Manufacturer’s $2,500 Reimbursement Proposal for Device Failures

The Office of Inspector General (OIG) issued Advisory Opinion 25-05, responding to a request from a medical device manufacturer that wanted clarity on a proposed reimbursement program related to its safety needle device. Below is a breakdown of what the request involved, what OIG decided, and why it matters.

What Was Proposed?

The healthcare device manufacturer asked the OIG to confirm whether the healthcare purchasers, such as clinics, pharmacies, or hospitals, could be offered up to $2,500 to reimburse certain costs related to needle stick injuries incurred from the failure of the manufacturer’s safety needle devices (not due to user error). These costs could include:

• Retraining staff
• Staff absence and replacement
• Counseling or support for the injured worker
• Legal or workers’ compensation expenses

The proposed arrangement centers on a device manufacturer offering a reimbursement program to purchasers (such as hospitals or clinics) for actual costs incurred due to needle stick injuries resulting specifically from a defect in the device and not from user error. Under this arrangement, if an authorized user suffers a needle stick injury because of device failure, the purchasing organization may be reimbursed up to $2,500 for costs linked to that injury (such as staff retraining, replacement, counseling, legal expenses, or increased insurance premiums). However, to qualify, the purchaser must agree to the warranty’s terms, which strictly limit the arrangement’s benefits to the purchaser (not to third parties or the injured individual) and specify that the manufacturer’s only responsibility is this capped reimbursement. No indemnification or direct coverage for medical, surgical, or hospital costs for the injured user is included, particularly if the individual is a federal health care program enrollee. Notably, the warranty period is one year, and it begins from the date of purchase of the device, not from the date of any injury. The Office of Inspector General (OIG) reviewed this framework to ensure it complies with the federal anti-kickback statute and found it adequately protected under the safe harbor for warranties, provided all stipulated terms are followed. 

What is the “Warranty” Safe Harbor?

The OIG has stated that offering something of value to healthcare organizations that bill federal programs (such as reimbursement for costs related to a defective product) can raise concerns under the federal anti-kickback statute. However, there are exceptions called safe harbors that protect certain types of arrangements if all requirements are met. One of these is the warranty safe harbor, 42 C.F.R. § 1001.952(g) which allows manufacturers to offer warranties under strict conditions. In this case, because the device is sold to providers that bill Medicare or Medicaid, this raised legal concerns about offering something of value that could influence purchasing decisions. 

How did the OIG Interpreted the Arrangement?

The OIG found the arrangement would qualify for the warranty safe harbor. The reimbursement is limited, only applies when the product fails under proper use, and does not involve discounts, patient costs, or incentives tied to volume or exclusive use. The company also certified that it does not require minimum purchases or exclusivity, and that no part of the reimbursement would be used to pay medical bills for federal healthcare program beneficiaries. Since the proposed arrangement fits the safe harbor definition of a “warranty” and complies with all relevant regulatory conditions, the OIG concluded that it would not be considered prohibited remuneration under the federal anti-kickback statute. More specifically:

• The reimbursement would not be available to the injured employee, and no medical expenses for individuals covered by federal healthcare programs (e.g. Medicare or Medicaid) would be reimbursed.
• The payment is limited, only covers documented actual costs, and is not tied to volume or referrals.
• It applies to a clearly defined defect scenario under a written warranty.
• It does not involve any kickbacks to individual providers or patients.
• The manufacturer does not require exclusive use of the device or setting purchase minimums.

The advisory opinion offers helpful guidance for manufacturers and healthcare providers navigating product warranties and compliance with federal healthcare laws. It confirms that a limited reimbursement program, when structured carefully under a legitimate warranty, can be permissible even in the heavily regulated federal healthcare space. However, OIG’s opinion is limited to this specific arrangement. It does not protect similar programs that differ in structure, scope, or purpose, especially if they involve price reductions, incentives to individuals, or broader commercial terms.

• This advisory opinion is only binding on the requestor, not the public.
• It does not protect any arrangement involving misrepresented or undisclosed facts.
• The OIG may modify or revoke the opinion if new information comes to light or public interest requires it.

If your organization offers or receives warranties or rebates and interacts with federal payors, this opinion is a strong reminder to carefully assess how those programs are structured—and when in doubt, consider seeking an experienced health care attorney.

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