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Multidisciplinary clinical practices present complex and overlapping legal issues including fee-splitting and kickback questions.


            Whether the health care practitioners involved are physicians, nurses, psychologists and other allied health providers, or complementary and alternative medical (CAM) professionals (such as chiropractors, acupuncturists, naturopathic physicians, hypnotherapists, and others), health law attorneys must consider legal issues such as licensing and scope of practice, professional discipline, malpractice liability, insurance questions, and other legal areas.

            Some of the thorniest areas of legal complexity involve the intersection of legal issues such as fee-splitting, kickbacks, Stark issues, the corporate practice of medicine, unlicensed practice, use of employees vs. independent contractors, and other legal issues that arise when integrating various health care practitioners. Our prior articles analyze some of these areas. See, for example:

·         Legal Issues in a Medical Spa or Integrative Care Center: Anti-kickback and Fee-Splitting Concerns – The Laws (discussion of Stark, federal anti-kickback laws, and state fee-splitting laws).

·         Legal Issues in a Medical Spa or Integrative Care Center: Anti-kickback and Fee-Splitting Concerns – Structuring the Practice (discussion of potential ways our attorneys structure multidisciplinary clinical practices involving complementary and alternative medicine, holistic health, and medical spa therapies).

·         Managing Fee Splitting Issues in the Integrative Care Center or Medical Spa – 2 (further discussion of the “Center” vs. “Mall” models).

·         Should a physician who contracts with an integrative care center or medical spa be classified as an employee or independent contractor – Corporate Practice of Medicine Concerns

·         Employee v. Independent Contractor in the Medical Spa or Integrative Care Center

·         Should a physician who contracts with an integrative care center or medical spa be classified as an employee or independent contractor?

·         Federal Self-Referral (Stark) and Anti-Kickback Analysis for Integrative Care Centers

·         The Mall Model: A Legal Structure to Handle Anti-Kickback Concerns of Integrative Care Centers

            As suggested, the legal analysis in these articles applies to:

·         Health care practices consisting solely of physicians

·         Health care practices containing a mix of physicians (medical doctors and/or osteopaths) and allied health professionals such as psychologists, nurses, dentists, and others

·         Health care practices containing complementary and alternative medicine (CAM) providers, either together or in combination with physicians and allied health professionals

·         Medical spas and holistic health care facilities that have CAM providers and/or physicians and allied health professionals on staff.

            Because these issues are legally complex, from time to time we update and/or rewrite our articles to give a more coherent picture of the legal landscape. Here is our June 2010 update.

            To simplify matters, we’re going to use the term “Clinic,” whether we are dealing with an integrative clinical care facility, an integrative center within a larger health care organization, a medical spa, or some similar facility. We’ll also use the term “practitioner,” although in some cases we might be dealing with a licensed medical doctor, or with an MD housed within a professional medical corporation (“PMC”).

Kickbacks and Fee-Splitting

            Question: Is it illegal to split the payment between the Clinic and the practitioner?

            Answer: It depends on several things, including:

·         the flow of payments between the patient, the Clinic and the practitioner;

·         the compensation arrangement between the Clinic and the practitioner; and

·         the exact prohibitions under state anti-kickback and fee-splitting law, as applicable as well as federal anti-kickback law

            Many clients call our health law attorneys and present a typical arrangement in which the Clinic accepts a fee for service from the patient, and then splits it with the practitioner.  For example, the patient pays the Clinic $100; the Clinic then gives the psychologist, chiropractor, acupuncturist or massage therapist a percentage (say 60% or $60), and retains a percentage (say 40% or $40).

            There are two potential legal pitfalls here. The first concerns federal (and sometimes state) laws prohibiting “kickbacks.” 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.  In simplest terms, a kickback involves giving or receiving something of value in exchange for a referral.

            Our example could potentially be seen as a kickback, because it is a compensation arrangement in which the practitioner can be seen to be paid in exchange for referring patients to an entity (the Clinic), as opposed to getting paid market value for health care services.  Essentially, the patient pays the Clinic, and the Clinic “kicks back” 60% to the therapist or practitioner.

            The second legal issue is fee-splitting. To give an example of state law addressing fee-splitting, New York Education Law, section 6509-a includes within the definition of professional misconduct, a situation in which a health care professional “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, receive 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….”

            In plain language, the term “fee-splitting” means dividing a fee between the Clinic and the practitioner. In this case, the $100 payment to the Clinic could be viewed as 40-60 split of the practitioner’s fee to the Clinic.

            Sometimes an arrangement can involve both an illegal kickback and illegal fee-splitting, and sometimes it can involve one and not the other. It is always important to do the analysis under relevant state laws, in addition to any federal laws that may apply.

            One common-sense way to understand these prohibitions is this:

·         The health care provider) cannot pay the Clinic, or receive payment from the Clinic for, a ‘volume-based payment.’ 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 receiving volume-based  payment.  Some states will include other practitioners such as chiropractors (this is the case, for example, in NY). By volume-based payment we mean a payment that varies, depending on the number of patients that either the practitioner or the Clinic, refer to one another. 

·         Sometimes we say that the practitioner cannot be paid on a per-patient basis.  This is the same as saying that volume-based compensation is prohibited. 

            The problem arises in part due to payment flow. The payment flow from the patient, to the Clinic, to the practitioner itself raises fee-splitting and kickback concerns. The flow of payments makes it appear as though there is a volume-based arrangement and/or splitting of fees. The compensation arrangement therefore must be carefully analyzed and justified to ensure that it is based on fees that are earned by the practitioner, and not simply the fact that the practitioner is generating a lot of patient revenues for the Clinic (or the Clinic for the practitioner).

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

            Our law office uses several business structures to try to manage kickback and fee-splitting legal concerns.

            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.

"Medical Mall" Model

            The simplest model is one we call the Medical Mall. In this model, the Clinic is like a mall that has various "storefronts," such as:

·         A center for cosmetic spa therapies like massage and esthetic services.

·         A medical practice.

·         A nutritional practice.

·         An exercise physiology and lifestyle counseling practice.

·         A psychology and mental health counseling practice.

            Patients come to the Mall, but they pay each store owner (or practice owner) directly for services. In this model, the primary business leases treatment rooms or space to independent practitioners who are simply tenants.

            The practitioner rents space from the Clinic, and pays the Clinic for management, administrative and marketing services, such as:

·         Bookkeeping and accounting.

·         Storing records.

·         Managing information systems.

·         Front desk services and scheduling appointments.

·         Marketing the practice.

·         Billing patients, coding super-bills, and/or interacting with insurance.

           The flow of payments is from the patient to the practice for health care services, and from the practice to the Clinic for management, administrative and marketing services. Conceptually, this should not involve kickbacks or fee-splitting, because there is no unearned fee going to either the practitioner or the Clinic in exchange for patient referrals.

            The lease should 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 Clinic.  However, in order to accommodate ramp-up time in the practice, the lease can establish a rising amortization payment over time.

            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.

            Beyond the lease, there is a separate agreement, which our integrative health care, medical spa law attorneys draft, to govern the understanding between the Clinic and the practitioners beyond the lease itself. Among other things, the agreement specifies that:

·         The practitioner is an independent contractor, with independent medical (or other professional) judgment, to see its own patients at the Clinic.

·         The medical records are owned and maintained by the practitioner, although the practitioner can give the Clinic a right to a copy of those records.

·         The practitioner pays the Clinic a monthly management or administrative fee.

·         The patient makes payment out to the practice.

·         The Clinic can serve as the billing and collecting agent for the practice, and be authorized to:

o   deposit payments directly into the practitioner’s  account for services rendered to the patient by the practitioner; and

o   withdraw its administrative or management fee from the account it maintains for the practitioner.

The Medical Mall provides two potential legal advantages:

·         From a corporate practice of medicine standpoint, the practice is an independent whole that stands on its own (again, like a storefront within a mall), and therefore less subject to financial pressures from the Clinic regarding the provision of health care services. In short, the legal structure helps alleviate corporate practice of medicine concerns.

·         From a liability standpoint, the practice is again at one more remove from the Clinic, and thus the Clinic arguably has an additional liability buffer from the liabilities of the practice.

            From an operational standpoint, insurance practices may be easier. Since patients belong to the individual practice, the Clinic can take advantage of the existing billing and coding practices within each the individual practice. Additionally, it may be easier to justify visits as medically necessary.

            From a financial standpoint, the practice has the opportunity to generate better cash flow, assuming its lease and other payments to the Clinic are not too high compared to patient revenues.

            The Center Model

            In the "Center" model, the Clinic (and not the individual practice) is the entity dealing with the patient. Patients belong to the Clinic (not the practice), and the Clinic simply hires the practitioner to perform designated services.   Patients come to the Clinic, and they pay the Clinic directly for services rendered by various practitioners.

            The Clinic provides management, administrative and marketing services, such as:

·         Bookkeeping and accounting.

·         Storing records.

·         Managing information systems.

·         Front desk services and scheduling appointments.

·         Marketing the practice.

·         Billing patients, coding super-bills, and/or interacting with insurance.

           In essence, although these services benefit the practice, they are really for the Clinic. The Clinic is essentially marketing itself by marketing the practice, for example, since the patient belongs to the Clinic and not to the practice.

            The flow of payments is from the patient to the Clinic for health care services, and from the Clinic to the practitioner for services rendered to the patient. Conceptually, this should not involve kickbacks or fee-splitting, because there is no unearned fee going to either the practitioner or the Clinic in exchange for patient referrals.

            Our integrative health care, medical spa law attorneys draft an agreement to govern the understanding between the Clinic and the practitioners. Among other things, the agreement specifies that:

·         The practitioner is an independent contractor, with independent medical (or other professional) judgment, to see the Clinic’s patients.

·         If the state has a strong corporate practice of medicine doctrine and the practitioner is a medical doctor, then the medical records should be owned and maintained by the practitioner, although the practitioner can give the Clinic a right to a copy of those records. Otherwise records can be shared among practitioners or a central (i.e., electronic) record can be created, with each 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 Clinic.

·         The patient makes payment out to the Clinic.

·         The Clinic pays the practitioner, typically a flat fee such as:

o   $X per Botox injection

o   $Y per hour of medical services

o   $Z per month.


o   To help mitigate the legal conclusion of a kickback, it is better if the payment from the Clinic to the practitioner is a flat fee and not a percentage, as percentage-based arrangements trigger scrutiny and can raise questions as to whether the arrangement is a disguised kickback (or in addition, in states prohibiting fee-splitting, an unlawful fee split or even ‘patient brokering’).

§ Although a percentage technically could be a violation, this is a widespread, common practice.

§ The argument that can be made to try to defend this practice is that the percentage fee is earned.

      The fee is earned when it reflects the value of services rendered (or, production by the health care practitioner).

      In other words, the argument is that is not a volume-based kickback, because the provider 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 Clinic, and there is no referral.

      § For example, if the doc refers patients to other providers within the entity, the doc is not thereby profiting. However, that analysis depends on both federal and relevant state law, and again, regulators can be skeptical of revenue-sharing arrangements. 

·        The next level of analysis is whether the arrangement to the physician compensation in exchange for referring patients to others practitioners within the Clinic. That could raise a potential kickback issue.

      Note that the doc could potentially refer to other practitioners downstream within a "group practice," meaning others 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.

§ Performance bonuses can be included, based on the in-office ancillary exception.


       Performance bonuses generally 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.


·         The Clinic can serve as the billing and collecting agent for the practice (or farm this out to a third-party MSO or medical billing & collections service).

            The operational advantage of the Clinic model is that it creates the appearance of a truly integrated center and potentially induces cross-referrals within the center that generate additional revenues as well as enhancing collegiality across disciplines. The "Center" model also should be easier to implement administratively, since patients are all making payment to the same entity (the Clinic).

            From a financial standpoint, the Clinic has the possibility of generating more cash flow, assuming it can reasonably control the service fees the Clinic pays its practitioners. Note that the shorter the contract term, the more regularly the service fee can be adjusted for a growing or declining practice, respectively; however, a one-year term may be required if self-referral, “Stark” issues are implicated.

          Note that in some states (such as California), the "Center" model may not be feasible due to corporate practice of medicine concerns.  See California medical spa law for doctors and patients.

          (Among other things, note this statement by the California Medical Board regarding physician ownership:

The following types of medical practice ownership and operating structures also are prohibited: Non-physicians operating in a business for which physician ownership and operation are required: any business advertising, offering, and/or providing patient evaluation, diagnosis, care and/or treatment. These are services which can only be offered or provided by physicians.

Also note:

Medical spas are marketing vehicles for medical procedures. If they are offering medical procedures, they must be owned by physicians. The use of the term "medical spa" is for advertising purposes to make the procedures seem more appealing. In reality, however, it is the practice of medicine.)


            Hybrid Model

            Clinics can choose the "Medical Mall" option for some of their practitioners (for example, for the MDs) and the "Center" option for the rest.

            Caution: It may be administratively (and psychologically) challenging to migrate from an all-Mall option, say, to an all-Center Model option, so it is important to structure the practice carefully from the beginning.

            MSO Model

           In the MSO model, there is a PMC or similar clinician professional group, and the locus of control for the practice is this group rather than the Clinic.

            The group contracts with the Clinic to act for it as a management service organization, which can provide claims management, accounting, marketing, and other management services, and even hold assets. 

            The Center and MSO models are variations of the same two-entity structure, in which there is a business entity (the Clinic or MSO), and a clinical entity (the practice or the group).

            However, in the MSO model, the group has much more control over the patients and the flow of payments.  And the Clinic is functioning more like an administrative organization to a physician group than as an MSO to individual practitioners, because of the Clinic’s greater distance from practitioners, whose business flows through the powerful group within the Clinic.

            As to arrangements between the Clinic and the group, the legal options are affected by additional state law matters, such as:


·         who can belong in a professional service organization (the variety of the practitioners to be included and their relative scopes of practice); and


·         state corporate practice of medicine rules.

            In actual practice, of course, the distinction between the Center and MSO model may not be as clear-cut. For example, a licensed practitioner may be an owner of the Clinic, and utilize the Center Model, but want or need to contract with a separate PMC for health care services, due to liability or corporate concerns. Or, a non-licensed investor may want to be a member of the PMC, which in some states under some circumstances might be acceptable and might be unacceptable in other states.

            But even where the distinctions may appear blurred, analyzing under the basic models helps keep the legal analysis clear.

            Employee v. Independent Contractor: Some Complexities Involving Compensation

            We have addressed questions about classifying workers as employees or independent contractors in previous articles, and there are subtleties at the state law level.

            These distinctions do get handled in the agreement between Clinic and practitioner, including where compensation arrangements are discussed.

            Sometimes the solution is simply to use a professional corporation. If the health care practitioner is housed within a professional corporation, it may be that the department is satisfied by the practitioner being an employee of the professional corporation (“PC”)  (while the PC is an independent contractor to the Clinic).

            Note that in the Mall Model, there is no "compensation" to the practitioner; rather, the clinician is simply a tenant renting space from the Clinic and receiving administrative and management services in return.

            With regard to revenue-sharing, the following additional points are important:

·         A revenue-sharing arrangement does not work in the Mall Model, because rent is a sum certain and if compensation were structured as a percentage of revenues then it would be viewed as a volume-based incentive to refer; and in any event, the flow of payments from patient to practice to the Clinic would be seen an a kickback.

·         A revenue-sharing arrangement in lieu of straight compensation could potentially work in the Center Model if the percentage paid to the practitioner is fair market value (“FMV”) for productivity/production, and the corresponding percentage retained by the Clinic is FMV for rent/equipment/administrative and management services. The agreement between the Clinic and practitioner should specify the exchange of payments and justify FMV.


·         In order to put a practitioner on revenue-sharing arrangement he or she would have to be on the Center Model, because revenue-sharing would be illegal in the Mall Model.

·         If the practitioner is on the Mall Model, then the question of whether to classify as an independent contractor vs. employee is moot, because there is no “compensation”—he or she is just a tenant.

·         However, if the practitioner is on the Center Model, then we must look to see how the state labor department would consider the arrangement.

            Corporate Practice of Medicine Concerns

            As noted, the prohibition against corporate practice of medicine provides additional complexities. 

            To acknowledge this doctrine, the agreement between the Clinic and practitioner specifies that the practitioner has independent professional judgment.  For example, the Clinic 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 a different set of rules governing the corporate practice of medicine doctrine; so state law has to be carefully researched.

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 Clinic) 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 Issues

            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 s 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 Clinic 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.

            We perform this analysis:

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

2. Does the Spa or Clinic 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” or "Center" model so as to manage legal risks?


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. Note that these are conceptual models that must be tailored to specific factual situations.  They are no substitute for actual legal advice or opinion. They should not be relied on as any guarantee that a given structure will pass regulatory muster.

Please contact our attorneys for further information.




Q: "I have a corporate attorney already. Is this ok?"

A: Yes — we will work with your corporate attorney to help you get what you need as effectively and efficiently as possible.  Most corporate attorneys, or even experienced health care law attorneys, lack expertise specific to the medical spa or integrative medicine arena.  Let us help you put together the expertise you need to make your project work.

Q: "Great information!  But what will you do and how much will it cost?"

A: For more information about how we might proceed, see Drafting legal contracts for medical spa and integrative medicine clinics to address kickback and fee-splitting issues.



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.


Healthcare & FDA attorney Michael H. Cohen is a thought leader in healthcare law & FDA law, pioneering legal strategies in healthcare. wellness, and lifestyle markets. As a corporate and transactional lawyer, FDA regulatory attorney who also handles healthcare litigation, healthcare mediation and healthcare arbitration, and international healthcare & wellness law speaker, Los Angeles / Bay Area healthcare & FDA lawyer Michael H. Cohen represents conscious business leaders in a transformational era. Clients seek healthcare & FDA attorney Michael H. Cohen‘s legal savvy on all aspects of business law, healthcare law, and FDA law, including:

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The Michael H. Cohen Law Group counsels healthcare practices, entities, and companies, such as clinical laboratories, physicians, psychologists, chiropractors, acupuncturists, naturopaths, nurses, healers, medical spas, sleep centers, addiction treatment centers, surgery centers, anti-aging centers, integrative medicine clinics, anti-aging practices, mental and behavioral health counselors, medical service organizations, telemedicine and mobile (m-health) companies, online health ventures, stem cell and cord blood entities; and other health and wellness enterprises.

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