HHS-OIG Advisory Opinion 26-12: Provider Warranty Programs and Expanding View of the AKS Warranty Safe Harbor

Overview 

On May 28, the OIG posted Advisory Opinion No. 26-12 that issued a favorable opinion regarding an orthopedic surgery provider's proposed warranty program. Under the proposed arrangement, the provider would refund certain concierge fees to patients who require revision surgery within two years of an initial surgery.  

This opinion is significant for healthcare providers because it represents one of the first instances in which the OIG has analyzed the application of the warranty safe harbor 42 C.F.R. § 1001.952(g) to a healthcare provider, rather than a product manufacturer or supplier, offering a direct patient-facing warranty on surgical outcomes.  

AO 26-12 reflects the continued expansion in regulatory flexibility that, beginning with OIG's 2020 Regulatory Sprint to Coordinated Care rulemaking, has progressively broadened the scope of warranty arrangements that may be protected under the Federal anti-kickback statute (AKS). 

Key Prior OIG Advisory Opinions on the Warranty Safe Harbor 

OIG has issued only a handful of advisory opinions directly addressing the warranty safe harbor over the past two decades. Together with AO 26-12, these opinions chart the gradual evolution of the OIG's thinking on warranty arrangements: 

Advisory Opinion No. 01-08 (2001): An early opinion that confirmed the warranty safe harbor protects only warranties on "items" and expressly noted that a warranty on a combination of items and services "does not technically qualify for protection" under the safe harbor. This opinion underscored the extremely narrow scope of the original safe harbor. 

Advisory Opinion No. 18-10 (2018): The OIG addressed a device manufacturer's proposal to offer hospitals a warranty for a suite of three joint replacement products (implant, wound therapy system, and antimicrobial dressing) bundled together under a single Medicare payment. Although the warranty did not satisfy the then-existing safe harbor (which protected only single-item warranties), the OIG issued a favorable opinion because it found the arrangement posed a "sufficiently low risk of fraud and abuse." This opinion foreshadowed the 2020 regulatory amendments expanding the safe harbor to bundled warranties. 

Significance of AO 26-12 

AO 26-12 is significant for three primary reasons:

• AO 26-12 continues a clear trajectory in OIG guidance toward favorable treatment of warranty-like arrangements tied to clinical outcomes. Beginning with AO 18-10 and culminating in AO 26-12, the OIG has demonstrated increasing comfort with arrangements in which providers guarantee their work.
• AO 26-12 notably involves a provider rather than a manufacturer or supplier. By its terms, the warranty safe harbor at 42 C.F.R. § 1001.952(g) protects only warranties offered by a "manufacturer or supplier" of an item, meaning providers generally cannot rely on the safe harbor itself. However, OIG's willingness to issue a favorable opinion for a provider-based warranty is consistent with its continued focus on value-based care. 
• OIG’s analysis is notable for its treatment of the safe harbor’s individual requirements. In footnote 13, OIG explained that the safe harbor’s prohibition on paying remuneration to non-beneficiaries for medical expenses beyond the cost of warranted items and services was inapplicable here. OIG reasoned these conditions do not apply because the provider would pay remuneration only to patients who are Federal healthcare program beneficiaries, and the remuneration was not for expenses beyond the warranted items and services. This flexible approach signals OIG’s willingness to adapt the warranty safe harbor to provider-based arrangements that do not implicate the risks certain conditions were designed to address.

OIG concluded that the arrangement would be protected by the safe harbor for warranties and therefore would not generate prohibited remuneration under the Federal AKS.

Practical Considerations for Healthcare Clients

Healthcare providers and suppliers considering warranty arrangements should keep in mind that OIG distinguished the items and services provided under the arrangement in AO 26-12 through the requestor’s concierge program, for which patients must pay prior to undergoing surgery to the extent the patients want to participate in the program, from the offer and provision of free concierge or other items and services in connection with surgery. Importantly, OIG warned that such free items and services would not be protected by the safe harbor for warranties. OIG has longstanding concerns regarding the provision of free items or services by individuals and entities, including physicians, to patients that could lead to the ordering and provision of an item or service payable by Federal healthcare programs. Therefore, any provider-based warranty program should be carefully analyzed for regulatory compliance before offering the incentive to patients.

Entities should be mindful that OIG’s opinion is limited to the specific facts and parties involved. Only the requestor can rely on the opinion.