LEGAL, Michael Cohen: Is it Fee-Splitting to Share Revenues with Medical Doctors?

Former Harvard Medical School Professor, Author of 6 leading books on Health and Wellness Law, Recognized for his contribution to international health law and policy.  Michael H. Cohen is a thought leader in health care law, pioneering legal strategies and solutions for clients in traditional and emerging healthcare markets.

Former Harvard Medical School Professor, Author of 6 leading books on Health and Wellness Law, Recognized for his contribution to international health law and policy. Michael H. Cohen is a thought leader in health care law, pioneering legal strategies and solutions for clients in traditional and emerging healthcare markets.

JANUARY 26, 2015 – “I provide medical (or acupuncture, chiropractic, osteopathic, massage) services on an hourly basis and get paid a percentage of revenues in return.” Is that fee-splitting?  The fee-splitting question is a typical one that clients bring to our firm. The client may be the venture owner / entrepreneur, the medical director for a medical group, or a practitioner who is a medical doctor or osteopathic physician, or a chiropractor, acupuncturist, homeopath, massage therapist, or other clinical care provider.

The answer to the fee-splitting question depends both on the kind of provider, and on state law – and the other underlying circumstances, such as whether the healthcare provider is an employee or independent contractor.

For example, some statutes do not apply fee-splitting prohibitions to massage therapists, but do apply the prohibitions to medical doctors, chiropractors, and acupuncturists. It’s important to read the rules carefully and apply them to the facts.

Let’s first talk about federal Stark and anti-kickback legal rules.

Federal Law – Stark, Anti-Kickback Law

Let’s assume for now that the provider is a healthcare licensee and that no Medicare or Medicaid reimbursement is involved.

If the healthcare provider submits claims for reimbursement to Medicare or Medicaid (or in California, Medi-Cal), then our healthcare lawyers would do a Stark and anti-kickback analysis under federal law. (See Federal Self-Referral (Stark) and Anti-Kickback Analysis for Integrative Care Center, for a summary of federal self-referral and anti-kickback law, and its application in particular to integrative medicine).

We would first analyze compensation arrangements. We would look, among other things, to:

  • Corporate practice of medicine and unlicensed medical practice concerns.
  • Scope of practice rules for each practitioner.
  • State laws prohibiting kickbacks, fee-splitting, self-referral, and exploitation of patients for financial gain.

If Medicare or Medicaid are not involved, then we look only to state law.

Let’s look at New York for a sample of what’s in store under state law.

Corporate Practice of Medicine

New! 2015 Edition now available -- sale $8.95

New! 2015 Edition now available — sale $8.95

Some states have a “weak” corporate practice of medicine rule. This means they typically prohibit non-clinicians from practicing medicine or intruding into clinical practice. But they do not prohibit laypersons from employing physicians, so long as the layperson has no actual control over the practice of medicine.

By contrast, New York State has a “strong” corporate practice of medicine prohibition. (See New York’s Strong Corporate Practice of Medicine Requires a Professional Corporation for Professional Services). Laypersons cannot hire physicians, period (with very limited exceptions).

Under this rule, medical service organizations (MSOs) must be structured properly as they can blur the distinction between professional judgment and administrative services.

California, Texas, and various other states similar have a strong corporate practice of medicine legal prohibition.

In New York, a corollary of this strong corporate practice of medicine, is the rule requiring separation of activities between professional medical corporations and general business corporations. All professional services can only be offered within a professional service corporation (“PC”), or a professional limited liability company (“PLLC”). Business services have to be performed with a simple LLC or general business corporation, but the MSO cannot perform professional services.

So, for example, who hires the nurse? The professional medical corporation. Who hires the front desk person? The general corporation. Can the MSO handle the payroll for the nurse, physician assistant, and other clinical providers? The MSO can administer payroll, but it cannot be the employer, as the employer has supervisory responsibilities and clinical control over dependent practitioners’ activities.

Scope of Practice

The next issue is legally authorized scope of practice; scope of practice rules require that non-medical practitioners (such as licensed acupuncturists) remain within the practice boundaries specified by their licensed statute, as clarified by any subsequent regulations promulgated by the state acupuncture board.

See, for example, Legal Rules Restrict Scope of Practice Boundaries in Acupuncture.

Practicing beyond the scope of practice can:

  • Put the healthcare practitioner at risk of unlicensed practice of medicine.
  • Put the organization at risk of aiding and abetting unlicensed practice of medicine.

Both are criminal violations.

Additional risks include professional discipline, and, vicarious liability for the negligence of others.

Two things our healthcare lawyers do, in addition to researching the legally authorized scope of practice for each clinician, are:

  •  Draft contract language that limits the clinician’s activities to appropriate practice boundaries.
  • Implement a strong credentialing scheme before hiring. This helps reduce risk of vicarious liability—liability for the actions of others. Note that this can at the same time create a risk of liability for negligent credentialing should patient injury ensue, so there are pros and cons to being a directory only an organization that credentials providers.

Self-Referral and Fee-Splitting

New York has several rules addressing self-referral and kickbacks / fee-splitting. It’s worth citing some of these specifically, because they provide a more extensive web of regulation than exist in many states.

New York State Education Law, Section 6509-a

Within Title VIII, the general provisions of Article 130 are applicable to all the health care professions. (See NYS Health Care Provider Licensing Laws Spell Out Who Can Practice). This is important, because we’ll want to know which clinical care practitioners are within the regulatory umbrella.

Subarticle 3 (Section 6509 of NYS Education Law) contains a list of activities that constitute professional misconduct. Professional misconduct includes such conduct as:

  • Practicing the profession fraudulently, beyond its authorized scope, with gross incompetence, with gross negligence on a particular occasion or negligence or incompetence on more than one occasion.
  • Permitting, aiding or abetting an unlicensed person to perform activities requiring a license.
  • Committing unprofessional conduct, as defined by the Board of Regents in its

Note that these definitions pick up the ideas articulated earlier about scope of practice and unlicensed practice.



Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.