Fee Splitting: Clearing Up the Confusion

Healthcare professionals and businesses are aware of the term “fee splitting,” but rarely understand what that means, and for good reason.  Is there some federal law against that?  No.  Is there a state law?  Yes, but definitions are elusive and confusing.

Florida law prohibits licensed healthcare professionals engaging in any split-fee, rebate, commission or bonus in exchange for referral of any patient.  In particular, Section 456.054 states it is a violation of a state criminal statute for a “healthcare provider” to “offer, pay, solicit, or receive a kickback, directly or indirectly, overtly or covertly, in cash or in kind, for referring or soliciting patients.”

Is there a court in Florida that has interpreted that law or opined on the concept?  Not exactly.  The closest thing we have is the Crow decision, where the 5^th District Court of Appeals affirmed a Board of Medicine handling an issue involving the concept.

By way of background, Florida licensed physicians that are uncertain of whether an arrangement complies with state law can ask the Board of Medicine its opinion about a specific factual scenario.  That process is called a “Petition for Declaratory Statement.”  It doesn’t carry the same weight as a court decision, but failing to follow the Board’s decision would likely subject the petitioner to bad stuff, like a fine, license suspension or even revocation.  By way of example, the following type of language included at the end of the Board’s response to any petition for a declaratory statement:

“The Board’s response to this Petition for Declaratory Statement responds only to the questions asked, based on the facts asserted, and interprets only the statutory provisions provided by the Petitioner.  The conclusions of the Board with regard to the statutory provisions cited by Petitioner are not a comment on whether the proposal may or may not violate other provisions of Chapter 458, Florida Statutes, or other related obligations of physicians.”

The Crow court matter involved a challenge by a physician who didn’t like what the Board of Medicine said about a situation proposed to them by the doctor in a petition for declaratory statement.  That situation involved—

1. A doctor sold his practice to a company (IHHC). He wasn’t an owner in the company;
2. IHHC hired the doctor and paid him a flat salary;
3. The doctor wanted to revise his salary and receive a bonus and wanted to make sure it was ok, so he asked the Board of Medicine what they thought about it;
4. The revised salary would have consisted of a percentage of IHHC’s prior year’s total revenues (a percentage of “physician services (medical diagnosis and treatment of patients) personally performed by or under the direct supervision of” [the doctor]);
5. The bonus would have been based, in part, on revenues from ancillary services supervised by the doctor, but not provided by the doctor;
6. The Board of Medicine opined that, while some of the proposal complied with Florida law, compensation based on total revenues (which include ancillary services and surgery) would be illegal, but that the part pertaining to the doctor’s hands-on services and those of professionals supervised by him would be permissible.

The court affirmed the Board of Medicine decision, and did not conduct a de novo review of the matter.

Over the years, those of us who study Board of Medicine decisions have become sensitive to one thing:  the Board (at least as it was composed in the 90s) does not like percentage based compensation arrangements.  Does that mean they are illegal?  No.  Is there any court decision in Florida that says percentage based compensation arrangements are illegal?  Nope.  But one cannot ignore the many situations proposed to the Board of Medicine on the issue, which include—

In re Lundy. (1987).  Here a physician asked the Board of Medicine whether the following arrangement constituted fee splitting, and the Board said “no”:

• A business provided office space, equipment and billing/collection services to a physician practice
• The practice paid the business 40% of the fees collected.

In re Lozito.  (1987).  This involved a limited partnership (including physician owners) for providing physical rehab services.  The lease for the center included a percentage of profits.  Here, the Board said there was no fee splitting, since profits to the doctors was tied to ownership, not who referred a patient.

The Green Clinic (1992).  A business contracted with a physician practice to provide space, staff, billing and collection and related services, plus access to certain ancillary services for which the doctors would bill.  The fee to the business was percentage based; and the Board rejected it as fee splitting, commenting that it was based only on billings for physician services, with regard to the actual cost of those services.

Spieller (1992).  Here, the owner of a multi-specialty medical practice proposed the following arrangement for specialist physicians to come to his office and provide services:

• The specialist (“Specialist”) would be an independent contractor
• The practice (“Practice”) would provide use of a receptionist, office, support staff and supplies
• The patients treated would be patients of the Practice and records would belong to the Practice
• The Practice would bill and collect for the services provide by the specialist
• The Specialist may have another office where he or she provides services
• The Specialist would receive a flat fee for each procedure performed at the Practice office or a hospital

The Board rejected the proposal, noting that the patients would belong to the Practice, which keeps part of the doctor’s fee.  The Board opined that the fee of the Practice was not just for services provided by the Practice, since it was also entitled to receive fees for services provided at hospitals.

Levy (1997).  Here, the owner of a practice referred his patients to an MRI center and requested the scan center to send the scans back to the practice to be interpreted by the radiologist that worked with the practice.  The practice had the following arrangement with a W-2 employed, part-time radiologist:

• The radiologist is paid by the practice on a per read basis;
• The practice bills for the radiologist’s written report, the “interpretation;” and
• The scan center bills for the “technical” component.

Focusing 458.331(1)(i), the Board relied on language in a second district court of appeal case (Practice Management Associates, Inc. v. Orman) that “fee splitting” means “dividing of a professional fee for specialist’s medical services with the recommending physician,” the Board opined that the proposed arrangement was fee splitting because the petitioning doctor received a fee, but did not provide any services.

What Does All This Mean?

It’s pretty clear that the Board of Medicine from the 1990s would not have liked:

1. Percentage based compensation arrangements, especially those where the fees do not closely relate to expenses; and
2. Any fees to a physician that does not perform services, even though that’s what employers routinely receive.

What This Doesn’t Mean

Jumping to the conclusion today that all percentage based fees are illegal fee splitting, especially in light of the newer Patient Brokering Act, is an oversimplification.  Clients need to work with their lawyers to dissect the arrangement and see if in fact the compensation arrangement in particular is really a referral fee or whether it in fact complies with a number of much clearer provisions of applicable law (e.g. the bona fide employee exception to the federal Anti-Kickback Statute or the personal services arrangement and management contract safe harbor).  At the end of the day, clients ought to expect their lawyer to do their best to (a) convey the regulatory landscape, (b) identify viable options, and (c) assess the relative risks of each option.