CAMLAW: Complementary and Alternative Medicine Law Blog

Managing Fee Splitting Issues in the Integrative Care Center or Medical Spa

This article updates our discussion of how clients might be able to structure multidisciplinary clinical practices involving complementary medicine, holistic health, and medical spa therapies in compliance with applicable laws governing fee-splitting and kickbacks.

In Legal Issues in a Medical Spa or Integrative Care Center: Anti-kickback and Fee-Splitting Concerns - The Laws we looked at some of the governing laws - the federal "Stark" and Anti-Kickback statutes, and mirror state prohibitions such as those on fee-splitting.

In Legal Issues in a Medical Spa or Integrative Care Center: Anti-kickback and Fee-Splitting Concerns - Structuring the Practice we wrote about the way we help our clients structure their centers or spas so as to address these legal concerns.

We noted that legal issues involving self-referral, kickbacks and fee-splitting need to be addressed in structuring a medical spa or integrative medicine care center - or even a multidisciplinary clinical health care center or group practice that involves multidisciplinary teams of allied health providers, such as psychologists and nurses.  Within the medical spa, we are dealing with therapies such as Botox, collagen injections, laser skin resurfacing and laser therapy, and other cosmetic, aesthetic, and retail medical procedures.

Below we update the earlier information to make it more comprehensive:

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Fee-Splitting and Kickbacks in Integrative Clinical Care or Holistic Wellness Centers and Medical Spas

The problem with splitting the check: Many clients call our attorneys and present a typical arrangement in which the center or spa accepts a fee for service from the patient and then splits it with the practitioner.  For example, the center takes in $100 and gives the chiropractor, acupuncturist or massage therapist a percentage (say 60% or $60).

Whether you call this a fee-split or kickback, the problem is still the same.  Federal law tends to call it a "kickback." Both the Health and Human Services (HHS) and Office of the Inspector General (OIG) opinions consider kickbacks a form of health care fraud and abuse.  The kickback involves being paid in exchange for referring patients to an entity as opposed to getting paid market value for health care services.  State laws may use kickback language or may simply prohibit fee-splitting.  In any case, the basic concept is this:

  • The health care provider) cannot be paid a 'volume-based discount.' By health care provider we typically, but not always, mean the physician (MD or DO), because there is normally a state law that prohibits medical doctors from doing so.  Some states will include other practitioners such as chiropractors (this is the case, for example, in NY). 
  • This prohibition is particularly relevant to the integrative care center (which integrates conventional medicine with complementary and alternative medicine (CAM) therapies, and physicians and allied health care providers with CAM professionals such as chiropractors, acupuncturists, massage therapists, and nutritionists or energy healers) or medical spa. We use the two interchangeably for this discussion because the fee-splitting concerns are the same. 
  • Translating the prohibition down to its most understandable level, the Professional Medical Corporation (or Physician, or other health care practitioner in states that apply the prohibition more broadly than to MDs and DOs) cannot be paid on a per-patient, production basis,  The Physician may be operating through a Professional Medical Corporation so we use the two interchangeably here. 
  • The prohibition on payment on a per-patient basis means that the patient payment for the health care or medical service cannot be split between Professional Medical Corporation (or Physician) and the Medical Spa or Integrative Care Center.  That would quite literally be splitting the doctor's fee between the doctor and the corporate entity (center or spa).
  • In terms of payment flow, the patient cannot pay (write the check out to) Professional Medical Corporation (or Physician) for medical services at the Medical Spa or Integrative Care Center, and have Professional Medical Corporation (or Physician) then rebate a percentage to the Medical Spa or Integrative Care Center, as this would be considered a kickback from the patient's fee. Example: Patient pays Doctor $100 and Doctor rebates $25 to Integrative Care Center of Medical Spa.
  • Nor can the patient pay the Medical Spa or Integrative Care Center for Professional Medical Corporation (or Physician)'s services, and then have the Medical Spa or Integrative Care Center then rebate a percentage to Professional Medical Corporation (or Physician). Example: Patient pays Integrative Care Center or Medical Spa $100, and Center or Spa pays Doctor $75.

The reason it is important to track the flow of payments (who gets the check from the patient, and who then pays whom) is because, as illustrated above, this sets up the fee-splitting (kickback) prohibition.  But there are specific safe harbors and exceptions to fee-splitting and anti-kickback rules that might be utilized.  It is important to work through the specific rules in a given state. 

In general, the following arguments could potentially be used:

  • If the health care practitioner receives payment from the patient and then pays the Center or Spa for administrative services (such as receptionist/scheduling or front desk support, and other services on a menu, such as billing, accounting, and marketing), then arguably (assuming there is no inducement for referrals) the practitioner is not being paid in exchange for referring patients to the Center.
  • If the Center or Spa has hired the practitioner to perform the service, and the Center or Spa receives the check from the patient and then pays the practitioner, then arguably (assuming there is no inducement for referrals) the practitioner is simply an expense of the Center.

Of course there is never any guarantee that a proposed arrangement will not be investigated or subject to enforcement action. However, one can design structures that take account of legal roadblocks and attempt to create a flow of payments that respect existing legal rules.

Structuring the Arrangement to Manage Legal Risk of Illegal Fee-Splitting or Kickback

Our law office often uses two basic, different structures, the "Medical Mall" and the "Center" model, in order to address these concerns. These two structures basically follow the flow of payments laid out above.  (Their actual implementation depends on state law, and the nuances of a given factual situation.)

Once again,  whereas federal law applies anti-kickback rules only to "physicians" as defined under relevant Medicare law, some states, such as New York, apply the fee-splitting prohibition to a variety of practitioners including, for example, nurses and chiropractors.

In the examples below, read "psychologist," "nurse," "practitioner," or simply "other practitioner" for physician if dealing with a non-medical, health care provider. As noted in our previous article on fee-splitting, some states apply these prohibitions broadly against designated non-medical practitioners as well as against physicians.

"Medical Mall" Model

The reason we call this the "medical mall" model is because the set-up for the Center, Clinic or Spa is essentially like a mall that has various "storefronts," one for a medical practice and the other for other health care practitioners.  Simply put, in the medical mall model, the medical doctor rents space; patients pay the medical doctor for services; and the medical doctor pays the Center, Clinic or Spa for administrative services.

So in this arrangement, the Center or Spa will also lease space to the medical doctor and other health care practitioners.  The lease will be a separate written contract.  Lease payments will have to be for the market value of the lease, and not be tied to the volume of patients the practitioner sees or refers to the Center or Spa.  However, in order to accommodate ramp-up time in the practice, the lease can establish a rising amortization payment over time.

Note that there could also be a separate equipment lease.  For example, the medical Spa may buy an expensive laser and lease its use to the medical doctor.

Our attorneys will also draft an agreement to govern the understanding between the Center or Spa and the practitioners, beyond the lease itself.

Whose Patient: The agreement specifies that the Professional Medical Corporation (or Physician) is retained as an independent contractor, with independent medical judgment, to see its own patients at the Medical Spa or Integrative Care Center. Therefore, the medical records are owned and maintained by Professional Medical Corporation (or Physician) and not by the Medical Spa or Integrative Care Center. However, the Medical Spa or Integrative Care Center can be given the right to a copy of those records when the contract terminates. (There is an option for Medspa to administer the records but this would be atypical, and Professional Medical Corporation (or Physician) should in any event be considered 'owner' of the medical records).

Fee structure: Professional Medical Corporation (or Physician) will pay the Medical Spa or Integrative Care Center fair market value for space under a separate lease agreement.

  • In addition, Professional Medical Corporation (or Physician) will pay the Medical Spa or Integrative Care Center a monthly management or administrative fee.

Flow of payments: In the Medical Mall model, patients must write checks for medical services provided by Professional Medical Corporation (or Physician) directly out to Professional Medical Corporation (or Physician). The Medical Spa or Integrative Care Center can serve as the billing and collecting agent for Professional Medical Corporation (or Physician), and be authorized to deposit those checks directly into the Professional Medical Corporation (or Physician) account. The Medical Spa or Integrative Care Center can be authorized to withdraw its administrative fee from the account it maintains for Professional Medical Corporation (or Physician).

Possible business advantages: This model arguably presents less of a corporate practice of medicine problem for the Medical Spa or Integrative Care Center, because it puts the Medical Spa or Integrative Care Center at one further remove from the medical practice of Professional Medical Corporation (or Physician) than the "Medical Spa or Integrative Care Center" model. This removal also could, theoretically, potentially distance the Medical Spa or Integrative Care Center from liability for actions of Professional Medical Corporation (or Physician). It may also be easier to use existing coding and bill insurance companies for various therapies under this model, since patients will 'belong' to Professional Medical Corporation (or Physician), making it easier to justify visits as medically necessary.

Financial Implications:

Medical Spa or Integrative Care Center profit =

Lease payment received from Professional Medical Corporation or Physician.
PlusAdministrative fee received from Professional Medical Corporation or Physician.
Less: Overhead.

Professional Medical Corporation (or Physician) profit =

Income collected from patients seen at the Medical Spa or Integrative Care Center.
Less: Lease payment paid to Medical Spa or Integrative Care Center.
PlusAdministrative fee paid to Professional Medical Corporation (or Physician).

 

Financial Advantage: Theoretically, Professional Medical Corporation (or Physician) does better under this model, assuming it generates large cash flow in its practice at the Medical Spa or Integrative Care Center, and that the lease and administrative payments are not too high.

"Medical Spa or Integrative Care Center" Model

In the "Center" model, the Center is essentially the entity dealing with the patient, and it hires the Professional Medical Corporation to perform designated services.  Simply put, the Center model is one in which the Center contracts with the physician's corporate entity for medical services, and in return, the physician's corporate entity contracts for administrative services.

Whose Patient: In the agreement our attorneys will draft for you, the Professional Medical Corporation or physician exercises independent medical judgment, to see patients within the practice where those patients are also receiving services at the Medical Spa or Integrative Care Center.

  • If the state has a strong corporate practice of medicine doctrine, the medical records should still be owned and maintained by Professional Medical Corporation, with the Medical Spa or Integrative Care Center having the right to contemporaneous copies of these records; otherwise, records can be shared among practitioners or a central (i.e., electronic) record can be created, with each of the Medical Spa or Integrative Care Center and Professional Medical Corporation having the right to contemporaneous access and copies upon termination. Patients should be required to execute a consent authorizing access by multiple caregivers within the Medical Spa or Integrative Care Center.

Fee structure: The Medical Spa or Integrative Care Center pays Professional Medical Corporation a pre-set amount for services rendered or to be rendered.  Examples include:

  • $X per Botox injection
  • $Y per hour of medical services
  • $Z per month.

To avoid the appearance of a kickback, it is better if this is a flat fee and not a percentage. Professional Medical Corporation pays the Medical Spa or Integrative Care Center a monthly management or administrative fee.  If a percentage, the fee must be earned - in other words, must reflect value of services rendered. However, that analysis depends on both federal and relevant state law.

Performance bonuses can be included, so long as they are not based on the volume of patients seen; otherwise it looks like a kickback for patient referrals.

  • Typically, there is no additional rental (or lease) payment for space from Professional Medical Corporation to the Medical Spa or Integrative Care Center. The Professional Medical Corporation is just contracting with the Center or Spa to provide medical services and to receive administrative services; as contrasted with the Medical Mall in which the concept is essentially an independent medical practice sitting inside a multidisciplinary space.

Flow of payments: In the Center Model, the patient pays for medical services rendered by Professional Medical Corporation by writing the check out to the Medical Spa or Integrative Care Center.

  • The Medical Spa or Integrative Care Center again can collect the money either itself or through a third-party MSO or billing and collections service.
  • The Medical Spa or Integrative Care Center can pay Professional Medical Corporation (or Physician) out of this account.

Possible business advantages: The patient experience arguably will be enhanced in a more integrated environment, and this may also be conducive to more cross-referrals within the space, generating additional revenues as well as enhancing collegiality across disciplines.

Financial Implications:

Medical Spa or Integrative Care Center profit =

Income collected from patients Professional Medical Corporation has seen at the Medical Spa or Integrative Care Center.
 
Plus: administrative fee paid by Professional Medical Corporation.
 
Minus: Service fee paid to Professional Medical Corporation.  
Minus: Overhead.  

Professional Medical Corporation profit = 

Service fee received from Medical Spa or Integrative Care Center.  
Less: Administrative fee paid by Professional Medical Corporation (or Physician) to Medical Spa or Integrative Care Center  

Financial Advantage: Theoretically, the Medical Spa or Integrative Care Center does better under this model, assuming that Professional Medical Corporation generates large cash flow in its practice at the Medical Spa or Integrative Care Center, and that the service fee paid to Professional Medical Corporation is not proportionately high.

  • Note that the shorter the contract term, the more regularly the service fee can be adjusted for a growing or declining practice, respectively. The "Center" model also should be easier to implement administratively, since patients are all writing the check out to the same entity.

However, centers or spas can choose the "Medical Mall" option for some of their practitioners (for example, for the MDs) and the "Center" option for the rest. One consideration is that it may be administratively (and psychologically) challenging to migrate from an all-Mall option, say, to an all-Center option, so it is important to structure the practice carefully from the beginning.

Contractor Model

Some have suggested a third model, in which the medical doctor is simply a contractor personally with the Center or Spa.  The medical doctor does not have a professional medical corporation, but instead is conceptually "inside the spa."

In this scenario, the doctor can be paid by the Center or Spa a set amount per procedure as in the Center model, and also, can be paid a percentage of revenues he or she brings to the practice.  The argument is that is not a volume-based kickback, because the provider is inside the entity and is getting paid the exact same amount per procedure.  In other words, the provider is not being paid for the volume of patients referred to the Center or Spa.  If the doc refers patients to other providers within the entity, the doc is not thereby profiting.

Of course, were the arrangement to offer the physician compensation in exchange for referring patients, say, to the massage therapists within the Center or Spa, that would be illegal.  (Note that the doc could refer to other doctors downstream within a "group practice," meaning other docs who spend 75% or more of their time within the practice and have a partnership agreement to that end. This is a so-called "safe harbor" under the federal statute known as the in-office ancillary exception).

Although the Contractor model has benefits, it does not provide the same kind of liability protection as a professional medical corporation, and in addition, the corporation may offer tax benefits. 

Corporate Practice of Medicine Concerns

In addition, there are usually two intersecting legal problems--the anti-kickback, fee-splitting rule, and the prohibition against corporate practice of medicine.  The kind of agreement our attorneys might draft between the medical doctor and the Center or Spa specifies that the MD has independent medical judgment.  This is due to concern about the corporate practice of medicine problem.  For example, the Spa cannot, simply because it needs the money, pressure the doctor to treat a patient who is not a good candidate for Botox.

Every state has different rules governing the corporate practice of medicine doctrine,  however, so state law has to be carefully researched and the analysis must be specific to a given factual situation.

Once again, note that in discussing potential models to handle Stark, kickback, and fee-splitting concerns, it is only possible to outline conceptual ideas in a blog post.  These should not be relied upon as assurance than any given structure or arrangement will pass regulatory muster.  It takes a lot of legal experience to not only analyze a given fact situation and apply relevant law, but also to understand the nuances of current regulatory enforcement priorities and shifting emphases.  (See for example, updates on fair market value issues and Stark laws were violated as a matter of law, federal judge finds.)  You should contact our law office with any questions regarding your situation.

Liability for Negligence

Another related issue that needs to be examined is who bears liability for negligence.  This is complex, because there are so many different practitioners, and the question involves direct liability, as well as vicarious liability (liability for the negligence of another).  Briefly, the Spa generally will not be liable for medical malpractice because the malpractice would be that of the physician.  However, the Spa (or Center) could conceivably be liable for negligent retention of the medical doctor (or other health care practitioner), or for negligent supervision.  It is a good idea to think through possible liability scenarios, and also to have appropriate E&O (errors and omissions) or other insurance.

Self-Referral Issue

Above we have dealt largely with kickbacks and fee-splitting.  There is a separate legal issue known as self-referral.  Essentially, federal (and often state) law prohibit a licensed physician from owning a financial interest in an entity to which he or she refers patients.  So if the medical doctor owns a percentage of the Center or Spa, there is a self-referral problem. 

Under federal law, this is known as "Stark."  However, Stark only applies to 10 services identified in the federal statute.

Some states (such as California) fill in the gap by having statutes address both self-referrals and kickbacks.  State law should be researched carefully.  Federal anti-kickback law only applies if federal money is involved regarding the health care service, but again, state anti-kickback law may "kick" in and should be carefully analyzed.

One way to go about the analysis is to ask questions in this order:

1. Does the doc have an equity position in the Spa or Center? If so, look for a self-referral problem.

2. Does the Spa or Center offer one of the 11 designated services under Stark (note: these do not include cosmetic procedures or aesthetic medicine)? If not, check state law for self-referral issues.

3. Does the flow of payments raise an anti-kickback concern? If so, are federal funds involved (as in Medicare/Medicaid, CHAMPUS, or a federally funded employee insurance program).

4. Do the arrangements trigger a state law, fee-splitting or kickback concern? Is there a federal safe harbor (such as fair market value) that the state would likely follow?

5. Can the arrangement be structured as a "Medical Mall," "Center," or "Contractor" model so as to manage legal risks?

Conclusion

This article represents an introduction to one area that we address in helping our clients structure their medical spas, integrative care centers, or related health practices and business in a manner that is as legally safe yet financially viable as possible.

 

To assess your healthcare legal and regulatory issues, contact the Michael H. Cohen Law Group.  Our healthcare and FDA legal team counsels health and wellness products and technologies, practices, and ventures, that accelerate health and healing.


Michael H CohenMichael H Cohen
Founder
The Los Angeles / San Francisco / Bay Area-based Michael H Cohen Law Group provides healthcare legal and FDA legal & regulatory counsel to health & wellness practices and ventures, including health technology companies (medical devices to wearable health and nanotech), healthcare facilities (from medical centers to medical spas), and healthcare service providers (from physicians to psychologists).Our legal team offers expertise in corporate & transactional, healthcare regulatory & compliance, and healthcare litigation and dispute resolution, in cutting-edge areas such as anti-aging and functional medicine, telemedicine and m-health, and concierge medicine.Our Founder, attorney Michael H. Cohen, is an author, speaker on healthcare law and FDA law, and internationally-recognized thought leader in the trillion-dollar health & wellness industry.
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