Physicians Fee-splitting & Nurse Fee-Splitting More Common Than You Realize

An RN who is working on getting her NP recently called our law firm, asking whether he was engaging in illegal “fee-splitting” in her compensation arrangement with a physician.

Fee-Splitting Compliance Don’ts

Physician fee-splitting, and fee-splitting with other licensed healthcare professionals (such as nurses) is very common, not only in medical spas, but also in other healthcare ventures.

Bobby, our RN in this hypothetical was not an NP—that he would soon become an NP would improve his situation, but in this case, almost is not the same as being there.

Bobby rented a room in the office of a prominent Bay Area plastic surgeon. The plastic surgeon had a thriving practice and website featuring all sorts of plastic surgery, dermatologic, and aesthetic medicine procedures.

Bobby had his own website, in which he featured all of the treatments that Bobby did as a nurse, in conjunction with the surgeon. The surgeon was not listed on Bobby’s website, and the website made it appear as though Bobby was practicing medicine.

Mistake #1, or as an attorney colleague in Silicon Valley would say—DOA (dead on arrival), or perhaps medical board investigation on arrival. Unlicensed practice of medicine is not a pretty charge.

Fortunately, Bobby had called us for advice—the premise of the inquiry was Bobby wanting to know whether he should form a corporation or LLC.

In truth, either would have been fine, but for the fact that Bobby didn’t know that he was setting up a corporation to practice medicine illegally.

Individual and corporate practice of medicine is what we call the “evil twin” of fee-splitting (or perhaps to keep it neutral, simply the twin arm of prosecution). Bobby can’t practice medicine and—as importantly—can’t set up a website that makes it appear to the public as though he is practicing medicine; and as a nurse, Bobby can’t split fees with the medical doctor.

The S-corporation or LLC can do other things, however—so long as these are non-clinical. This is perhaps where Bobby as a nurse could derive revenue, if he was a savvy business person who could effective manage or market the physician practice as an MSO.

Fee-Splitting Don’ts

When we asked Bobby about how he structuring the compensation arrangement or flow of monies between him (the nurse) and the plastic surgeon, Bobby said: “They’re my patients and I give the medical doctor money for them.”
As they might say in Texas, That There sounds like fee-splitting and illegal practice of medicine.

Take a look at California Business & Professions Code Section 2417.5:

(a) A business organization that offers to provide, or provides, outpatient elective cosmetic medical procedures or treatments, that is owned or operated in violation of Section 2400, and that contracts with, or otherwise employs, a physician and surgeon to facilitate its offers to provide, or the provision of, outpatient elective cosmetic medical procedures or treatments that may be provided only by the holder of a valid physician’s and surgeon’s certificate is guilty of violating paragraph (6) of subdivision (a) of Section 550 of the Penal Code.

(b) For purposes of this section, “outpatient elective cosmetic medical procedures or treatments” means medical procedures or treatments that are performed to alter or reshape normal structures
of the body solely in order to improve appearance.

(c) Nothing in this section shall be construed to alter or apply to arrangements currently authorized by law, including, but not limited to, any entity operating a medical facility or other business
authorized to provide medical services under Section 1206 of the Health and Safety Code.

Business & Professions Code 2400 is the code section that says that corporations and other artificial legal entities have no professional rights, privileges, or powers. In other words, it prohibits the corporation practice of medicine.

The patients always “belong” to the medical doctor, not the nurse.

And it is the medical doctor who contracts with the nurse for the nurse to provide nursing services under the medical doctor’s supervision. The nurse does not hire the medical doctor.

See our prior posts:

Bobby said: “Nobody knows the structure of my relationship with him.” (the medical doctor)

Well, the Shadow knows (evil laugh….) and the Shadow could come and visit.

Bobby said: “Not every patient gets a good faith exam from the plastic surgeon … but I doubt any undercover investigators will go to the doctor’s office and rat us out.”

Umm, rat out … someone has been watching too much film noir.

Before restructuring the arrangement, or revising his website, Bobby should also read:

And also online resources such as California Board of Nursing Regulations and California Board of Medicine FAQs on cosmetic treatments, including:

I’ve been approached by a nurse to be her “sponsoring physician” for her laser and Botox practice; would that be legal?

No. There is no such thing as a “sponsoring physician.” Nurses may not, under California law, employ or contract with a physician for supervision. A nurse may not have a private practice with no actual supervision. While the laws governing nursing recognize “the existence of overlapping functions between physicians and registered nurses” and permit “additional sharing of functions within organized health care systems that provide for collaboration between physicians and registered nurses” (Business and Professions Code section 2725), nurses only may perform medical functions under “standardized procedures.” The board does not believe this allows a nurse to have a private medical cosmetic practice without any physician supervision.

There was more work to be done, but Bobby figured he would “fly under the radar.”

You can lead a horse to water, but you can’t make them drink, or read a bunch of regulations.

Compliance Clean-up, Clean-up, Everybody Let’s Clean Up!

We made a few recommendations to Bobby, including:

  • Restructure the arrangement so it is the medical doctor who hires—and supervises—the nursing staff; so as to reduce corporate practice of medicine, unlicensed practice, and fee-splitting concerns.
  • Understand that the patients are those of the medical doctor and that the MD or DO has to supervise the nurses.
  • Where the website can give the appearance that the RN is practicing medicine, the language and presentation needs to be changed.
  • In terms of desired “revenue-sharing,” there are alternative, more compliant arrangements, such as potentially:
    • Having the nurse run an MSO that manages and markets the practices
    • The nurse having a 49% or less equity stake in the professional medical corporation of the medical doctor (though this may be legally thorny for the doctor)
    • Having the nurse manage a products side of the practice.
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