OIG Advisory Opinion 25-09: Careful and Intentional Structure Yields Positive Results for Physician-Owned Entity

The Proposed Arrangement

On August 7, 2025, the OIG issued Advisory Opinion 25-09.¹ In this instance, the Requestor was a medical device developer, manufacturer, and seller of certain medical devices related to emergency stroke treatment. The Requestor’s investors included physicians (including those who were in a position to order or recommend the devices) and non-physicians/non-referral sources. The creator of the devices was also a physician-investor. The Requestor sold its devices to physician investors, as well as unaffiliated parties. The proposed arrangement implicates the federal Anti-Kickback Statute (“AKS”) because the physician-investors held an ownership interest in the Requestor that could result in profit distributions. The physician-investors could also purchase the devices and were able to make or influence referrals or otherwise generate business for the Requestor that would be reimbursed by a federal healthcare program. On its face, these initial facts form the foundation for the OIG’s focus, as highlighted in its 2013 Special Fraud Alert on Physician-Owned Entities.

The OIG has long-held concerns about physician-owned entities that develop, manufacture, and sell medical devices. The scrutiny is further heighted when the same physician-investors in such an entity are also material customers (buyers) of the devices produced by the entity. The 2013 Special Fraud Alert on Physician-Owned Entities remains the lens the OIG uses: arrangements that select investors for their referral potentials, require divestiture tied to referrals/practice status, or deliver outsized returns are “inherently suspect.”

Analysis

The Requestor sought an opinion from the OIG to determine whether the arrangement would constitute grounds for sanction under section 1128(b) of the Social Security Act (the “Act”) or civil monetary penalties under section 1128A(a)(7) of the Act, related to the commission of acts described in section 1128B(b) of the Act (the federal Anti-Kickback Statute). The AKS prohibits offering, paying, soliciting, or receiving remuneration to induce referrals or the ordering of items reimbursable by federal programs. Even if one purpose is to induce referrals, the AKS can be implicated. There are several statutory exceptions to the AKS, as well as multiple safe harbors. An arrangement that satisfies all of the elements of an applicable safe harbor would not be treated as a violation of the Act. Under the facts presented by the Requestor, the small entity investment safe harbor at 42 CFR § 1001.952(a)(2) was applicable. The small entity investment safe harbor has eight elements – each of which must be satisfied for the safe harbor to be applicable – and generally addresses the following three components:

• Investor test: ≤40% of each class of investment interests may be held by investors in a position to generate business for the entity;
• Revenue test: ≤40% of gross revenue may come from business generated by investors; and
• Investment-offer test: Investment terms cannot relate to previous/expected volume of referrals.

The Requestor certified specific facts of the proposed arrangement that satisfied each of the eight requirements²:

1. No more than 40% of the value of the investment interests of each class of investment interests may be held in the previous fiscal year or previous 12-month period by investors who are in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity. The Requestor certified that physician-owners comprised 35% of the Requestor’s ownership and that no other owners were in a position to make or influence referrals to or furnish items or services to or otherwise generate business for the Requestor.
2. The terms on which an investment interest is offered to a passive investor, if any, who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity must be no different from the terms offered to other passive investors. The Requestor certified that the terms offered to an investor in such a position were no different than those terms offered to any other passive investors.
3. The terms on which an investment interest is offered to an investor who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity must not be related to the previous or expected volume of referrals, items or services furnished, or the amount of business otherwise generated from that investor to the entity. The Requestor certified that the terms offered to an investor in such a position were unrelated to prior or expected volume or other business generated by that investor.
4. There is no requirement that a passive investor, if any, make referrals to, be in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity as a condition for remaining as an investor. The Requestor certified that there was no requirement that a passive investor make or be in a position to make or influence such referrals for services, items or other business.
5. The entity or any investor must not market or furnish the entity’s items or services (or those of another entity as part of a cross-referral agreement) to passive investors differently than to non-investors. The Requestor certified that there were no such cross-referral arrangements.
6. No more than 40% of the entity’s gross revenue related to the furnishing of healthcare items and services in the previous fiscal year or previous 12-month period may come from referrals or business otherwise generated from investors. The Requestor certified that no more than 40% of the Requestor’s gross revenue would come from referrals or other business generated by investors.
7. The entity or any investor (or other individual or entity acting on behalf of the entity or any investor in the entity) must not loan funds to or guarantee a loan for an investor who is in a position to make or influence referrals to, furnish items or services to, or otherwise generate business for the entity if the investor uses any part of such loan to obtain the investment interest. The Requestor certified that there were no such loans or guarantees.
8. The amount of payment to an investor in return for the investment interest must be directly proportional to the amount of the capital investment (including the fair market value of any pre-operational services rendered) of that investor. The Requestor certified that if there were payments to an investor for the investor’s ownership interest, such would be directly proportional to the amount of capital investment by that investor.

Based on the facts presented by the arrangement and the certifications made by the Requestor, the OIG concluded that the arrangement was protected by the small entity investment safe harbor at 42 CFR § 1001.952(a)(2). The arrangement would not generate prohibited remuneration under the AKS.

The 2013 Special Fraud Alert Lens and AO 25-09

The 2013 Special Fraud Alert identified physician-owned entities that sell, or arrange for the sale of, implantable medical devices to be “inherently suspect” under the AKS, especially when they exhibit these risk factors:

• Selecting investors because they are in a position to generate substantial business;
• Requiring divestiture when a physician ceases practicing or reduces referrals;
• Distributing extraordinary returns compared to the risk;
• Coercive/steering behavior toward hospitals/ASCs (threats to move cases, exclusivity demands);
• Physicians are the sole or primary users of the devices.

AO 25-09 addresses each point head-on: bona fide manufacturing operations, broad customer base, relatively low revenue from owner-physicians, no coercion, no exclusivity, no divest/repurchase triggers, pro rata distributions, and robust disclosures. OIG found the arrangement did not raise the Special Fraud Alert’s concerns because this arrangement was protected by the small entity investment safe harbor.

Practical Compliance Takeaways

1. If you are a physician-owned device company (or advising one):

• Operate as a real manufacturer with independent demand; being a distributorship (“POD”) triggers the sharpest scrutiny.
• Seek to minimize owner-driven revenue and trend down as non-owner customers grow.
• Use distribution carve-outs to neutralize profits on the owners’ own orders; pay pro rata otherwise.
• Avoid coercive tactics (no threats to move cases, no exclusivity asks) and disclose interests to patients and facilities.
• Never tie ownership, repurchase, or divestiture to referral levels or practice status.

2. If you are structuring a facility/provider JV:

• Be cautious when most revenue comes from the investor’s affiliates and when the manager runs the entire operation — this is the contractual JV pattern OIG has warned against in other contexts.
• If you cannot squarely meet the small entity investment safe harbor (investor, revenue, investment-offer tests), the residual risk rises very quickly.

[1] Advisory Opinion No. 25-09 (Dep’t of Health and Human Services Office of Inspector Gen. Aug. 7, 2025).

[2] 42 C.F.R. § 1001.952(a)(2).