diff --git a/internal/serviceoffercontroller/controller.go b/internal/serviceoffercontroller/controller.go
index 20a5714f..81771180 100644
--- a/internal/serviceoffercontroller/controller.go
+++ b/internal/serviceoffercontroller/controller.go
@@ -747,8 +747,12 @@ func (c *Controller) reconcileUpstream(ctx context.Context, status *monetizeapi.
 	}
 	defer response.Body.Close()
 
-	if response.StatusCode >= 500 {
-		setCondition(status, "UpstreamHealthy", "False", "Unhealthy", fmt.Sprintf("HTTP %d from upstream", response.StatusCode))
+	// Require a 2xx health response. Treating any <500 (including 404) as
+	// healthy left agents with a wrong healthPath (or a never-started API)
+	// stuck in UpstreamHealthy=True and then Ready=True while paid traffic
+	// 404'd end-to-end.
+	if !upstreamHealthStatusOK(response.StatusCode) {
+		setCondition(status, "UpstreamHealthy", "False", "Unhealthy", fmt.Sprintf("HTTP %d from upstream health path %s", response.StatusCode, offer.EffectiveHealthPath()))
 		return false, nil
 	}
 
@@ -756,6 +760,12 @@ func (c *Controller) reconcileUpstream(ctx context.Context, status *monetizeapi.
 	return true, nil
 }
 
+// upstreamHealthStatusOK reports whether an HTTP status from the offer's
+// healthPath should count as UpstreamHealthy=True.
+func upstreamHealthStatusOK(code int) bool {
+	return code >= 200 && code < 300
+}
+
 func (c *Controller) reconcilePaymentGate(ctx context.Context, status *monetizeapi.ServiceOfferStatus, offer *monetizeapi.ServiceOffer) error {
 	if err := c.applyObject(ctx, c.referenceGrants.Namespace("x402"), buildReferenceGrant(offer)); err != nil {
 		setCondition(status, "PaymentGateReady", "False", "ApplyFailed", err.Error())
diff --git a/internal/serviceoffercontroller/controller_test.go b/internal/serviceoffercontroller/controller_test.go
index 8d308b0b..3eb68da5 100644
--- a/internal/serviceoffercontroller/controller_test.go
+++ b/internal/serviceoffercontroller/controller_test.go
@@ -8,6 +8,28 @@ import (
 	metav1 "k8s.io/apimachinery/pkg/apis/meta/v1"
 )
 
+func TestUpstreamHealthStatusOK(t *testing.T) {
+	// 2xx only — 404/3xx/5xx must not flip UpstreamHealthy=True.
+	cases := map[int]bool{
+		200: true,
+		201: true,
+		204: true,
+		301: false,
+		302: false,
+		400: false,
+		401: false,
+		404: false,
+		500: false,
+		503: false,
+		0:   false,
+	}
+	for code, want := range cases {
+		if got := upstreamHealthStatusOK(code); got != want {
+			t.Errorf("upstreamHealthStatusOK(%d) = %v, want %v", code, got, want)
+		}
+	}
+}
+
 func TestSelectRegistrationOwnerPrefersOldestEnabledOffer(t *testing.T) {
 	now := time.Now().UTC()
 	offers := []*monetizeapi.ServiceOffer{