Breaking Down Fee-Splitting Restrictions in Healthcare Investment Deals
New York strictly enforces fee-splitting restrictions and corporate practice of medicine (CPOM) laws. Healthcare investment deals cannot permit fee-splitting for medical fees, referrals, and patient-volume based compensation, among other restrictions. Structuring your deals correctly avoids common problems, fines, and penalties associated with non-compliance, and protects your investments.
The attorneys at Daniels, Porco & Lusardi, LLP are ready to help. We help you structure a deal that works for all parties involved while avoiding common regulatory pitfalls. Our team understands the importance of corporate compliance, protecting your assets, and safeguarding the patients who rely on your care.
What Is Fee-Splitting Under New York Law?
Fee-splitting occurs when a licensed healthcare professional shares professional fees with a non-physician or unlicensed party. Under New York state law, physicians may not:
- Share medical fees with non-physicians
- Pay for referrals or receive compensation tied to patient volume
- Enter into arrangements that allow non-physicians to influence clinical judgment
- Structure payments in a way that indirectly transfers medical revenue to unlicensed parties
These rules are designed to protect patient care by ensuring that only licensed professionals control medical decision-making and benefit from clinical revenue.
Why Fee-Splitting Matters in Healthcare Investment Deals
In New York, fee-splitting restrictions directly impact how healthcare investment deals are structured. Investors cannot receive a percentage of medical revenue, profits, or collections. They also cannot tie their compensation to clinical performance metrics that could influence medical judgment.
This creates a challenge for private equity firms and other investors who want to participate in the growth of a medical practice without violating CPOM or fee-splitting laws. As a result, deal structures must carefully separate clinical revenue from administrative or management revenue.
What Fee Structures Are Allowed?
New York prohibits MSO fees that are based on a percentage of medical revenue or profits. Instead, compliant arrangements typically use:
1. Flat Monthly Fees
A fixed amount paid regularly for administrative services. This is the simplest and most conservative structure.
2. Cost-Plus Arrangements
The MSO is reimbursed for its actual costs plus a reasonable markup. The markup must reflect fair market value and cannot be tied to clinical performance.
3. Fair Market Value (FMV)-Based Service Fees
Fees determined through an independent valuation that reflects the value of the administrative services provided, not the value of clinical revenue.
What Fee Structures Are Prohibited?
New York regulators closely scrutinize arrangements that resemble revenue-sharing. Prohibited structures include:
- Percentage-based fees tied to collections or profits
- Compensation tied to patient volume or productivity
- Bonuses or incentives linked to clinical outcomes
- Any arrangement that gives a non-physician a financial stake in medical revenue
Even indirect revenue-sharing such as a “performance fee” that tracks collections can be considered unlawful fee-splitting.
How Fee-Splitting Interacts With CPOM Rules
Fee-splitting and CPOM are closely related. CPOM prohibits non-physicians from owning or controlling medical practices. Fee-splitting prohibits them from sharing in medical revenue. Together, these rules ensure that:
- Physicians retain full control over clinical decisions
- Investors cannot influence medical judgment
- Clinical revenue remains with licensed professionals
- Administrative services are compensated separately and at FMV
This dual framework is why New York healthcare deals require careful structuring and documentation.
Common Compliance Pitfalls in New York Deals
Even well-intentioned arrangements can run into trouble if not structured properly. Common pitfalls include:
- MSO fees that fluctuate with practice revenue
- “Shadow control” provisions that give investors influence over clinical operations
- Incentive structures that indirectly reward clinical productivity
- Poorly documented service agreements
- Lack of independent FMV analysis
Comply With Fee-Splitting Rules in Your Healthcare Transactions
New York healthcare regulations are strict, especially when it comes to fee-splitting arrangements. With the right legal advice, you ensure you remain compliant. This lets you focus on patient care and maximizing your investments. The attorneys at Daniels, Porco & Lusardi, LLP are ready to help. Contact us today for a consultation.