Management service organizations can raise red flags with investigators as they are often used by non-professionals as a means to improperly operate and control a medical practice. A management company or administrative services company providing only administrative services to a medical practice is permissible. However, due to the State Farm Mut. Auto Ins. Co. v Mellela, 4 NY3d 313  decision and increasing scrutiny, many management company operators engaging in improper practices, have created a negative reputation for an otherwise legitimate service, which in different formats is used by hospitals.
A management company and medical practice run the risk of getting into trouble if the management company does not charge flat fees for services rendered at fair market value. Based upon professional responsibility, a medical professional could potentially be exposed to sanctions, penalties and loss of license if the arrangement is a disguised fee splitting or kickback scheme. These allegations are often raised by an insurance company or government investigator if a management company and a medical practice have a set of contract fees which continually change.
Every physician and health care provider has heard of the term “fee splitting”. Unfortunately, few really look beyond the most simplistic application of the prohibition, a mistake that could have serious consequences for their career as fee splitting is a violation of professional misconduct regulations.
An allegation of fee splitting is more likely to arise in a dispute with a third party such as an insurance company, independent contractor, or an employee than it is by direct investigation by the Department of Health or Department of Education. This exposes a provider to a greater risk since an adversarial party is the one bringing it to attention of the Office of Professional Medical Conduct (OPMC) or Office of Professional Discipline (OPD in the case of a non physician health care provider).
Any arrangement where one party’s compensation or contract fees are based on a percentage of a provider’s revenue is likely to fall under fee splitting prohibitions. There are limited exemptions, one of the most common being partners/shareholders/owners of a professional organization or professional employee’s incentive bonus (providing they are the same license). Non-professionals do not have a license to lose and are not affected by an allegation for professional misconduct based on fee splitting. As laypeople the OPMC and OPD have no authority over them, so physicians and other health care providers must be extra cautious when dealing with them.