New York Prohibition Agains Percentage Based Fee Splitting

"I provide medical (or acupuncture, chiropractic, osteopathic, massage) services on an hourly basis and get paid a per centum 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 exist 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 land law – and the other underlying circumstances, such as whether the healthcare provider is an employee or independent contractor.

For example, some statutes do non employ fee-splitting prohibitions to massage therapists, only do apply the prohibitions to medical doctors, chiropractors, and acupuncturists. Information technology'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 at present 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), and then our healthcare lawyers would do a Stark and anti-kickback analysis under federal police. (Run into Federal Cocky-Referral (Stark) and Anti-Kickback Assay for Integrative Care Center, for a summary of federal cocky-referral and anti-kickback constabulary, and its application in detail to integrative medicine).

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

• Corporate practise of medicine and unlicensed medical practice concerns.
• Telescopic of practice rules for each practitioner.
• State laws prohibiting kickbacks, fee-splitting, self-referral, and exploitation of patients for fiscal proceeds.

If Medicare or Medicaid are not involved, then we look simply to country law.

Let'southward look at New York for a sample of what'southward in store under land police.

Corporate Practice of Medicine

Some states have a "weak" corporate practice of medicine rule. This means they typically prohibit non-clinicians from practicing medicine or intruding into clinical practise. Merely they do non prohibit laypersons from employing physicians, so long as the layperson has no actual control over the practise of medicine.

Past contrast, New York State has a "strong" corporate practise of medicine prohibition. (Meet New York'southward Strong Corporate Exercise of Medicine Requires a Professional Corporation for Professional Services). Laypersons cannot hire physicians, flow (with very limited exceptions).

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

California, Texas, and various other states similar accept 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 person services tin can only exist offered within a professional service corporation ("PC"), or a professional express liability visitor ("PLLC"). Concern services take to be performed with a simple LLC or general business corporation, but the MSO cannot perform professional person services.

So, for example, who hires the nurse? The professional medical corporation. Who hires the forepart desk person? The general corporation. Tin 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 Exercise

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

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

Practicing across the telescopic of practice tin:

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

Both are criminal violations.

Additional risks include professional person 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 advisable practice boundaries.
• Implement a potent credentialing scheme before hiring. This helps reduce risk of vicarious liability—liability for the actions of others. Note that this tin can at the aforementioned time create a risk of liability for negligent credentialing should patient injury ensue, so there are pros and cons to being a directory but an organization that credentials providers.

Self-Referral and Fee-Splitting

New York has several rules addressing self-referral and kickbacks / fee-splitting. Information technology's worth citing some of these specifically, considering they provide a more extensive web of regulation than be in many states.

New York State Instruction Law, Department 6509-a

Within Championship Viii, the general provisions of Article 130 are applicable to all the health care professions. (See NYS Health Intendance Provider Licensing Laws Spell Out Who Tin can Exercise). This is important, because nosotros'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 institute professional misconduct. Professional person misconduct includes such behave as:

• Practicing the profession fraudulently, across its authorized scope, with gross incompetence, with gross negligence on a particular occasion or negligence or incompetence on more than than one occasion.

• Permitting, aiding or abetting an unlicensed person to perform activities requiring a license.

• Committing unprofessional deport, as divers by the Board of Regents in its

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

Section 6509-a of NYS Education Police contains the following additional definition of professional misconduct:

That whatever person subject area to the above enumerated articles, has directly or indirectly requested, received or participated in the segmentation, transference, assignment, rebate, splitting or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration equally a commission, discount or gratuity in connection with the furnishing of professional intendance, or service…

Here note the language, "directly or indirectly." Clients sometimes ask, "does it matter if the money goes first to X and then Y?" The coin could menstruum through a hole in the Earth to China, only "directly or indirectly" is pretty clear.

Also, Section 6509-a applies to some of the licensed wellness intendance professionals under Championship 8 (including chiropractors, nurses, and concrete therapists), merely the list does non include providers such acupuncturists (see Group 6509 to Kickback Prohibition Nether State Police). Again, it'southward important to see who is included and who is not included.

Withal, in that location all the same could be fee-splitting provisions in the licensing laws governing the professions non covered by 6509-a. Further, such professionals would likely exist covered the Rules of the Board of Regents (below). This is why it's important to have your healthcare lawyers look at all the rules that could potentially apply to a fee-splitting question. Only because 1 rule doesn't employ, does not hateful there aren't others (if you follow both double negatives; put some other way, there are lots of rules that could feasibly apply!).

Even though 6509-a does not, past its terms, apply to acupuncturists, 6509-a does have an exception that becomes important in lite of other provisions of police covered further below:

Null contained in this section shall prohibit such persons from practicing as partners, in groups or equally a professional corporation or every bit a university faculty do corporation nor from pooling fees and moneys received, either past the partnerships, professional person corporations, academy faculty practice corporations or groups by the individual members thereof, for professional person services furnished by any individual professional member, or employee of such partnership, corporation or grouping, nor shall the professionals constituting the partnerships, corporations or groups exist prohibited from sharing, dividing or apportioning the fees and moneys received by them or by the partnership, corporation or group in accordance with a partnership or other agreement….

Nosotros will describe the "grouping" exception in more item later on.

Kickbacks, Fee-Splitting, and Exploitation of Patients (Rule 29b-one of the Rules of the Lath of Regents)

Unlike 6509-a, Section 29.1b applies to "any profession licensed, certified or registered" under Title VIII. This is big. Each of those professions is included.

Section 29.1b contains three different prohibitions:

• Exercising undue influence on the patient or customer, including the promotion of the sale of services, goods, appliances or drugs in such manner equally to exploit the patient or client for the financial proceeds of the practitioner or of a third political party.
• Directly or indirectly offering, giving, soliciting, or receiving or like-minded to receive, any fee or other consideration to or from a tertiary political party for the referral of a patient or client or in connexion with the performance of professional services;
• Permitting any person to share in the fees for professional services, other than: a partner, employee, associate in a professional person firm or corporation, professional subcontractor or consultant authorized to practice the aforementioned profession, or a legally authorized trainee practicing nether the supervision of a licensed practitioner. This prohibition shall include any system or understanding whereby the corporeality received in payment for furnishing space, facilities, equipment or personnel services used by a professional person licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practise…..

These rules are a scattering. First, exploiting patients is prohibited, only what does that mean? Does selling dietary supplements in-office establish exploiting patients for financial gain?

Second, there is the language once again about "direct or indirectly" agreeing to give or receive a fee in exchange for a referral.

Third is a powerful prohibition against "permitting whatever person to share in the fees for professional services." This expresses a strong aversion for any percent-based arrangement.

Whereas in California, an MSO tin can have a pct of gross revenues of the medical practice at off-white market value, in substitution for designated management services (Business organisation & Professions Code Department 650(b)), in New York, the in a higher place dominion appears to prohibit per centum-based MSO fees.

The rule contains an exception for a partner, employee, acquaintance in a professional person firm or corporation, professional subcontractor or consultant authorized to practice the same profession, to share fees.

Again, California Concern & Professions Code Section 650(b), provides a fair market place value safe harbor to the anti-kickback and fee-splitting prohibition in California Business & Professions Lawmaking Department 650(a). New York appears to knock out this potential rubber harbor with a broader prohibition against revenue shares, except where a partner, employee, associate is concerned.

And, fifty-fifty with a partner, employee, acquaintance, we besides have to think virtually New York's Rule 29.2a-7, which prohibits "ordering excessive tests, treatment, or use of handling facilities not warranted by the condition of the patient." One never knows how enforcement authorities will view a given organization. The goal is to create as defensible a position every bit possible.

Cocky-Referral (NYS Public Health Constabulary Department 238-a; NYCRR)

NYS Public Wellness Law Section 238-a prohibits referral of certain designated wellness services to an entity (or an firsthand family member) with which the practitioner has a financial human relationship. Those services include: clinical laboratory services, chemist's shop services, radiations therapy services, concrete therapy services or x-ray or imaging services.

The rule contains a complicated number of exceptions (including for a group practice, and for a lease at fair market value for over a year). (See Mini-Stark Statute Addresses Self-Referral Problems). The prohibition in 238-a is a New York State version of Stark. (That's mini-Stark, not mini-Me).

However, the so-called designated health care services must exist involved, for the rule to exist triggered in the get-go place.

In improver to 238-a, Role 34, Chapter II, the Authoritative Rules and Regulations of the NYS Codes, Rules & Regulations ("NYCRR"), Championship 10, deals with Health Care Practitioner Referrals (likewise every bit Laboratory Business Practices, among other topics). (See Wellness Care Referrals for Designated Health Services Heighten Country Law Bug). And then hither is yet i more than legal rule to reckon with.

Section 34-ane.five (Disclosure: other health or health related items or services) provides that:

(a) With respect to referrals for wellness or health related items or services other than clinical laboratory services, chemist's shop services, radiation therapy services, or x-ray or imaging services, and except as provided in subdivision (c) of this section, a practitioner may not brand a referral to a health care provider for the furnishing of health or health related items or services where such practitioner or immediate family unit member of such practitioner has whatever of the following financial relationships without disclosing to the patient such financial relationship (emphasis added):

(1) an ownership or investment interest with such health intendance provider; or

(2) a bounty arrangement with such health care provider which is in excess of fair market value, or which provides for bounty that varies directly or indirectly based on the volume or value of whatever referrals of business between the parties.

(b) The disclosure shall provide notice of whatsoever such fiscal human relationship and shall as well inform the patient of his or her right to utilize a specifically identified alternative health care provider if any such provider is reasonably available, and shall be in the form specified in section 34-1.6 of this Subpart. Such form shall besides be posted prominently in the practitioner's office. (emphasis added) ….

(d) A practitioner shall maintain documentation of each instance of disclosure to a patient pursuant to this section.

Section 34-1.6 provides a sample disclosure course (Encounter Sample Disclosure Form for Self-Referrals).

The answer doesn't stop with an analysis of the earlier fee-splitting rules.

More than New York Anti-Kickback and Fee-Splitting Police force

Ane thing that can exist helpful in interpreting this maze of legal rules, is to look for court cases interpreting the self-referral, anti-kickback, and fee-splitting rules. Fortunately, New York has a number of cases.

In these cases, New York courts oftentimes invoke § 6509-a, Rule 29.1b, and §238-a together, making information technology difficult to determine the contours of the "group" exception and the limits of permissible arrangements (See Do Percentage-based, Acquirement-sharing arrangements Between a Clinic and its Health Care Practitioners Violate Stark, Antikickback and Fee-splitting Laws?) Moreover, New York courts are rather mixed in their assessment as whether different percentage-based arrangements fall within relevant legal boundaries, or are prohibited by the various statutes and rules referenced above. On residuum, the courts aversion revenue-sharing arrangements involving MSO services for medical groups and practices.

For example, New York courts have institute a diverseness of fee-splitting arrangements to violate § 6509-a. Cases include:

• Sachs, Toffler—arrangements in which dentists remitted a percentage of revenues to landlords.

• Katz—arrangement wherein Md would pay technicians a percentage of test fees.

• Bell—arrangement whereby dentist paid a non-dentist a commission to garner patients.

• LoMagno—fee-splitting organisation.

• Necula—payment by radiologist of a percentage of receipts for billing services.

Splitting fees between clinicians and MSOs were explicitly disapproved and disallowed in several cases:

• Calendar—remission past physicians of a percentage of their gross earnings to a corporation constituted both illegal fee-splitting and the corporate practice of medicine.

• Mukendi—sharing of a percentage of cyberspace receivables or of nerveless receivables from a clinic, and the dispensary was illegal.

This may somewhat shocking to the person who wants to create a medical spa, for example, and revenue share with physicians based on the argument that "anybody is doing it."

As noted, the rules themselves are drafted broadly, suggesting any per centum-based payment creates some potential enforcement risk, even if the practise is defensible in theory. Some portion of "anybody" gets investigated by hush-hush agents posing as patients (while collecting prove).

"Mall Model" vs. "Center Model" and MSO Arrangements

Every state of affairs has to be analyzed separately to run across how it meets the symphony of legal rules about self-referral, kickbacks and fee-splitting,

Percentage-based, revenue share arrangements in the healthcare environment often require a detailed written assay.

In New York, some of the more useful exceptions are:

• Revenue-sharing arrangements in a properly constituted "group," as defined past relevant rules, and embodied in appropriate contract language; and

• Bounty to an employee that reflects (and does non grossly exceed) fair marketplace value for services actually rendered.

A properly constituted "grouping" in New York has to meet not but legal rules governing cocky-referral, kickbacks and fee-splitting, but besides corporate practice of medicine concerns. So, for example, the group:

• Requires an appropriate entity (i.due east., corporation/PC, LLC/PLLC or partnership/PLLP with bylaws or other advisable understanding binding the shareholders, members or partners).

• Cannot include non-professionals (non-clinicians) (per Okere).

• Tin can include licensed professionals (who can also exist employees) (per Rubin).

• Can permit acquirement-sharing among its members, bold the above argument succeeds; only cannot share revenues with the MSO.

Farther, under the corporate practice of medicine doctrine, every bit we've read the rules at i bespeak, the "group:"

• Can include practitioners from dissimilar disciplines, subject to the caveat that the corporate practice of medicine doctrine requires that professions of medicine, dentistry, veterinary medicine, licensed clinical social work, mental health counseling, psychoanalysis, artistic arts therapy, or wedlock and family therapy be placed in their own professional corporations.

• The "group" entity may not serve equally a direction services corporation.

With many of our clients who are seeking to implement a revenue-sharing system between their centers and practitioners, nosotros sometimes recommend the "Mall Model" or the "Center" models as possible ways to structure compensation without running afoul of relevant kickback and fee-splitting rules (encounter Creating Legally Successful, Multidisciplinary Health Care Practices: Fee-Splitting, Kickbacks, Stark Analysis, Corporate Practice of Medicine, Unlicensed Practice, Employment, and Other Issues). Of course, as noted, at that place is never any guarantee that a proposed arrangement will not exist investigated or subject to enforcement action; all the same, we take attempted to design structures that accept account of legal roadblocks and try to create a flow of payments that respect existing legal rules.

In a nutshell, in the Mall Model, the menstruum of payments is from the patient to the do for health care services, and from the practice to the Clinic for management, administrative and marketing services. The statement is that this does not involve kickbacks or fee-splitting, because at that place is no unearned fee going to either the practitioner or the Clinic in exchange for patient referrals. The Mall Model is preferred in a strong corporate do of medicine state such equally New York or California.

In the mall model, the lease should be a split up written contract. Lease payments will have to be for the market value of the charter, and non exist tied to the volume of patients the practitioner sees or refers to the Clinic. However, in guild to accommodate ramp-upwards time in the practice, the charter tin can establish a ascension amortization payment over time. In addition:

• The practitioner is an independent contractor, with independent medical (or other professional) judgment, to run across its own patients at the Clinic.
• The medical records are owned and maintained past the practitioner, although the practitioner can give the Clinic a correct to a copy of those records.
• The practitioner pays the Clinic a monthly direction or authoritative fee.
• The patient makes payment out to the exercise.
• The Dispensary tin serve as the billing and collecting agent for the practice, and be authorized to: deposit payments directly into the practitioner'southward business relationship for services rendered to the patient by the practitioner; and withdraw its authoritative or management fee from the business relationship it maintains for the practitioner.

In the Center Model, the flow of payments is from the patient to the Clinic for health care services, and from the Clinic to the practitioner for services rendered to the patient. The statement is that this does not involve kickbacks or fee-splitting, because at that place is no unearned fee going to either the practitioner or the Clinic in commutation for patient referrals. But this argument is more than difficult in a strong corporate exercise of medicine state.

Among other things, the agreement between Clinic and practitioner specifies that:

• The practitioner is an contained contractor, with independent medical (or other professional) judgment, to see the Clinic's patients.
• If the country has a stiff corporate practice of medicine doctrine and the practitioner is a medical physician, then the medical records should be owned and maintained by the practitioner, although the practitioner can give the Dispensary a correct to a copy of those records. Otherwise records can be shared among practitioners or a key (i.e., electronic) record tin be created, with each having the correct to contemporaneous access and copies upon termination. Patients should be required to execute a consent authorizing access by multiple caregivers within the Clinic.
• The Clinic tin serve equally the billing and collecting agent for the practice (or farm this out to a 3rd-party MSO or medical billing & collections service).
• The patient makes payment out to the Dispensary.
• The Clinic pays the practitioner, typically a flat fee such as $X per Botox injection, $Y per hour of medical services, or $Z per month. To avoid the appearance of a kickback, it is better if the payment from the Clinic to the practitioner is a flat fee and not a percentage, because regulators tin can always view a percentage-based system equally suspiciously looking like a kickback (or in addition, in states prohibiting fee-splitting, similar a fee carve up). The argument that can be made to try to defend a revenue-sharing arrangement is that the percentage fee is earned past the practitioner's production. If the percent besides reflect referrals by the practitioner to other wellness intendance providers within the Clinic, this tin potentially involve a second level of kickback and fee-splitting analysis, and one must look to "grouping practice," "ancillary services," and other potential exceptions and prophylactic harbors.

In either case, there could be an MSO that contracts with the professional corporation to human action for information technology as a management service organisation, which can provide claims management, bookkeeping, marketing, and other management services, and fifty-fifty hold avails. For case: an MSO would provide part space through leasing arrangements to the group, as well equally front desk-bound, patient scheduling, claims submission and collections, accounting, marketing, and other not-clinical services.

Conclusion

The combination of fee-splitting prohibitions and the corporate practice of medicine dominion can be daunting to the entrepreneur in the health care manufacture who wants to own and operate an enterprise that involves medical diagnosis and treatment—whether it'southward a medical grouping, medical spa, or even a mobile medical app or Web-based platform that provides telehealth or other online or mobile healthcare services.

Our healthcare lawyers can arts and crafts ways to handle these imposing legal rules, but this requires inventiveness and savvy, and a strong working knowledge of all the diverse law and regulations, and how they piece of work together.

Healthcare & FDA lawyer Michael H. Cohen is a apparent, authoritative voice on healthcare & FDA legal and regulatory problems. Book Michael for speaking on cutting-edge issues in health and wellness; contact our legal squad for compliance counsel concerning any healthcare venture, including article of clothing health tech, mobile medical apps, nanotechnology wellness products, or other legal and regulatory issues – or phone call the states for a one-hour consult. Join our online community of health and wellness ventures and practitioners, sharing solutions to common legal and regulatory challenges every bit they pursue their business dream.

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Source: https://cohenhealthcarelaw.com/2015/01/fee-splitting-medical-doctors-share-revenues-non-medical-business-owners/

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