Surgeon Consulting and Royalty Arrangements Under the AKS

Surgeon Consulting and Royalty Arrangements Under the AKS at a Glance

Surgeon consulting and royalty arrangements under the Anti-Kickback Statute (AKS) are subject to strict scrutiny due to the risk of inducing referrals for items or services payable by federal health care programs. These arrangements must be carefully structured to avoid violating the AKS, which prohibits remuneration intended to influence referrals. Safe harbor protections, such as those for investment interests and personal services, may provide some relief, but they are narrowly defined and require adherence to specific conditions.

The Legal Framework

The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), is a cornerstone of federal health care fraud law. It makes it a felony to knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward referrals of items or services payable by a federal health care program. The statute carries severe penalties, including fines of not more than $100,000 or imprisonment of not more than 10 years, or both.

The AKS includes specific safe harbors that may protect certain types of remuneration. These include, but are not limited to, 42 C.F.R. § 1001.952, which outlines safe harbor provisions for investment interests, space rental, equipment rental, personal services and management contracts, referral services, group purchasing organizations, and electronic health records items and services. These safe harbors are narrowly tailored and require compliance with specific requirements to qualify for protection.

Enforcement and Cases

Enforcement of the AKS has included high-profile cases involving surgeon consulting and royalty arrangements. In United States v. Greber, 760 F.2d 68 (3d Cir. 1985), the Third Circuit held that if payments were intended to induce a physician to use the payor's services, the AKS is violated even if the payments were also intended to compensate for legitimate professional services (the one-purpose test). This principle has been applied to device-maker payments to surgeons, which are measured by the one-purpose test and the discount safe harbor (h).

Recent enforcement actions illustrate the risks of improper royalty arrangements. In 2021, Arthrex Inc. paid $16 million to resolve allegations it paid a Colorado orthopedic surgeon millions in sham royalty payments for product development that were actually intended to induce the surgeon's use and recommendation of Arthrex devices. Similarly, in 2020, Medtronic USA Inc. paid over $9.2 million ($8.1 million federal plus $1.11 million in Open Payments reporting) to resolve allegations it paid for more than 100 social events, including meals and alcohol at a restaurant owned by neurosurgeon Wilson Asfora, falsely reported as educational events, to induce his use of Medtronic devices.

The Federal Overlay

The federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), makes it a felony to knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward referrals of items or services payable by a federal health care program. The Stark Law, 42 U.S.C. § 1395nn, separately prohibits physician self-referrals for designated health services payable by Medicare or Medicaid, on strict-liability terms. Both regimes carry safe harbors and exceptions published at 42 C.F.R. § 1001.952. State referral and fee-splitting statutes operate alongside these federal prohibitions and can apply even where no federal program payment is involved.

Reading the Research Desk

For further exploration of related topics, visit /practice-areas/ for an overview of AKS Defense Research Topics, /the-anti-kickback-statute-explained-why-referral-payments-trigger-scrutiny/ for an in-depth explanation of the AKS, /safe-harbors-under-the-anti-kickback-statute-and-where-providers-get-tripped-up/ for a detailed analysis of safe harbors, /aks-and-stark-law-how-the-two-regimes-overlap-in-healthcare-investigations/ for an analysis of the overlap between AKS and Stark Law, /recent-antikickback-statute-decisions/ for recent decisions, and /faq/ for frequently asked questions.