How Illegal Fee Splitting May Cost You Your New York Medical License

What does New York Law Say About Medical Fee Splitting?

Generally, New York law bans fee splitting in the practice of medicine. This prohibition applies to both corporate and individual settings. Specifically, New York Public Health Law section 4501(1) expressly forbids both businesses and individual practitioners to practice medicine for profit in a manner that includes “the referral or recommendation of persons to a physician, dentist, hospital, health related facility, or dispensary for any form of medical or dental care or treatment of any ailment or physical condition.” The law also prohibits physicians and other health care professionals and facilities “to accept for medical or dental care or treatment any person referred or recommended for such care or treatment by a medical or dental referral service business located in or doing business in another state if the medical or dental referral service business would be prohibited… if the business were located in or doing business in New York.” In simple words, it is prohibited to give or accept fees for patient referrals.

Does the law make any distinction between individual and corporate practice of medicine when it comes to sharing fees?

In New York, businesses and non-profits organizations are not allowed to practice medicine per se unless they are so certified by the Public Health Council. Therefore, any New York physician who shares or allows others to share in the fees for medical services with a business entity will be disciplined under NY Education Law section 6530(19). Illegal fee-sharing involving business entities may take many forms. For example, in a recent case, the court held that payment of a portion of physicians' income from their private clinic practice to a university as a condition of the physicians' employment with the university was an illegal fee-splitting arrangement where the physicians were not employees of the university faculty practice corporation, and the university was not providing the physicians with salary, employee benefits, facilities, supplies, staff, or malpractice insurance. (Odrich v Trs. of Columbia Univ.) Illegal fee-splitting does not always involve money payments. Giving or receiving any valuable benefit such as credit, omission, discount, gratuity, etc. may qualify as fee sharing.

So what is corporate practice of medicine or illegal fee splitting?

By way of example, several court cases demonstrate corporate practice of medicine and illegal fee splitting. In one case, a doctor entered into an agreement with his technicians that provided that the technicians would perform EEG and ECHO tests and the doctor would pay them 50 percent of the fees for the tests. In another case, a corporation employed doctors and provided them with office space and equipment in exchange for a percentage of their income. Another example is one of a physician who had his license suspended for paying referral fees to a women’s health center that had been referring to him patients for abortions.

Are there any exceptions?

Yes. The law permits physicians to practice medicine and share fees through partnerships, professional corporations, university faculty practice plans, hospitals, HMOs, and employee/student health programs. While permitted, such arrangements are subject to limitations. For example, a physician who is not a member of a partnership may not share fees with the partnership.

What about paying salaries to employees?

Paying salaries to employees is not illegal fee sharing unless the salaries are contingent on the physician’s income and are a certain percentage of the income. Fee sharing with another physician is permitted under certain circumstances, such as in the case with a consultant or professional subcontractor.

Is it a problem for a physician to employ a billing company or a collection agency?

That depends on the type of the agreement between the physician and the billing company. By default, many billing businesses prefer a contingency-based model where they charge the doctor a percentage of the doctor’s income. While permissible for the billing companies, such practice is a sure way to professional discipline for the physician. The right way would be to arrange for a fixed rate representing fair market value of the services. However, this is different with the collections agencies. Paying collections agencies on a contingency basis depending on the amount recovered is not illegal fee-splitting.

What are the legal consequences of violating the fee-splitting laws and corporate practice of medicine?

In the latter case, since businesses are not allowed to practice medicine, such practice is considered “unlicensed practice of medicine”, which is a class E felony. If convicted, the defendant may serve between one to four years in prison and incur monetary penalties. The entity itself will be dissolved. Physicians who enter into contracts with unlicensed business entities may be charged with fraudulent practice of medicine or practicing beyond authorized scope and be subjected to professional discipline. Illegal fee-splitting is a professional misconduct and any physician found to have violated the fee sharing rules will be disciplined.