Fee Sharing Arrangements: What Healthcare Providers Need to Know

Fee sharing arrangements in healthcare are subject to complex federal and state regulations designed to prevent fraud and protect patients. Understanding these rules is essential for any healthcare provider considering sharing fees with other providers, facilities, or business partners.

What Is Fee Sharing?

Fee sharing (also called fee splitting) refers to arrangements where a healthcare provider shares professional fees with another party. These arrangements can take many forms, from simple referral arrangements to complex group practice compensation structures.

Key Federal Laws

The Anti-Kickback Statute (AKS)

The federal Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving anything of value to induce or reward referrals for items or services covered by federal healthcare programs. This includes:

• Cash payments for referrals
• Excessive compensation arrangements
• Free or below-market services in exchange for referrals
• Gifts or other inducements tied to referral volume

Violations can result in criminal penalties up to $100,000 per violation and imprisonment up to 10 years, plus civil monetary penalties and program exclusion.

The Stark Law (Physician Self-Referral Law)

The Stark Law prohibits physicians from referring Medicare patients for designated health services (DHS) to entities with which they have a financial relationship, unless an exception applies. DHS includes:

• Clinical laboratory services
• Physical and occupational therapy
• Radiology and imaging services
• Durable medical equipment
• Home health services
• Outpatient prescription drugs
• Inpatient and outpatient hospital services

Safe Harbors and Exceptions

Both laws provide safe harbors and exceptions that allow certain arrangements when specific conditions are met:

New York State Fee-Splitting Rules

New York has additional professional conduct rules that prohibit fee splitting. Generally, licensed professionals may not:

• Share fees with unlicensed persons or entities
• Pay or receive compensation solely for referrals
• Enter arrangements that compromise professional independence

Exceptions exist for certain practice arrangements, but they must be carefully structured to comply with professional conduct rules.

Permissible Arrangements

The following types of fee sharing arrangements are generally permissible when properly structured:

• Employment-based compensation: Paying employed physicians based on productivity
• Legitimate group practice sharing: Partners sharing profits based on services personally performed
• Fair market value arrangements: Paying for actual services at rates consistent with fair market value
• Space and equipment rentals: When based on fair market value and not referral volume
• Practice acquisitions: Reasonable payments for practice goodwill and assets

Red Flags to Avoid

• Compensation that varies based on referral volume or value
• Payments to non-licensed individuals or marketing companies per referral
• Below-market rent or services provided to referral sources
• Free or discounted services to induce referrals
• Excessive compensation compared to fair market value
• Sham contracts that don't reflect actual services

Structuring Compliant Arrangements

To structure a compliant fee sharing arrangement:

1. Document the business purpose beyond generating referrals
2. Ensure fair market value through independent valuation if needed
3. Put everything in writing with specific terms and duration
4. Fix compensation in advance without tying to referrals
5. Comply with all applicable safe harbors and exceptions
6. Obtain legal review before implementation

Consequences of Non-Compliance

• Criminal prosecution and imprisonment
• Civil monetary penalties (up to $100,000+ per violation)
• Treble damages under False Claims Act
• Exclusion from Medicare and Medicaid programs
• Professional license suspension or revocation
• Reputational damage and loss of hospital privileges