Fee splitting and the management of medical practices: a history of Board of Medicine declaratory statements.

• Author: Grossman, Allen
• Position: Florida

Over the past 10 years, the Florida Board of Medicine has issued a number of declaratory statements on the subject of fee splitting in the context of employment, management, and marketing arrangements between licensed physicians and business corporations and partnerships. The board's early declaratory statements addressed less than comprehensive business arrangements when private companies provided only space and basic management services. The board's most recent declaratory statement addresses overall management and marketing as provided by current physician practice management companies (PPMs). PPMs integrate physician practices into well organized networks for, among other things, the purposes of obtaining managed care contracts with health management organizations, insurers, and employers and of taking advantage of economies of scale.

At a meeting in Tampa on October 17, 1997, the board made its most recent statement on the issue of fee splitting related to medical practice management. In its final order filed on November 10, 1997, the board declared that a management contract between Access Medical, Inc., a 15-physician internal medicine group, and a practice management company, Management Company, Inc., violates Florida's statutory prohibition on fee splitting.[1] The management contract, described in the petition for declaratory statement, requires the group to pay Phymatrix a percentage of the group's net revenues, in addition to all actual operating costs and a flat fee of $450,000 per year. In return, Phymatrix provides management services to the group that include physician network development, managed care contracting, and other efforts to increase the number of patient referrals made to the group. Phymatrix is appealing the board's final order and the board has agreed to stay the final order pending the outcome of the appeal.[2] The decision has attracted substantial attention at the state and national levels, as it threatens the legality of the current popular trend toward similar management contracts between physician practice groups and PPMs.

The basis for the final order appears in F.S. [sections] 458.331(1), which sets forth a list of acts or omissions for which the board may take disciplinary action against a physician's license. The list includes [sections] 458.331(1)(1), which prohibits "[playing or receiving any commission, bonus, kickback, or rebate, or engaging in any split-fee arrangement in any form whatsoever with a physician, organization, agency, or person, either directly or indirectly, for patients referred to providers of health care goods and services...."[3]

Florida's Administrative Procedures Act[4] authorizes an agency, such as the board, to issue declaratory statements that provide explanations of the agency's opinion with regard to the application of a specific statute, rule, or order to a particular set of circumstances.[5] The uniform rules of procedure require a petitioner to allege the potential impact upon the petitioner's interest in order to show the existence of a controversy, question, or doubt as to the application of the specific requirement or prohibition.[6] Florida's courts have set forth the appropriate use and scope of agency declaratory statements. To be entitled to the issuance of an agency declaratory statement, a petitioner must demonstrate an actual present and practical need for such statement.[7] Agency declaratory statements may determine issues not presented in a petition when they are related to the application of a particular statute, rule, or order to specifically stated facts.[8] However, such statements may not be utilized by an agency for the purpose of setting forth broad agency policies.[9]

Agency declaratory statements generally bind the agency and the parties to the action with regard to the specific facts set forth in the petition and relied. upon in the final order. The board has been known to push the envelope in responding to petitions which set forth specific facts that arguably could apply to any number of physicians licensed by the board. Of course, licensees often are most anxious to have the board address the most prevalent factual scenarios. Issues related to fee splitting and permissible corporate structures have been the issues most frequently posed to the board.

One of the board's first declaratory statements on these issues was in In re Lundy, 9 FALR 6289 (1987), in which the board considered a petition Chat described a business entity which provided office space and equipment and also billing and collection services to a group of family practitioners. The business entity also provided newspaper, radio, and television advertising and promoted the group's services to prospective patients.[10] In exchange, the business entity retained 40 percent of collections. The board held that this agreement was not prohibited under the fee splitting statute. It stated:

While the scenario establishes that the patients' fees would be paid to the corporation and sixty percent of the fee would be returned to the practitioner, the sixty percent of the fee is attributed to the payment for lease of the space and equipment and for the provision of advertising and administrative services. Since the fee is not in any apparent way, either directly or indirectly, tied to an arrangement whereby the corporation makes referrals to the physicians or the physicians make referrals to the corporation, the Board does not perceive the arrangement as being prohibited by the...