Physician Consulting Arrangements with Life Sciences Companies: Recent Enforcement and Compliance Strategies
Physician consultants play an important role in the life sciences industry. Pharmaceutical and medical device companies rely on physicians’ clinical expertise to inform product development, regulatory strategy, and clinical education. However, arrangements between life sciences companies and health care professionals can raise significant concerns under health care fraud and abuse laws and other regulatory requirements, and recent enforcement actions confirm that regulators are paying close attention.
This article outlines the applicable legal requirements, enforcement trends, common compliance pitfalls, and practical steps life sciences companies and consultants should take to structure consulting arrangements to mitigate risk.
NOTE: This article refers generally to “physician” consultants, but many of the risks discussed below (with the exception of the Stark Law) are not limited to physicians and can extend to arrangements with other health care professionals as well, including physician assistants, nurses, and pharmacists.
Role of Physician Consultants in the Life Sciences Industry
Life sciences companies engage physician consultants in a variety of roles across the product development life cycle. Consultants typically have specialized expertise related to a company’s products and may serve on advisory boards, conduct clinical research, offer protocol input, participate in speaker programs, advise on product development, or provide medical education. Companies compensate physician consultants in a variety of ways, including hourly rates, daily or monthly stipends, project-based fees, royalty grants, equity interests, stock options, or non-monetary compensation, such as meals and entertainment.
Consulting arrangements can serve legitimate and beneficial purposes, but they also present heightened fraud and abuse risk because they often involve payments to physicians who are in a position to prescribe, purchase, recommend, or influence the use of a company’s products. Accordingly, these relationships should be carefully reviewed and structured to address regulatory risk.
Applicable Laws and Regulatory Requirements
Several overlapping federal and state laws apply to physician consulting arrangements and shape the legal landscape in this area:
Federal Anti-Kickback Statute: The federal anti-kickback statute (“AKS”) makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive “remuneration” to induce referrals of items or services reimbursable by a federal health care program. “Remuneration” is broadly defined to include anything of value, whether provided directly or indirectly, covertly or overtly, in cash or in kind. If even one purpose of a payment is to induce a referral, the payment violates the AKS. Violations carry severe penalties, including fines up to $100,000, imprisonment up to 10 years, and exclusion from federal health care programs. AKS safe harbors can protect arrangements from enforcement risk, although failure to meet a safe harbor does not automatically make an arrangement illegal.
The Physician Self-Referral Law (Stark Law): The federal Stark Law prohibits a physician from referring designated health services payable by Medicare to an entity with which the physician has a direct or indirect financial relationship, unless an exception applies. Unlike the AKS, Stark is a strict liability law. This means that if Stark applies and no exception is met, the arrangement may violate the law regardless of the parties’ intent. Penalties for violating Stark include denial of payment, refund of payment, a $15,000 per-service civil monetary penalty, and a $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme.
State Fraud and Abuse Laws: Many states have state-level counterparts to the federal fraud and abuse laws, creating additional exposure for life sciences companies and physicians in such states. Some of these laws apply broadly and are not limited to arrangements involving government health care programs, so it is important to understand the applicable state law requirements in each jurisdiction where the parties operate. See our previous article discussing state fraud and abuse laws in Minnesota.
Federal and State Transparency Reporting Laws: The federal Physician Payments Sunshine Act requires manufacturers of drugs, devices, biologicals, and medical supplies to report annually to the Centers for Medicare and Medicaid Services (“CMS”) payments made to certain health care professionals and teaching hospitals through CMS’s Open Payments Program. It also requires disclosure of physician ownership or investment interests in these companies. Although the Sunshine Act does not prohibit payments or restrict industry-physician arrangements, the reported information is publicly available through the Open Payments website and can be used by regulators, whistleblowers, and the media (see enforcement section below). Several states also have transparency reporting requirements or laws that prohibit or limit gifts, payments, or other transfers of value from pharmaceutical or device companies to health care professionals, which can be implicated by consulting arrangements
OIG Guidance: The U.S. Department of Health and Human Services Office of Inspector General (“OIG”) Compliance Program Guidance for pharmaceutical manufacturers identifies several suspect practices, including compensating physicians as “consultants” for passive attendance at meetings and tying compensation to marketing or sales activities. OIG advises manufacturers to structure services arrangements to comply with an AKS safe harbor whenever possible. More recently, the OIG’s 2020 Special Fraud Alert on speaker programs identified “inherent fraud and abuse risks” associated with speaker programs, including sales or marketing involvement in selecting physician speakers or attendees based on past or expected revenue, and compensation to speakers that exceeds fair market value (“FMV”) or that takes into account the volume or value of past or future business.
Impermissible consulting arrangements create significant risk for life sciences companies under the above statutory and regulatory requirements. Physicians who enter into such arrangements may also face exposure, including exclusion from federal health care programs, personal settlements, and, in some cases, criminal liability, as reflected in the SpineFrontier, Inc. case below.
OIG Advisory Opinion 26‑10
In May 2026, OIG issued Advisory Opinion 26‑10 evaluating consulting arrangements proposed by an orthopedic device manufacturer. The manufacturer intended to enter into agreements with physician consultants who purchased and used the manufacturer’s products. The consultants would advise on the company’s product line and perform services such as training, teaching, reviewing clinical outcomes, advising on strategic initiatives, and evaluating product designs.
Under the proposed arrangement, a panel would evaluate the consultants’ services each quarter to determine whether they met certain performance standards. Consultants who did not meet those standards would be paid an hourly FMV rate. Consultants who did meet the standards would receive quarterly “royalty” payments equal to a specified percentage of product line sales. The manufacturer would exclude certain sales from the royalty calculation[1] and intended to engage a third-party valuation consultant to confirm that the royalty payment amount would be consistent with FMV.
Despite the excluded sales and proposed FMV certification, the OIG concluded that the arrangement was not sufficiently low risk under the AKS to warrant a favorable advisory opinion. OIG based its determination on the following factors:
The arrangement presented risks of skewed clinical decision-making, patient steering, unfair competition, inappropriate utilization, and increased costs to federal health care programs;
The royalty payments would incentivize loyalty to, and advocacy for, the manufacturer’s products in a manner that could generate additional business for the manufacturer; and
The royalty structure would incentivize consultants to favor the manufacturer’s products and place the consultants in a position to influence other providers’ purchasing decisions.
This opinion underscores that even FMV-based compensation arrangements may raise AKS concerns when payments are tied, directly or indirectly, to business generated between the parties.
Recent Enforcement Trends
As reflected in Advisory Opinion 26-10, physician consulting arrangements with life sciences companies continue to draw scrutiny from regulators. Recent settlements further illustrate the enforcement risks associated with such relationships:
Innovasis, Inc. (May 2024): Innovasis, Inc., a spinal device manufacturer, along with its founder and CFO personally, agreed to pay $12 million to resolve allegations that the company paid kickbacks to several orthopedic surgeons and neurosurgeons to induce use of its devices. The government alleged that consulting fees were paid “far in excess of fair market value” and, in some instances, for consulting work that was never performed. Additional alleged inducements included above-market payments for intellectual property licensing, performance shares in the company, and luxury trips and dinners for surgeons and their families.
SpineFrontier, Inc. (2020–2025): DOJ alleged that SpineFrontier, Inc., a spine device manufacturer, funneled more than $8 million in kickbacks to surgeons through a sham consulting entity. The company allegedly paid surgeons for “consulting” hours tied to use of company devices rather than work performed for product evaluations. Five surgeons settled individually for amounts ranging from $105,000 to $487,000, and criminal charges were brought against the company’s CEO and CFO. The CEO ultimately pleaded guilty in 2025 to false reporting to the Open Payments Program after instructing employees to report a payment to a surgeon as a “consulting fee,” even though the surgeon had not actually performed consulting work for the payment.
Veloxis Pharmaceuticals (August 2026): Veloxis Pharmaceuticals Inc. agreed to pay over $46 million to resolve criminal and civil kickback allegations involving a kidney transplant immunosuppression drug. The company entered a deferred prosecution agreement, paying a $10 million criminal penalty, and also resolved civil False Claims Act allegations for $34.45 million and Open Payments allegations for a $1.55 million civil penalty. Among other alleged conduct, Veloxis entered into consulting agreements with transplant surgeons, nephrologists, and pharmacists and paid more than $800,000 in consulting fees and related expenses for consulting work that was not actually performed, while also providing lavish meals, alcohol, and resort stays to induce prescriptions. Veloxis admitted it concealed the scheme by falsifying expense reports to minimize apparent per-attendee costs and omit physicians from Sunshine Act reporting.
Cases such as those above often originate from whistleblower (qui tam) complaints. However, regulators are also increasingly using data analytics to identify correlations between payments to physicians and prescribing patterns. As noted above, the Open Payments database provides a robust source of information that regulators and whistleblowers can use to identify potentially problematic relationships between health care professionals and industry. In addition, as reflected in the Veloxis case, because consulting arrangements typically must be reported to Open Payments, non-compliant arrangements can trigger Open Payments penalties in addition to other criminal and civil penalties described above.
Common Compliance Pitfalls
The regulatory framework and enforcement actions discussed above highlight several common features of physician consulting arrangements that present significant compliance risks. Some of the primary risks include the following:
Lack of a well-drafted consulting agreement that meets an AKS safe harbor (and Stark exception, if applicable).
Physician compensation that is not FMV or is otherwise out of line with the scope of services provided.
Having no documented business need for the physician’s involvement, creating the appearance of “sham” consulting arrangements.
Selecting physician consultants based on factors such as prescribing volume, influence over other practitioners, or loyalty to the company.
Lack of documentation relating to the services performed, including details regarding activities, hours, and deliverables.
Providing non-monetary compensation or “perks” that are excessive, lavish, or otherwise unrelated to the consulting purpose.
Sales or marketing involvement in the selection of physician consultants based on past or projected revenue/referrals.
Compensation structures that take into account the volume or value of past or future business, even if indirectly.
Recommendations for Structuring Arrangements
Clearly Define Consulting Relationship Terms in Written Agreements: Companies and consultants should execute a written agreement that identifies the scope of services, compensation terms, performance conditions, representations, and regulatory protections. The services should be well defined, and the agreement should accurately reflect the business need for the consultant’s role. Contracts should address potential conflicts of interest and disclosures required under transparency laws or institutional conflict of interest policies.
Structure Consulting Agreements to Fit Within a Safe Harbor: Consulting arrangements should be structured to fit within an AKS safe harbor and, if applicable, a Stark exception. The personal services safe harbor is most frequently used for these arrangements and requires, in part, that the compensation methodology is set in advance, consistent with FMV, and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties for which payment may be made in whole or in part under federal health care programs. Companies should also consider state-level counterparts to determine whether additional safeguards may be needed.
Structure Compensation to Reflect FMV: Compensation should reflect FMV and be commercially reasonable for the services actually provided. This may require a third-party valuation and periodic review to ensure that compensation remains consistent with the market. However, FMV is only one element of the AKS personal services safe harbor and Stark personal services exception. Accordingly, satisfying this element alone will not safeguard an arrangement that otherwise implicates fraud and abuse laws. As reflected in Advisory Opinion 26‑10, even FMV compensation can come under scrutiny if the compensation methodology rewards referrals or business otherwise generated between the parties.
Avoid Referral-Based Incentives: Companies should evaluate whether compensation structures create incentives for physician consultants to favor the company’s products, recommend products to other providers, or otherwise generate business for the company. Compensation should be commercially reasonable and paid only for bona fide services rendered under a written agreement. Royalties, equity grants, success-based fees, and product sales-based compensation warrant heightened scrutiny, particularly where the consultant may influence referrals, purchasing decisions, or product utilization. Any such arrangement should be carefully valued and tied to legitimate, documented contributions rather than past or future business generated.
Routinely Audit Consulting Relationships: Companies should periodically review physician consulting arrangements to confirm that physicians are providing the agreed-upon services in the agreed-upon manner and consistent with the written contract.
Maintain and Require Documentation: Both parties should maintain documentation demonstrating the legitimate business need for the services, the services performed and time spent, calculation of FMV compensation, and reimbursable expenses such as travel, lodging, and meals. The written agreement should establish specific requirements for maintaining and accessing documentation to support periodic audits of the consulting relationship.
Use Appropriate Selection Criteria: Companies should select consultants based on objective, defensible criteria, such as relevant expertise, experience, publications, or other qualifications tied to the consulting need. Consultants should not be selected based on prescribing volume, influence over purchasing decisions, or other business generated. Companies should also avoid sales or marketing involvement in the consultant selection process and document a legitimate business need for the arrangement independent of the physician’s referral potential.
Conclusion
Physician consulting arrangements can provide significant value in the life sciences industry, but these relationships must be carefully structured to avoid violating the AKS, Stark Law, and related regulatory requirements. As enforcement activity in this area continues, companies and consultants should take a proactive approach to compliance to reduce regulatory risk.
If you have questions about structuring compliant physician consulting arrangements, London Legal Consulting, LLC can assist. Please contact us today.
[1] These included products for use in procedures performed by the consultants or their immediate family members, products sold to a facility in which the physicians perform procedures or have an ownership interest, and products for which the consultant already received a royalty under another agreement.