OIG Scrutinizes Physician Royalty Arrangements With Device Manufacturers

On May 13, 2026, the Office of Inspector General (“OIG”) issued an unfavorable advisory opinion involving an orthopedic device manufacturer’s proposal to pay physician consultants “royalties” tied to a percentage of sales across broad product lines. While the device manufacturer certified these “royalties” would specifically exclude certain referrals, as discussed below, the OIG concluded the arrangement would nonetheless violate the federal Anti-Kickback Statute (“AKS”) if the required intent were present because the physicians would be paid based, at least in part, on sales of products they were in a position to influence.

For device manufacturers, the main point is straightforward: the OIG’s recent opinion does not state physician consulting is off limits or that royalty arrangements are always improper. OIG acknowledged that royalty payments and consulting arrangements are “common in the medical device industry” and can be structured to fit a safe harbor or otherwise present low AKS risk. OIG also recognized that physician consulting can serve “legitimate and beneficial purposes” when physicians provide specialized clinical or technical expertise to help companies develop, evaluate, and refine medical technology. But OIG paired that recognition with a warning: it has “longstanding and continuing concerns regarding payments by device manufacturers to physicians in a position to influence the purchases of their products.”

Here, the manufacturer proposed to contract with physician consultants to help with training, product feedback, design review, proctoring, strategic input, and other services for orthopedic product lines, including hips, knees, shoulders, spine, and sports medicine. The manufacturer said the consultants would perform real work, and OIG acknowledged that physician expertise can help medical technology companies improve their products. The manufacturer did not view the services “as marketing or promotional activities intended to generate revenue . . . .”

The problem for the OIG was how the manufacturer wanted to pay the physician consultants. If a physician consultant met certain thresholds, including a minimum number of hours worked and satisfactory performance, the consultant could receive a “royalty” equal to a specified percentage of the net invoice price for all products sold within the applicable product line. The manufacturer proposed to exclude certain sales, including products used in procedures performed by the physician consultant and certain sales tied to facilities where the consultant performed procedures or had an ownership interest. If the physician consultant did not meet the minimum requirements, the manufacturer would instead pay an hourly rate for documented services. OIG focused on the royalty portion of the payment structure.

OIG was especially concerned that the royalty could apply to products beyond the specific items the physician helped develop. In other words, a physician could help with part of a product line and then be paid based on broader sales within that line. OIG found that structure could take into account the volume or value of business generated between the parties because the royalty payments could “incentivize loyalty to—and advocacy for—” the manufacturer’s products in a way that could generate additional business for the manufacturer.

A physician receiving product-line royalties may have a financial reason to favor that company’s products, encourage others to use them, train others on them, or build loyalty around them. OIG also pointed to risks such as patient steering, unfair competition, inappropriate utilization, and increased federal program costs. Based upon the “presence of these risks”, the OIG concluded the proposed payments “may actually be a payment-for-referrals scheme . . . .”

The practical lesson for device manufacturers is not to avoid seeking the help of physicians in developing their products, but to structure such physician arrangements carefully with applicable AKS safe harbors in mind. Keep consulting work tied to real, documented services paid at fair market value for the work actually performed by the physician. Be cautious with broad product-line royalties, especially when the consultant can influence use. Define the work clearly, document the business need, exclude sales that create obvious referral concerns, and have counsel review any proposed percentage compensation before launch.

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