What You Need to Know About Fee-Splitting

What You Need to Know About Fee-Splitting

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In today’s video, we discuss when fee-splitting occurs, specifically medical fee-splitting and including doctor fee-splitting in California.

Many healthcare startups ask this question, so do physicians and other licensed healthcare providers; though whether and when fee-splitting occurs is especially of concern to businesspeople who want to start a medical spa, a telemedicine operation, or a health and wellness app or software platform, and, involve medical doctors.

My name is Michael H. Cohen and I’m founding attorney of the Cohen Healthcare Law Group.  We’ve advised hundreds and hundreds of healthcare entrepreneurs, and healthcare clinicians, and businesspeople just like you on questions involving medical fee-splitting.

Today, I’ll explain what constitutes fee-splitting; when fee-splitting occurs; what’s the difference between fee-splitting, a kickback, and violations of “Stark.”

First, what is medical fee-splitting?  Medical fee-splitting occurs whenever a physician—well—“splits” their professional fee with another person, say the front desk person who is managing their operation.  Think about it this way.  Let’s say you start a healthcare venture, for example a telemedicine company.  It could be tele-dermatology, telehealth wellness checkups, telemedicine for sleep, or fertility, or some other condition.  You create a software platform and an app where your users, or customers, can contact a network of physician and get medical or wellness consults online or via the app.  The user essentially becomes a patient of the doctor.  The user or consumer pays you a fee for this service, and from that fee, you then pay the physician.

Could this be considered fee-splitting?  Definitely.  An enforcement authority could see this kind of scenario as you, essentially taking the professional fee and splitting the fee between you and the medical doctor.

When we talk about fee-splitting, we are usually talking about state law, not federal law.  Federal law is relevant where you have a federal payor such as, for example, Medicare.  But even where there’s no Medicare, and perhaps not even commercial insurance—for example, you just have a cash arrangement, state law prohibitions against fee-splitting can apply.

Second, let’s talk about fee-splitting vs. a kickback.  Fee-splitting, as we said, involves a perception that you are splitting the doctor’s fee between the doctor, and the business arm or separately incorporated business, say the telemedicine software platform company.  A kickback involves a scenario in which the licensed healthcare practitioner—let’s say, a physician, dentist, nurse, psychologist, or chiropractor—pays money for the referral.

So if you take the same arrangement we just discussed, the consumer pays the company $100 and the  company  pays  the  doctor  $25,  that  could—potentially—be  considered  fee-splitting  of  a professional fee of $100 into $25 to the doctor and $75 to the software company; and, it could also be viewed as the doctor giving the company a kickback of $75 for the referral.

Stark” is something different.  “Stark” refers to federal law and the basic concept is that the physician refers the patient to an entity in which the physician has a financial interest.  We call this, “self-referral.”

Under federal law, some of these self-referral arrangements are prohibited.   For example, the licensed medical doctor cannot refer the patient to a clinical laboratory in which the physician has a financial interest—say, where the physician owns shares.  Now, the Stark prohibitions apply to a list of what are called “designated health services,” or DHS.

States also have laws that mirror Stark.  For example, California has the Physician Ownership Referral Act, or PORA.

When you get a fee-splitting question, you typically also would want to review whether there is a potential violation of prohibitions against self-referral, as well as whether there is a kickback.

This whole area of law is called “fraud and abuse,” and gets enormously complicated, with exceptions to the self-referral rules, and, safe harbors to the anti-kickback prohibitions.

And, as healthcare lawyers, we also have various structures we can use to help mitigate enforcement risk, where we feel the goal is to create a legitimate enterprise to deliver healthcare services, whether it’s a brick-and-mortar like a medical spa, or an online and mobile, digital health venture like a telemedicine company.

Among these, we might, for example, be able to structure the user fee as a fee for using the telemedicine company’s software platform.  This takes knowledge of healthcare law, as well as understanding how to draft an appropriate agreement between the company and the user, which sometimes gets tucked into the Terms of Use.

One of my healthcare attorney colleagues analogizes knowledge of healthcare law to knowing a foreign language.  It can take years and years to build up your vocabulary.  And you learn not only the basics, but also somewhat arcane and esoteric passageways through the vast labyrinth of rules that govern health and wellness enterprises.

Sometimes you need street smarts and street talk; at other times, you need Shakespeare; still other times, it’s more like lawyered diplomacy.

Healthcare regulation really is a labyrinth, and you don’t want go get eaten by the Minotaur—that creature of Greek mythology that feasted on those who were tossed into the labyrinth and lost their way.  No, no, no, you don’t want to have some regulator or private plaintiff feasting on you by way an action involving Stark, anti-kickback or fee-splitting prohibitions, or some other area of law such as corporate practice of medicine, or HIPAA.

We  get  deep  into  the  weeds of  some  of  these  areas  on  our  Healthcare  &  FDA  law  blog,  at cohenhealthcarelaw.com/BLOG.

We go even deeper with our clients when we do an initial Legal Strategy Session.

Some people use the term, compliance.  But I find that boring.  No one wants to spend their life checking off a bunch of boxes. I think more in terms of risk assessment and risk mitigation.  We have a three-step process:

  1. Understand your business model so we can issue-spot, trouble-shoot, and grasp the issues.
  2. Provide you with initial recommendations during a Legal Strategy Session.
  3. Do a deeper dive so you can know the legal pitfalls and guardrails, navigate successfully.

Thanks for watching. Here’s to the success of your healthcare venture, we look forward to speaking with you soon.

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