Fee-splitting and fee-sharing arrangements in healthcare occur when one provider pays a portion of their professional fees to another provider, referral source, or non-physician entity. These arrangements are heavily regulated under both federal and New York state law because of the potential for financial incentives to influence clinical decision-making. Improperly structured fee-sharing arrangements can violate the Anti-Kickback Statute, the Stark Law, New York Education Law, and New York Public Health Law. For healthcare providers in New York, understanding the rules governing fee-sharing is essential to structuring compliant business relationships.
This guide covers the federal and state laws that govern fee-sharing, the types of arrangements that are permissible, and the compliance framework for structuring arrangements that do not create legal risk.
Federal Restrictions on Fee Sharing
The Anti-Kickback Statute
The federal Anti-Kickback Statute (AKS) prohibits knowingly and willfully paying or receiving anything of value in exchange for referrals of patients whose care is paid for by a federal healthcare program (Medicare, Medicaid, TRICARE, etc.). A fee-sharing arrangement where one provider pays another a percentage of revenue generated from referred patients can constitute a kickback if one purpose of the payment is to induce referrals. The AKS applies to both the person paying and the person receiving the fee. Violations are punishable by criminal fines, imprisonment, civil monetary penalties, and exclusion from federal healthcare programs. For a comprehensive overview of the AKS and its safe harbors, see our Stark and Anti-Kickback guide.
The Stark Law
The Stark Law prohibits a physician from referring patients for designated health services to an entity with which the physician has a financial relationship, unless a specific exception applies. A fee-sharing arrangement between a referring physician and a DHS entity creates a compensation arrangement that triggers the Stark Law analysis. If no exception applies, the referral is prohibited, and claims submitted for the referred services are considered false claims. For more on the Stark Law's exceptions and structure, see our Stark and Anti-Kickback guide.
New York State Restrictions
Education Law Section 6509-a: Fee Splitting
New York Education Law Section 6509-a specifically prohibits licensed professionals from splitting fees with another person or entity for the referral of a patient or client. The statute applies to all professions licensed by the New York State Education Department, including physicians, dentists, nurses, pharmacists, physical therapists, and other healthcare providers. A violation constitutes professional misconduct and can result in disciplinary action, including license suspension or revocation. The prohibition extends to direct payments (a physician pays a referring provider a percentage of fees collected from the referred patient) and indirect payments (a physician provides free or discounted services, equipment, or office space to a referring provider as consideration for referrals).
Public Health Law Restrictions
New York Public Health Law contains additional restrictions on fee sharing in specific contexts. Article 28 facilities (hospitals, nursing homes, diagnostic and treatment centers) are subject to regulatory oversight by the Department of Health, which reviews compensation arrangements for compliance with state and federal anti-referral laws. Home care agencies, ambulatory surgery centers, and other licensed healthcare facilities must also comply with DOH regulations governing financial relationships with referral sources.
Permissible Fee-Sharing Arrangements
Bona Fide Employment
An employer can pay an employed physician or other provider a salary, bonus, or other compensation that reflects the provider's personal productivity, including the revenue generated from the provider's own services. This is not fee splitting because the payment is for the provider's own work, not for referrals. The compensation must be at fair market value and consistent with the employment exception under the Stark Law and the employment safe harbor under the AKS.
Group Practice Profit Distribution
Members of a legitimate group practice can share in the overall profits of the practice, including revenue from designated health services, if the group meets the Stark Law's definition of a group practice. The group must have its members practice together, share revenues and expenses, and distribute profits based on a methodology that does not directly correlate with the volume or value of a specific physician's referrals.
Management Services Arrangements
A non-physician entity (such as a management services organization) can provide administrative, billing, marketing, or management services to a healthcare practice in exchange for a management fee. The fee must be at fair market value for the services provided, must be set in advance, and must not vary with the volume or value of referrals. Percentage-of-revenue management fees are particularly risky because they can be viewed as compensation that varies with referrals. Fixed monthly fees or fees based on documented administrative metrics are generally safer. For more on structuring MSO relationships, see our practice formation page.
Purchased Services
A provider can engage another provider to perform specific clinical services (such as reading imaging studies, providing anesthesia services, or performing laboratory testing) and pay fair market value for those services. This is a purchased service arrangement, not fee splitting, because the payment is for the service itself, not for a referral. The arrangement should be documented in a written agreement specifying the services, the compensation, and the term.
Fee Sharing in Specific Healthcare Settings
Home Health Agencies
Home health agencies are frequent targets of fee-sharing enforcement actions because of the referral-dependent nature of their business. Agencies that pay referral sources (physicians, hospitals, discharge planners, or patient recruiters) for patient referrals violate the AKS and potentially the Stark Law. The OIG has issued specific guidance cautioning home health agencies against providing free services, staffing, or supplies to referral sources as these can be viewed as indirect remuneration for referrals. Home health agencies should ensure all relationships with referral sources are documented in written agreements with fair market value compensation for legitimate services. For more on home health licensing, see our home health agency licensing guide.
Ambulatory Surgery Centers
Physician-owned ambulatory surgery centers (ASCs) present unique fee-sharing issues because the physician investors are both the referral source and the beneficiary of the referral. The AKS includes a specific safe harbor for ASC investments if the entity meets detailed requirements regarding the investors' use of the facility, the distribution of returns, and the marketing of the ASC. Physician investors must not be required to refer patients to the ASC as a condition of investment, and returns should be proportional to investment, not to referral volume.
Independent Practice Associations and Clinically Integrated Networks
Physicians who participate in independent practice associations (IPAs) or clinically integrated networks (CINs) may share in contracted payer payments or shared savings payments. These arrangements are generally permissible if the payment methodology is based on objective quality and efficiency metrics rather than referral volume, and if the arrangement is structured to comply with applicable antitrust and fraud and abuse laws. The shared savings methodology must be clearly documented, and the distribution must not reward individual physician referral patterns. Participants should receive legal advice on the structure before joining to ensure they understand their compliance obligations and the risk of participation. The Federal Trade Commission and DOJ have issued guidance on clinically integrated networks that healthcare attorneys reference when structuring these arrangements.
Red Flags in Fee-Sharing Arrangements
Arrangements that are likely to create regulatory risk include payments calculated as a percentage of revenue from referred patients, payments that increase as referral volume increases, payments to providers or entities that are in a position to refer patients but do not provide legitimate services in return, arrangements where the compensation is above fair market value (suggesting the excess is payment for referrals), arrangements without written agreements documenting the services provided and the basis for compensation, and arrangements where the parties do not actually perform the services described in the agreement. Any arrangement where the financial terms create an incentive to refer patients should be reviewed by a healthcare attorney before implementation.
Structuring Compliant Arrangements
To minimize risk, fee-sharing and compensation arrangements between healthcare providers should be documented in a written, signed agreement that specifies the services to be provided, the compensation amount (set in advance and not varying with referrals), the term of the agreement, and the parties' obligations. The compensation must reflect fair market value, supported by an independent valuation if the amounts are significant. The arrangement must fit within a specific Stark Law exception and AKS safe harbor. The parties must actually perform the services described in the agreement. The arrangement should be reviewed periodically to ensure ongoing compliance. Your healthcare attorney can review existing arrangements for compliance and structure new arrangements to satisfy the applicable exceptions and safe harbors. Periodic compliance audits of all compensation arrangements, conducted at least annually, help identify arrangements that may have drifted out of compliance due to changes in compensation amounts, service volumes, or regulatory requirements. Proactive review is far less costly than responding to a government investigation or whistleblower complaint after a violation has occurred. For comprehensive healthcare legal guidance, visit our healthcare law practice page.
Enforcement Consequences and Case Examples
Federal enforcement of fee-sharing violations has resulted in significant settlements and penalties. The Department of Justice regularly announces settlements involving healthcare providers who paid or received referral fees, including cases involving hospital systems paying above-market compensation to referring physicians, physician groups structuring joint ventures to reward referral volume, home health agencies paying patient recruiters for Medicare referrals, and laboratories providing free phlebotomy services to referring physician offices. These cases typically result in payment of treble damages under the False Claims Act, exclusion from Medicare and Medicaid (the most severe consequence for most providers), mandatory compliance program requirements, and corporate integrity agreements (CIAs) imposing multi-year compliance obligations monitored by the OIG.
At the state level, the New York Attorney General has brought enforcement actions against healthcare providers for fee-splitting violations under state law, and the Office of Professional Medical Conduct has disciplined physicians for fee-splitting arrangements that violate Education Law Section 6509-a. The combination of federal and state enforcement creates a dual layer of risk that healthcare providers in New York must address through comprehensive compliance programs, regular legal review of all referral-related compensation arrangements, and careful structuring of all compensation arrangements with referral sources.
Frequently Asked Questions
Can a physician pay a referral fee to another physician for sending patients?
No. Paying a referral fee to another physician for sending patients violates the Anti-Kickback Statute (if federal healthcare programs are involved), the Stark Law (if the referred services are designated health services), and New York Education Law Section 6509-a (which prohibits fee splitting for referrals regardless of payer). There is no exception or safe harbor that permits a direct payment for referrals.
Can a management company charge a percentage of a medical practice's revenue?
Percentage-of-revenue management fees are permissible but carry significant regulatory risk. Regulators may view a percentage-based fee as compensation that varies with the volume of services (and therefore referrals). To reduce risk, the percentage should be commercially reasonable, the management company should provide substantial documented services, the arrangement should satisfy the applicable Stark exception and AKS safe harbor, and the fee should be at fair market value for the services provided. Fixed fees or fees tied to documented administrative metrics are generally safer.
What is the difference between fee splitting and profit sharing in a group practice?
Fee splitting is paying a portion of your professional fees to another person or entity for referrals. Profit sharing in a group practice is distributing the practice's overall profits among its members based on a predetermined methodology. Group practice profit sharing is permissible under the Stark Law if the group meets the regulatory definition and the distribution methodology does not directly reward individual referral volume.
Can a non-physician own a share of a medical practice's revenue?
New York's corporate practice of medicine doctrine generally prohibits non-physicians from owning medical practices or sharing in professional fee revenue. Non-physicians can receive fair market value compensation for management and administrative services through an MSO arrangement, but they cannot receive a share of the professional fees generated by the physician's clinical services.
What happens if I am involved in a fee-splitting arrangement and a complaint is filed?
Depending on the nature of the arrangement, you could face investigation by the Office of Professional Medical Conduct (for physicians), the Office of Professional Discipline (for other licensed professionals), the OIG (for AKS violations), or the state Attorney General. Penalties can include professional discipline (up to license revocation), civil monetary penalties, treble damages under the False Claims Act, criminal prosecution, and exclusion from Medicare and Medicaid. Consult a healthcare attorney immediately.
Are marketing arrangements with other providers considered fee sharing?
Marketing arrangements can create fee-sharing risk if they involve payments tied to patient referrals. Paying another provider to advertise your practice is generally permissible if the compensation is at fair market value for legitimate marketing services and does not vary with the number of patients referred. Paying a per-patient fee for referrals disguised as a marketing arrangement violates the AKS and New York fee-splitting laws.
Do fee-sharing rules apply to practices that do not accept Medicare or Medicaid?
New York Education Law Section 6509-a prohibits fee splitting for referrals regardless of the payer. Even practices that do not participate in any federal healthcare program are subject to this state law. The federal Anti-Kickback Statute and Stark Law apply only to federal healthcare program referrals, but the state prohibition is broader and applies to all patient referrals.
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