Fee-splitting is a common practice in Emergency Medicine in which the contract management company takes a portion of the physician-generated fees for management expenses and overhead. In some cases, the percentage of fees taken can be excessive and far beyond the fair market value for the services rendered by the contract management company. In other cases, the fees taken can be considered a kickback because the contract management company is essentially referring the patient to the emergency physician.

Leaders in medicine such as the American Medical Association and Dr. Arnold Relman, editor emeritus of The New England Journal of Medicine, have taken strong ethical stands against fee-splitting.

Ethical Aspects of Fee-Splitting

AMA Code of Medical Ethics
Opinion 6.02
“Payment by or to a physician solely for the referral of a patient is fee splitting and is unethical.”
AMA Institute for Ethics
American Medical News 4/27/98, p.21

“Ethical aspects of establishing a group’s compensation plan hinge on ensuring that physician professional rewards reflect professional activity (patient care services) rather than such factors as ownership, longevity or name recognition, which smack of fee-splitting.”

Arnold Relman Quote

Arnold Relman, MD, editor emeritus of the New England Journal of Emergency Medicine, spoke at the 1999 SAEM meeting on corporate medicine. In follow-up discussion with AAEM president Robert McNamara, he issued this quote on 7/1/99 for distribution by AAEM:

“Medicine is a profession and should remain so. In the practice of medicine it is unprofessional and unethical to make money from services not directly provided or supervised.”

As AAEM has pointed out many times, the “business” dealings that in certain circles are accepted as the norm in EM are frowned upon by the rest of medicine. Unless we are willing to abdicate our status as professionals and relegate EM to nothing more than a corporate enterprise, we need to adhere to high ethical standards where exploitation of one professional by another is unacceptable.

Regulations and Rulings

There are also a number of very specific regulations and ruling which control when and in what circumstances fee-splitting is and is not appropriate.

The Federal Fee-Splitting Kickback Statute


The below from the Social Security Act is the fee-splitting/kickback statute. For emergency physicians, referrals are the patients we see in the ED. Therefore, any contractual arrangement that forces you to give up a portion of your fee for the right to work in an ED and, hence, receive referrals, would fall within the purview of this legislation. Note below that employer-employee relationships are not exempt from this statute. Note also that the one who gives the compensation for such activities (the contracted EP) can be held accountable for allowing this to occur if it is done in a “knowingly and willful” manner. AAEM believes the “willful” clause (and, unfortunately, the “knowingly” in many cases) exonerates the working EP in their relationships with contract groups

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OIG Rules that Hospitals Cannot Take Physician Fees


The following Office of the Inspector General (OIG) report is critical to AAEM’s fight for the working EP. Essentially, it prohibits hospitals from taking a portion of the physician’s fee beyond “fair market value” of what the hospital is giving to the physician (office space, etc). The immediate value to the EP who is a hospital employee is clear. You need access to what is collected in your name (another AAEM cause) to evaluate if you are being taken advantage of. Importantly, this OIG Opinion serves as a strong basis for AAEM’s fight against similar improper fee-splitting by contract groups and others. AAEM has petitioned the OIG in such matters and actively uses this tool to protect democratic groups. Contact our leadership if help is needed.

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Fee-Splitting by Hospitals


The 1998 OIG Compliance Program regarding fraud and abuse for hospitals represents a valuable tool for employed emergency physicians or groups that hold a hospital contract to protect their interests. The below excerpts clearly state that the hospital can not take a portion (split) of the emergency physician fee beyond fair market value for what is returned to the physician (office space, etc). AAEM members will note that such an OIG stance serves as a strong basis to fight similar abuses by contract groups. There is no sound legal basis for the contract holders doing what the OIG is forbidding hospitals to do.

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Inspector General Comments on PPMs Taking a Percentage of Revenues

All emergency physicians should be aware of the recently released Office of the Inspector General (OIG) Management Advisory Opinion 98-4. This opinion has significant implications for EPs who are currently under contract with a PPM or contract management group and for those independent, democratic groups whose contracts may be threatened by such groups. The legality of such contracts, if the physician is paid on a percentage basis, is suspect. In response to a query from a physician, the OIG wrote the (paraphrased) following:

“We are writing in response to your request for an advisory opinion, in which you ask whether a proposed management services contract between a medical practice management company and a physician practice, which provides that the management company will be reimbursed for its costs and paid a percentage of the net practice revenues, would constitute illegal remuneration as defined in the anti-kickback statute of the Social Security Act.

“Based on the information provided, we conclude that the proposed arrangement may constitute prohibited remuneration under the anti-kickback statute of the Social Security Act.”

Essentially, when a contract management company is paid a percentage of the physician fees, the OIG has determined that such an arrangement may be in violation of the anti-kickback statute contained in the Social Security Act.

The importance of this opinion for Emergency Medicine cannot be understated. The contract you are working under may not be valid and this could free you of the entire contract including onerous clauses such as restrictive covenants. Legal counsel would be required to determine your individual situation. However, this may create an opportunity for you to restructure your professional arrangements and possibly open the door for the physicians to take control of the contract themselves.

The anti-kickback statute makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce the referral of business covered by a federal health care program (Medicare and Medicaid). According to the OIG in Opinion 98-4, such percentage-based EM contracts would only qualify for the personal services and management contracts “safe harbor” and would be suspect if it did not meet ALL six of the following “safe harbor” regulations:

  • The agreement is set out in writing and signed by the parties involved.
  • The agreement specifics the services to be performed.
  • If the services are to performed on a part-time basis, the schedule for performance is specified in the contract.
  • The agreement is for not less than one year.
  • The aggregate amount of compensation is fixed in advance, based on fair market value in an arms-length transaction, and not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made by Medicare or a state health care program.
  • The services performed under the agreement do not involve the promotion of business that violates any federal or state law.

How many EM contracts comply with all six of these regulations? Read number 5 again. The OIG has stated that any arrangement in which the compensation paid to a contract management company is not an aggregate amount, fixed in advance, does not qualify for the safe harbor provision and may therefore be in violation of federal law. An even bigger question is whether such EM contract arrangements meet the fair-market value standard. It is well known that there exist EM contracts where 30% or more of the net revenue is taken by the contract group for providing little more than a scheduling function.

In noting the limitations of its opinion, the OIG stated any definitive conclusion regarding the existence of an anti-kickback violation requires a determination of the parties’ intent, which is beyond the scope of the process which led to their advisory opinion. However, the OIG also stated

that since the proposed arrangement contains no limitations, requirements, or controls to prevent the federal health care program from being abused, such anti-kickback violations may, in fact, exist.

It is AAEM’s opinion that the problems with fee-splitting arrangements in EM go beyond the percentage issue discussed here. The issue of fair-market value applies to all EP contracts with PPMs and contract groups. We believe many EPs are having an excess amount of their professional fee taken, and we will continue to pursue this with the Office of the Inspector General.

It should be pointed out that Opinion 98-4 was generated by a request from one physician. The amazing part of this process is that we are all entitled to seek the OIG’s opinion on our own arrangements. AAEM has already raised the fee-splitting issue with the OIG but you are entitled to do the same in a confidential manner. It certainly would be interesting if the OIG received a large number of queries from individual EPs on this topic.

Specifics of Employment “Safe Harbor” for Fee-Splitting


Contract groups or hospitals will often tell the emergency physician that they have no cause for action on fee-splitting because they are employees and a “safe harbor” exists. There is such a safe harbor but there are specific guidelines, listed below, to be followed in such relationships. In particular, note that there must be “fair market value” compensation and the compensation must be “commercially reasonable”. If the amount of the physician fees retained by the hospital or contract group is in excess of the “fair market value” for what is returned, a cause of action is still feasible under the kickback statute regardless of employee status. OIG opinion 98-4 regarding a percentage-based take of the professional fee (Inspector General Comments on PPMs Taking a Percentage of Revenues) makes use of this same argument.

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AAEM encourages is members to make themselves aware of this issue on the impact it has on the care of their patients and their professional welfare. Violations of fee-splitting regulations can be reported and acted upon in the following ways.

Requesting an OIG Advisory Opinion


The Office of the Inspector General has created a powerful tool for use by the practicing physician. Prior OIG Advisory Opinions have stated that hospitals cannot take excess portion of the physician fee and that PPM contracts that take a percentage of revenues are suspect under the anti-kickback statutes (42 USC 1320a-7b(b)). You, and all of EM, may benefit by soliciting an Advisory Opinion as outlined below if you suspect the following regarding your contract:

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Reporting or Inquiring about Fee-Splitting

There are three basic methods to address your concerns about fee-splitting:

  • Consider requesting an Advisory Opinion from the Office of the Inspector General (OIG) about your situation.
  • Speak directly with your regional OIG office at one of the numbers listed below:

If you have questions or information about health care providers, practitioners, entities, or other persons regarding fee-splitting activities, contact any of the regional offices of the Office of Investigations of the Office of the Inspector General, U.S. Department of Health and Human Services, at the following locations:

RegionsStates ServedPhone Number
BostonMA, VT, NH, ME, RI, CT(617) 565-2660
New YorkNY, NJ, PR, VI(212) 264-1691
PhiladelphiaPA, MD, DE, WV, VA(215) 596-6796
AtlantaGA, KY, NC, SC, FL, TN, AL, MS (Northern)(404) 331-2131
ChicagoIL, MN, WI, MI, IN, OH, IA, MO(312) 353-2740
DallasTX, NM, OK, AR, LA, MS (Southern)(214) 767-8406
DenverCO, UT, WY, MT, ND, SD, NE, KS(303) 844-5621
Los AngelesAZ, NV (Clark Co), CA (Southern)(714) 836-2372
San FranciscoCA (Northern), NV, AZ, HI, OR, ID, WA(415) 556-8880
Washington, DCDC, VA and MD (Metro Areas)(202) 619-1900

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