Many medical spas, health care clinics, integrative medicine facilities, and wellness facilities are asking whether sharing revenues with practitioners violates the law and puts them in legal jeopardy.

 The answer is complex, simply because it depends on:

  • the actual compensation arrangement being proposed
  • the application of federal law (including Stark and anti kickback rules) to the extent it applies
  • and state law governing self-referral, fee-splitting, kickbacks, and patient brokering

Federal law contains numerous exceptions to Stark and "safe harbors" under anti-kickback law.

State law often has several statutes,, each governing a different aspect of the problem.  For example, there could be a state law:

  • prohibition on self-referral (referring to an entity in which the health care practitioner has an ownership or compensation, financial interest)
  • prohibition on kickbacks
  • prohibition on fee-splitting
  • prohibition on patient brokering

In addition, these prohibitions could be found in multiple places, such as:

  • a separate, generic statute applicable to all health care practitioners (for example, a Patient Brokering Act)
  • language in a particular clinician’s licensing statute
  • language tucked away in the portion of a licensing law dealing with professional discipline (misconduct / unprofessional conduct)
  • a statute dealing with conflicts of interest (may be specific to medical goods as opposed to services, or could be more general)

Once your health care law attorney zeroes on the relevant statute, it is important to see whether there are any Attorney General opinions or Board decisions on point.  Sometimes judicial opinions (the cases) will offer further guidance.

Below is a portion of a memo our law firm produced, with legal research and analysis targeted to New York State law.


NYS courts are rather mixed on whether percentage-based arrangements fall within relevant legal boundaries. In fact, NYS courts frequently invoke § 6509-a, Rule 29.1b, and §238-a together. In the cases below, courts disallowed fee-splitting arrangements:

·         In Sachs v. Saloshin,[1] a dentist entered into a lease arrangement in which he remitted 20% of the gross revenues from his dental practices to the lessors, as partial payment for renting the space. The lessors sued the dentist for rent and he filed a counterclaim. The court dismissed his counterclaim, holding that the arrangement violated §6509-a and §29.1b.

·         In Toffler v. Pokomy,[2]a periodontist, entered into a lease with the landlord (who was not a periodontist), under which the tenant agreed to pay the landlord a percentage of gross receipts from patients in exchange for office space. The lease terms required all controversies to be submitted to arbitration.

      Initially, the percentage represented fair compensation, but once the periodontist’s business grew, he claimed that the arrangement no longer represented fair compensation. He also contended that the agreement became more akin to fee-splitting rather than a fair rental arrangement and, as such, was prohibited under N.Y. Educ. Law §6509-a.

The matter was submitted to arbitration and the tenant requested a stay on those proceedings because the arrangement violated state law and public policy. The court agreed and held that the agreement was patently unethical and therefore illegal. The court found that it had authority to stay arbitration, even though already commenced, since, on its face, the fee splitting arrangement was patently in violation of the Education Law. Arbitration proceedings were permanently stayed accordingly.

·         In Katz v. Zuckermann,[3] a medical doctor, entered into an agreement with nonprofessional medical technicians, wherein the MD would pay the technicians 50% of the fees (less certain office expenses) received for certain tests performed on the MD’s patients. The court found that this fee-splitting arrangement violated §6509-a and §29.1b.

      The court in Katz relied on Bell v. Board of Regents,[4] a case decided before New York law expressly prohibited fee-splitting. Bell, a dentist, employed a non-dentist for the primary purpose of contacting prospective patients and bringing them for treatment. The dental board found that this commission constituted unprofessional conduct, and disciplined the dentist accordingly. The Court upheld the Board’s action, stating:

There is one course of conduct which in each and every profession is known as a matter of common knowledge to be improper and unprofessional. That is conduct by which, after a professional man has been licensed by the State, he enters into a partnership in his professional work with a layman, by the terms of which he divides with the latter, on a percentage basis, payments made by client or patient for professional services rendered.

·         In LoMagno v. Koh,[5] the court refused to enforce a contract based on a fee-splitting arrangement. The court stated that public policy prohibited enforcing an illegal contract.

·         In Necula v. Glass,[6] the court upheld a determination by the Department of Social Services that a radiologist should be excluded from Medicaid, because he had engaged in illegal fee-splitting in violation of 29.1b. According to the court, the radiologist contracted with management companies for them to provide facilities, supplies, equipment and non-physician staff necessary to operate his radiology practice, and the radiologist was to pay the companies a fixed percentage of his receipts for billing services and a fixed dollar amount for each procedure performed. The court found this to be illegal fee-splitting, since the radiologist’s “payments to the companies were a percentage of or otherwise dependent upon his income or receipts.”[7]

            In the cases below, courts held that compensation arrangements were not prohibited by 6509-a:

·         In Zador v. Millard Fillmore Hospital,[8] the plaintiff doctor was on certain laboratory panels at defendant hospital that interpreted laboratory tests. The doctor was paid according to a flat fee schedule under one-year contracts with hospital. The doctor sued after the hospital failed to renew his contract. The court held that the contractual fee arrangement was not an illegal kickback under federal law, or improper fee splitting under §6509-a.

·         In Dolin v. Long Island Jewish Medical Center,[9] the allocation of income generated under the employer’s faculty medical plan was held to not be prohibited by §6509-a.

            Only a handful of cases shed light on the “group” exception in §6509-a.[10]

·         In Okere v. State,[11] the court sustained a Board of Regents’ finding that the physician was guilty of illegal fee-splitting where (1) his office assistant established women’s center which thereafter solicited patients exclusively for him, (2) he provided all funding for center, and (3) his funding of center depended on number of patients referred. The court stated that §6509-a “only allows sharing of fees by professional groups or partners and does not allow the sharing of fees between professionals and nonprofessionals regardless of their employment status.”[12]

·         In Rabin v. Hirschfield,[13] the court stated that: “While it is the established public policy of this State that medical providers may not engage in voluntary prospective fee-splitting arrangements, this blanket proscription against fee-splitting does not extend to a licensed professional associated with or employed by a professional corporation formed to provide medical services.” (citations omitted)

·         In Odrich v. Trustees of Columbia University,[14] the court gave extensive consideration to fee-splitting issues. Odrich involved a complicated set of facts under which physician faculty members at a university medical school were required to accept a Dean’s Tax in order to gain employment. The court found this to be an illegal fee-splitting arrangement.

The court first pointed to Education Law §6530(19) which defines professional misconduct for physicians as including:

Permitting any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee.[15]

The court next cited Education Law §6531, which allows for discipline to the extent the practitioner has:

directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting, or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity, in connection with the furnishing of professional care or service.[16]

The court noted that fee-splitting concerns arise irrespective of corporate practice of medicine issues.

Further, certain fee-splitting arrangements are allowed under the Education Law, namely, under Section 6531, physicians who share fees as "partners, in groups or as a professional corporation or as a university faculty practice corporation."[17] 

However, according to the court, an agreement to share fees once physicians sever ties with the group, is illegal. Further, while the statute “’permits fee splitting among fellow physicians who voluntarily enter into a professional corporation[,] plaintiff in the instant case is not a  member of the professional corporation but is an independent doctor who alleges that he would be forcibly conscripted into the corporation at the price of surrendering [a percentage] of his fees against his will. This does not constitute the sharing of fees among fellow members of a group which is contemplated by’” §6509-a.[18]

            In addition, the NYS Department of Insurance General Counsel stated in Opinion No. 02-03-10[19] that a professional corporation “may bill for medical services rendered by the owner(s) of the PC and licensed employees of the PC under the supervision of the physician owner(s).”

            At least one case involving fee-splitting overlaps with concerns regarding the corporate practice of medicine:

·         In United Calendar Manufacturing Corp. v. Huang,[20] the Court analyzed an arrangement involving a corporation where the doctors were required to perform their own billing services and remit 30 percent of their total fees to the corporation. The doctors left the corporation and allegedly copied patient lists and mailed announcement card to patients that advised of their new address. The corporation filed an action against the doctors, seeking a permanent injunction preventing the doctors from rendering services to these patients and money damages. The corporation argued that its business did not constitute the practice of medicine, since the doctors were paid directly by patients, and the corporation merely received 30% of the doctors’ gross earnings.

      The court rejected the corporation’s argument and found that the corporation was engaged in unlawful corporate practice of medicine. Further, the patients “belonged” to the doctors, not the corporation, and therefore the corporation did not have any legal claim to any patients treated at its facility. The court also found the corporation’s contract with the doctors to be illegal and violation of the prohibitions against fee-splitting contained in §6509-a and §29.1.

            Because Education Law § 6531 (which applies to physicians) also contains a fee-splitting prohibition and “group” exception, we researched case law to see whether it would shed light on the contours of exception. However, the only additional relevant case[21] is as follows:

·         In Matter of Mukendi,[22] a physician was associated with 11 clinics, all run by non-physicians. The clinics “exerted pressure on Respondent to order the same tests, treatment and medical equipment for each patient. The menu of services that Respondent ordered was determined by the medical services available at a particular clinic.” The physician also received a percentage of net receivables or of collected receivables. In addition to finding many grounds of misconduct (such as aiding and abetting unlicensed medical practice) for allowing non-physicians to dictate the physician’s medical treatment, the Board also found that he had engaged in illegal fee-splitting.


Our law office has attorneys with legal experience  in FDA matters, including guiding  clients involved in health care  delivery, group medical and private  medical practice, who are concerned  about issues at the interface of  federal and state law, concerned  about medical board discipline or  medical malpractice liability  issues.  We also review and draft informed  consent forms and guide  clients concerning a variety of health care law  issues.

If you have legal questions concerning self-referral, kickbacks and fee-splitting or patient brokering in New York, California, Massachusetts, Washington DC, and other states, contact  a lawyer who knows the rules.

Consult an experienced  health care law attorney who knows complementary medicine and integrative  medicine for legal advice pertaining to any project involving allied health or CAM     professionals.


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[1] Sachs v Saloshin (1988, 2d Dept) 138 App Div 2d 586, 526 NYS2d 168.

[2] Toffler v Pokorny (1993, Sup) 157 Misc 2d 703, 598 NYS2d 445.

[3] 501 N.Y.S.2d 144 (S.Ct., App. Div., 2d Dept., 1986). 

[4] 65 N.E.2d 184 (Ct. App., 1945). 

[5] 246 A.D.2d 579; 667 N.Y.S.2d 280; 1998 N.Y. App. Div. LEXIS 389 (1998).

[6] 231 A.D.2d 457; 647 N.Y.S.2d 501; 1996 N.Y. App. Div. LEXIS 9396 (1996).

[7] The radiologist also permitted an unlicensed person to submit bills on his behalf with his provider number.

[8] 261 A.D.2d 876; 689 N.Y.S.2d 816; 1999 N.Y. App. Div. LEXIS 4912 (1999).

[9] 139 A.D.2d 487; 526 N.Y.S.2d 591; 1988 N.Y. App. Div. LEXIS 3713 (1988).

[10] In addition, there is a definition of “group practice” in the Health Care Practitioner Referrals Subpart of NYCRR Title 10 (see Appendix 3). The overlap between these regulations and the purposes of and concepts in 6509, 29.1b, and 238-a suggests that the NYCRR’s borrowing of “group practice” language from federal law may be helpful in interpreting the term “groups” in the rules just referenced.

[11] 518 NYS2d 210, (1987, 3d Dept), app den (1987) 70 NY2d 611, 523 NYS2d 495, 518 NE2d 6.

[12] The court clarified: “It is well settled that a professional’s payment of a commission on fees realized from patients procured by an unlicensed person is improper and unprofessional. This is true even though the nonprofessional is technically "employed" by the professional to perform these services. Accordingly, Diehl’s status as a possible employee of petitioner does not remove this case from the ambit of Education Law § 6509-a. Further, since Diehl [the office assistant] expressly testified at the hearing that she solicited patients exclusively for petitioner and, further, that the remuneration that she received was essentially dependent upon the number of patients she referred to petitioner, we are constrained to conclude that the charge of fraudulent practice of medicine … is supported by substantial evidence, as are the various charges of unprofessional conduct relating to, inter alia, improper referrals and fee splitting…. Further, the record supports the finding of professional misconduct in splitting fees in violation of Education Law § 6509-a.” (citations omitted)

[13] 223 A.D.2d 535; 636 N.Y.S.2d 117; 1996 N.Y. App. Div. LEXIS 160 (1996).

[14] 193 Misc. 2d 120; 747 N.Y.S.2d 342; 2002 N.Y. Misc. LEXIS 1176 (2002).

[15] “This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice, except as otherwise provided by law with respect to a facility licensed pursuant to article twenty-eight of the public health law or article thirteen of the mental hygiene law.”

[16] Section 6531 provides that the license or registration of a physician or physician assistant may be revoked, suspended or annulled, or the person may be subject to another penalty, for the following:

That any person subject to the above-enumerated articles has directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting, or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity, in connection with the furnishing of professional care or service, including x-ray examination and treatment, or for or in connection with the sale, rental, supplying, or furnishing of clinical laboratory services or supplies, x-ray laboratory services or supplies, inhalation therapy service or equipment, ambulance service, hospital or medical supplies, physiotherapy or other therapeutic service or equipment, artificial limbs, teeth or eyes, orthopedic or surgical appliances or supplies, optical appliances, supplies, or equipment, devices for aid of hearing, drugs, medication, or medical supplies, or any other goods, services, or supplies prescribed for medical diagnosis, care, or treatment under this chapter, except payment, not to exceed thirty-three and one-third percent of any fee received for x-ray examination, diagnosis, or treatment, to any hospital furnishing facilities for such examination, diagnosis, or treatment.

[17] The full statement in section 6531 is: “nothing contained in this section shall prohibit such persons from practicing as partners, in groups or as a professional corporation or as a university faculty practice corporation, nor from pooling fees and moneys received, either by the partnerships, professional corporations, or university faculty practice corporations or groups by the individual members thereof, for professional services furnished by an individual professional member, or employee of such partnership, corporation, or group, nor shall the professionals constituting the partnerships, corporations or groups be prohibited from sharing, dividing, or apportioning the fees and moneys received by them or by the partnership, corporation, or group in accordance with a partnership or other agreement; provided that no such practice as partners, corporations, or groups, or pooling of fees or moneys received or shared, division or apportionment of fees shall be permitted with respect to and treatment under the workers’ compensation law.”

[18] Id., quoting Hauptman v. Grand Manor Health Related Facility, 121 A.D.2d 151, 502 N.Y.S.2d 1012 (1st Dept 1986). The court also commented on Albany Medical Center v. McShane, 66 N.Y.2d 982, 499 N.Y.S.2d 376, 489 N.E.2d 1278 (1985), which “stands for the unremarkable proposition that physicians may collectively practice through a clinic run by a medical school. As such, they are permitted to pool resources and income.” The court distinguished McShane from the facts before it:

In a case where the treating physician receives no salary or related benefits from the school, has not entered into an agreement to pool resources and share responsibility for patient care, and where the treatment arises out of an arrangement between private doctor and patient at a location completely divorced from the medical school or hospital there is no connective relationship which would justify extending McShane to permit fee-splitting with the medical school or hospital. Simply invoking the mantle of "medical school" as a protective cloak without justification for the protection ignores the policy and reasoning implicit in the McShane decision.

Education Law § 6531 permits a division of fees by professionals who are affiliated in a partnership or corporation. McShane permitted a division of fees between providers (a hospital and a physician) where both assumed responsibility for the patient’s care. Can this be extended to physicians or providers who are not affiliated, but who share in the responsibility for the patient’s care? Presumably so, since each provider is, in essence, being paid by the patient for the care of that [**349]  patient. (See e.g. Matter of Weiner v Bd. of Regents, 3 A.D.2d 113, 158 N.Y.S.2d 730 [3d Dept 1956] [requiring the Board of Regents, in a disciplinary proceeding against a physician, to distinguish between shared fees where there was a division of services, and  [*129]  thereby seemingly acceptable, and shared fees which were merely for referrals, and thereby illegal].) Here, however, the school seeks to stretch McShane one step further yet. The [***19]  question becomes whether authorized providers may share fees–when they are neither affiliated in a partnership, corporation, or similar organization, nor sharing in the care of the patient–merely because one is a medical school which grants hospital privileges to the physician. According to petitioners, there is no clear New York precedent regarding this proposition because the school’s reach for a share of fees derived from private practice income unrelated to its clinic is unprecedented. Respondents as well concede that this is not a settled practice and, that for some part-time faculty members, no Dean’s Tax is collected….

McShane’s common-law exception should not be extended to permit a medical school to claim a share of income from an unpaid faculty member’s private practice as a price for the doctor’s access to the hospital facility unrelated to the patient’s care or the school’s responsibility. Respondents’ demand in this case is especially troubling because the proposed arrangement is disconnected from, and disproportionate to, the services provided. Hauptman, 121 A.D.2d 151, 502 N.Y.S.2d 1012, supra.) As in Hauptman, the proposal is "overreaching" and "indicative of an illegal and unethical fee-splitting arrangement." Hauptman, 121 AD2d, at 154. Arguably, the school could demand a split-fee from patients who had in the past, or would in the future, use the school’s or the hospital’s facilities. Similarly, the school and the hospital are free to negotiate a fee or price with petitioners for their use of, or access to, the facilities on whatever terms they may find acceptable. Here, however, the demand is not proportionate, or related in any way, to the patient’s care or the doctors’ access to the facility.

The court concludes: “The ban on fee-splitting was not created for the purpose of measuring the "fairness" of a contract negotiated at arm’s length between the doctors and the practice plan. It was created to protect patients from inflated billings and clandestine partnerships which have the potential to compromise health care decisions. The parties cannot settle their differences by passing an unjustified cost onto future patients who are not served by the clinic.”

[19] 2002 NY Insurance GC Opinions LEXIS 109 (2002).

[20] 463 N.Y.S.2d 497 (S.Ct., App. Div., 2d Dept., 1983).

[21] We also searched the New York State Codes, Laws and Regulations (“NYCRR”). See Appendix 3. We further researched the LEXIS database for New York Agencies & Attorney General Opinions, Combined, and only found the material discussed above as and as follows. According to Informal Opinion No. 87-F9 by the AG, 1987 N.Y. Op. (Inf.) Att’y Gen. 29; 1987 N.Y. AG LEXIS 1 (1987), when issuing a clinical laboratory permit or a certificate of qualification, in addition to the specific statutory criteria, the Department of Health may take into consideration violations of the anti-kickback provisions of the General Business Law in order to determine whether the applicant is fit for licensure.

[22] BPMC NO. 07-227, 2007 N.Y. Phys. Dec. LEXIS 560 (2007).