connection with the purchase of that product:
- the price reduction or warranty constitutes “remuneration”;
- that remuneration implicates the AKS because it is intended to “induce” the “purchase” or “order” of the product at issue;
- while the AKS is implicated, this remuneration can be protected if the requirements of the statutory exception or regulatory safe harbor for discounts or the regulatory safe harbor for warranties, as applicable, is satisfied;1 and
- even if these requirements cannot be met, it may be possible to structure the arrangement such that it poses a low risk of program abuse.2
Other than price reductions and warranties, however, HHS-OIG largely has been silent with respect to whether and how Purchase Terms may implicate or violate the AKS. For example, consider the following scenario:
- Hospital A and Hospital B are negotiating with Manufacturer for the purchase of Device X, which is covered by FHCPs.
- Hospital A, which is part of a regional, 25-hospital, for-profit health system and purchases hundreds of millions of dollars’ worth of medical equipment and supplies each year, negotiates a Net 60 payment term, a small restocking fee, and a liberal return policy.
- Hospital B, by contrast, is a 50-bed, rural, not-for-profit community hospital and purchases comparatively small volumes of equipment and supplies. As a result, Hospital B accepts Manufacturer’s Net 30 payment term, a larger restocking fee, and a more restrictive return policy.
Under these circumstances, do any of the more favorable Purchase Terms that Manufacturer offered to Hospital A constitute “remuneration”? If yes, is this “remuneration”—like the offer of a discount or warranty—intended to “induce” the “purchase” or “order” of Device X, such that the AKS would be implicated? If the AKS is implicated, what exception or safe harbor, if any, is available to protect these types of ubiquitous and seemingly innocuous Purchase Terms? If none, are there specific safeguards that could be implemented to reduce the potential risk of AKS enforcement?
Historically, given the dearth of HHS-OIG rulemaking and sub-regulatory guidance on the subject of Purchase Terms, most buyers and sellers have assumed that negotiating standard Purchase Terms—such as payment due dates, restocking fees, return policies, and the like—is an integral part of a bona fide arm’s length negotiation for the sale of goods or services and, as such, does not (i) result in the creation of “remuneration” that is separate and distinct from those good or services, (ii) implicate the AKS, or (iii) otherwise pose a material risk of FHCP abuse.
While HHS-OIG’s two recent advisory opinions do not directly challenge this assumption, they do show that there is a point at which a Purchase Term will, at least in the agency’s view, give rise to independent remuneration that can run afoul of the AKS. Unfortunately, however, the two opinions are not particularly helpful for industry members looking to determine which Purchase Terms fall on which side of HHS-OIG’s divide.
PROPOSED ARRANGEMENTS
Advisory Opinion No. 25-04
Advisory Opinion No. 25-04, which was issued on June 17, 2025, concerned a customer-favorable Purchase Term pertaining to exclusion screening and compliance monitoring (the Screening Term). Specifically, as a condition of doing business, certain customers—including hospitals, health systems, and ASCs—would require that the requestor, a medical device manufacturer, pay for a third-party vendor to screen and monitor the manufacturer (and presumably its workforce) for exclusion from participation in FHCPs (and, potentially, ensure the manufacturer’s compliance with certain other legal requirements). The vendor, at the direction of the manufacturer, would then issue a report to each customer with the results of these screening and monitoring activities.
Why would customers request or demand that the manufacturer pay for these screening and monitoring activities? FHCPs generally will not pay for items or services that have been furnished by an excluded individual or entity, and HHS-OIG may impose civil monetary penalties on providers that contract with (or employ) an excluded individual or entity.3 Due to those risks, providers often directly conduct, or engage a vendor to perform, screening and monitoring activities with respect to their contractors; the Screening Term simply shifted the cost of those activities to the contractor (in this case, the manufacturer).
Advisory Opinion No. 25-08
Advisory Opinion No. 25-08, which was issued on July 1, 2025, concerned a customer-favorable Purchase Term pertaining to billing software (the Billing Portal Term). Specifically, certain providers used a particular vendor’s software application (the Billing Portal) to facilitate their purchases of “bill only” items—i.e., items that are not part of a customer’s “regularly purchased inventory” but rather are “purchased in real time, such as when a surgeon is selecting the right size or component of a device to use during a surgery.” The Billing Portal was marketed as providing numerous benefits and services to providers (e.g., capturing relevant purchase data, checking data accuracy, routing bills to appropriate personnel for approval, etc.), which the vendor stated could result in cost-savings to providers.
As a condition of doing business, certain customers (including hospitals, health systems, and ASCs) would request or require that the requestor, a medical device company, use the vendor’s Billing Portal to fulfill the company’s orders, as opposed to going through the company’s standard billing processes. Under the proposed arrangement, the medical device company would pay the software vendor the licensing fees required for the company’s representatives to access the Billing Portal, even though the medical device company had its own separate billing processes and would be using the Billing Portal only to meet the customer’s request/demand.
Notably, the medical device company stated that it had not identified “any appreciable benefits or services” that it would receive by using the Billing Portal and that the only reason it would agree to the Billing Portal Term was “to retain and potentially expand business” from its provider customers. Indeed, the device company noted that it risked losing business in the absence of the Billing Portal Term. The device company certified that at least one of its provider customers removed the company from its preferred vendor list because the company objected to paying the licensing fees required to access the Billing Portal, and subsequently that customer put the requestor’s supply contract out to bid via a formal request for proposal. Finally, the medical device company stated that because it would continue to operate its own billing processes, it could not certify that the fees it would be charged to use the third-party Billing Portal were “commercially reasonable.”
HHS-OIG Analysis
In both advisory opinions, HHS-OIG concluded that the customer-favorable Purchase Terms at issue (i) constituted “remuneration” within the meaning of the AKS, (ii) could induce the purchase of products or services reimbursed by FHCPs, (iii) did not fit within an AKS exception or safe harbor, and (iv) posed a material risk of FHCP fraud and abuse, such that sanctions would be warranted if the requisite intent under the AKS were present.
Remuneration
In Advisory Opinion No. 25-04, HHS-OIG reasoned that the Screening Term constituted “remuneration” to the manufacturer’s customers because it would “relieve [c]ustomers of a financial burden they otherwise would bear for exclusion screening and monitoring and screening for compliance with certain other legal requirements.”
The agency reached the same conclusion in Advisory Opinion No. 25-08, reasoning that the Billing Portal Term “evidently has value” to customers, because (i) some customers “require use of the [Billing Portal] as a condition of doing business” and (ii) the Billing Portal is marketed as providing “cost savings” to providers.
Inducement
Having concluded that both Purchase Terms were remuneration, the agency quickly moved past the issue of inducement, noting that the remuneration “could” or “may” induce requestor’s customers to purchase products or services reimbursable by a FHCP.
ASK Exceptions and Safe Harbors
Having concluded that the Purchase Terms at issue constituted “remuneration” that could “induce” the “purchase” of covered products, the agency then concluded that no safe harbor applied to either Purchase Term.
Because the device company in Advisory Opinion No. 25-08 could not certify that the fees it would be charged to use the Billing Portal were commercially reasonable, HHS-OIG concluded that the arrangement could not qualify for protection under the AKS safe harbor for personal services and management contracts (Personal Services Safe Harbor).
HHS-OIG did not provide any explanation in Advisory Opinion No. 25-04 as to why the Screening Term failed to qualify for safe harbor protection. This lack of an explanation is frustrating given that the agency specifically discussed the Personal Services Safe Harbor in Advisory Opinion No. 25-08. It would have been useful to have the agency articulate why that safe harbor wasn’t a potential source of protection for the Screening Term (i.e., which of its conditions were not met).
Risk Analysis
Having concluded that safe harbor protection was not available with respect to either arrangement, HHS-OIG considered whether the Purchase Terms at issue implicated the AKS’s policy objectives in a meaningful way, such that the arrangements would pose a material risk of FHCP program abuse.
In both advisory opinions, HHS-OIG concluded that the Purchase Terms at issue posed “anti-competitive risks and risks of inappropriate steering.” Specifically, the payments to be made by each requestor pursuant to the applicable Purchase Term could “inappropriately steer” customers to the requestor over competitors who were unwilling or unable to pay for screening and monitoring services or the licensing fees required to access the Billing Portal. As a result, the agency concluded that each of the Purchase Terms would constitute grounds for sanctions if the requisite intent under the AKS were present.
Notably, in both advisory opinions, HHS-OIG acknowledged 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 [HHS-OIG] reaching a favorable conclusion in an advisory opinion.” Unfortunately, however, the agency did not indicate what those “different fact patterns” might be.
IMPLICATIONS
Advisory Opinions No. 25-04 and No. 25-08 are notable in that they suggest that HHS-OIG may be giving greater scrutiny to Purchase Terms that thus far may have gone unaddressed. Given that potential scrutiny, manufacturers, suppliers, and providers may wish to reexamine their Purchase Terms from an AKS perspective.
Frustratingly, both advisory opinions give buyers and sellers very little guidance with respect to (i) which negotiated Purchase Terms rise to the level of “remuneration” from a seller to buyer and (ii) for those that do, which Purchase Terms represent an “appropriate” allocation of responsibility and which rise to the level of “inappropriate” steering.
In both advisory opinions, HHS-OIG emphasized that the services being paid for by each requestor—i.e., the screening services and the Billing Portal license—were remuneration because they had value to the customer, but the same could be said for nearly all Purchase Terms. Hearkening back to our hypothetical above, for example, Net 60 payment terms clearly have greater time-value than Net 30 payment terms. Similarly, lower restocking fees will result in more cost savings to customers than higher restocking fees. Where exactly is the industry supposed to draw the line?
HHS-OIG also took issue with the Screening Term and Billing Portal Term on the grounds that agreeing to these Purchase Terms would give manufacturers/suppliers an edge over competitors who are unable or unwilling to offer those Purchase Terms to their customers. But, again, the same could be said for nearly all Purchase Terms. For example, all other things being equal, the fact that Manufacturer A offers a more liberal return policy than Manufacturer B is sure to make Manufacturer A more attractive to customers. Does that give rise to “inappropriate steering” for AKS purposes? Again, where is the line?
Ultimately, if HHS-OIG is going to insist on broadly interpreting virtually every element of the AKS—“refer,” “arrange for,” “recommend,” “remuneration,” and so on—then it owes it to the health care industry to provide thorough, clear, objective, broadly applicable, and legally enforceable rules, including rules relating to Purchase Terms. Until it does so, advisory opinions like No. 25-04 and No. 25-08 serve only to sow confusion and concern regarding the contours of the AKS and, in so doing, raise many more questions than they answer.
- HHS-OIG historically has taken the position that AKS regulatory safe harbors encompass all conduct covered by a corresponding AKS statutory exception, meaning that, in the agency’s view, an AKS statutory exception would not protect an arrangement that does fit squarely within a regulatory safe harbor. That said, at least some federal courts have disagreed with HHS-OIG’s position and held that AKS statutory exceptions and AKS regulatory safe harbors provide independent bases of defense under the AKS, at least with respect to the statutory exception and regulatory safe harbor for discounts. See e.g., US ex. rel. Schroeder v. Hutchinson Reg’l Med. Ctr., No. 17-2060-DDC-BGS (D. Kan. Sept. 26, 2024); United States v. Shaw, 106 F. Supp. 2d 103 (D. Mass. 2000).
↩︎ - For example, prior to HHS-OIG revising the safe harbor for warranties to protect warranties offered for a bundle of items, see 85 Fed. Reg. 77684 (Dec. 2, 2020), HHS-OIG issued an advisory opinion concluding that (i) a warranty offered by a manufacturer for a bundle of products used for knee and hip replacements did not fit within the safe harbor, as then in effect, but (ii) due to specific safeguards included in the arrangement, the warranty nonetheless posed a low risk of FHCP fraud and abuse. See HHS-OIG, Advisory Opinion No. 18-10 (Sept. 10, 2018).
↩︎ - See 42 U.S.C. § 1320a-7a(a)(6). ↩︎
