A medical director paid a percentage of treatment revenue is sharing in professional fees with whoever else takes a cut of that revenue, and in New York that is unprofessional conduct by statute. In California it is lawful only where the percentage is commensurate with real services and is not compensation for referrals. In Florida and Texas, the moment any part of it rewards bringing in patients, it is a crime. The structure most operators reach for first is the one with the most law against it.
What fee splitting is
Fee splitting is a licensed professional sharing the fees for professional services with someone who did not render them, or paying or receiving compensation for referrals. State law attacks it from two directions: the medical practice act treats it as unprofessional conduct, and separate anti-kickback and patient-brokering statutes treat the referral version as a crime. A percentage-of-revenue directorship can trip either, depending on how the percentage is computed and what it rewards.
The statutes, state by state
New York is the clearest. Education Law 6530(19) makes it professional misconduct to permit 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 an authorized trainee. Section 6530(18) separately bars any fee or consideration to or from a third party for a referral or in connection with the performance of professional services. The Regents’ rule at 8 NYCRR 29.1(b)(4) repeats the list. A non-licensee MSO or a non-employee director taking a share of clinical fees is outside the exception. New York’s medical director agreement has to be built on a fixed fee for that reason.
California draws a line most people miss. Business and Professions Code 650(a) makes it unlawful for a licensee to offer, deliver, receive or accept any rebate, refund, commission, discount or other consideration as compensation or inducement for referring patients. Section 650(b) then says payment for services other than the referral of patients that is based on a percentage of gross revenue is not unlawful if the consideration is commensurate with the value of the services furnished. So a percentage is not banned in California; a percentage that is not tied to real, valued services is. A director paid 5% of injectable revenue for a monthly phone call fails the “commensurate” test on its face. Penalties under 650(i) run to a year in county jail on a first conviction.
Florida has two statutes. Section 456.054 makes it unlawful for any health care provider to offer, pay, solicit or receive a kickback, directly or indirectly, in cash or in kind, for referring or soliciting patients. Section 817.505, the patient brokering statute, criminalizes any commission, bonus, rebate, kickback or bribe to induce referrals, applies to any health care provider or facility regardless of payer, and grades the offense by patient count: third-degree felony, second-degree at 10 to 19 patients, first-degree at 20 or more. A director whose percentage rises with the patients they steer to the clinic is inside 817.505.
Texas puts it in the Occupations Code. Section 102.001: a person commits an offense by knowingly offering to pay or agreeing to accept, directly or indirectly, any remuneration in cash or in kind for securing or soliciting a patient or patronage for or from a licensed person. Class A misdemeanor, third-degree felony on a repeat. No insurance nexus is required.
North Dakota shows the mechanics from the other side. N.D.C.C. 43-17-31 makes payment or receipt of any fee or compensation “for medical services not actually or personally rendered, or for patient referrals” a ground for discipline, then carves out “the lawful distributions of professional partnerships, corporations, limited liability companies, or associations.” Ordinary entity economics are protected; a share of clinical collections with no service content is not. The carve-out is a usable test anywhere.
New Hampshire is the outlier: its fee-splitting prohibition at RSA 329:23 was repealed effective 1 January 1996. That repeal unlocks arrangements scrutinized elsewhere, and it is one state.
Federal law sits on top of all of it where a federal health care program pays. The anti-kickback statute, 42 U.S.C. 1320a-7b(b), is a felony carrying up to ten years, and its bona fide employee exception does not reach an independent contractor director. Cash-pay aesthetics mostly avoids the federal statute; a weight-management or hormone menu with any Medicare or Medicaid patient does not.
Why operators keep proposing it anyway
Three reasons, and each has an answer.
- “It aligns incentives.” It aligns the physician’s income with volume, which is the one thing a supervising physician is supposed to be independent of. A board reading the agreement sees a director paid more when more patients are treated and less when patients are declined.
- “It is cheaper when we are small.” A fixed fee priced from actual hours is cheaper than a percentage the moment the clinic grows, and the growth is when the percentage becomes a fee-splitting problem.
- “Everyone does it.” Many do. The North Carolina Medical Board’s disciplinary commentary and the statutes above exist because of it.
What to pay instead
A fixed fee reflecting fair market value for defined services, documented from the hours those services take: protocol authorship and revision, credentialing, chart review on a stated cadence, availability during clinic hours, adverse-event response. Adjust it when the menu, the site count or the delegate count changes, because those change the work. Never adjust it by revenue.
| Structure | New York | California | Florida | Texas |
|---|---|---|---|---|
| Fixed fee for defined services at fair market value | Permitted | Permitted | Permitted | Permitted |
| Percentage of gross revenue, services documented and commensurate | Not with a non-licensee | Permitted under 650(b) if commensurate | Risk under 456.054 if any referral element | Risk under 102.001 if it rewards patient solicitation |
| Percentage tied to patients referred, booked or treated | Misconduct, 6530(18) | Unlawful, 650(a) | Felony, 817.505 | Offense, 102.001 |
| Per-patient bonus | Misconduct, 6530(19) | Unlawful if inducement | Felony, 817.505 | Offense, 102.001 |
What this means for you
Open your medical director agreement and find the compensation clause. If it contains a percentage, a per-patient amount, or a bonus that scales with volume, rewrite it before the next renewal as a fixed fee with a schedule of services and a fair-market rationale in the file. In California, if you want to keep a percentage for genuine management services, document exactly what the services are and why the percentage is commensurate, because 650(b) turns on that word. In New York, do not try; the exception list in 6530(19) does not include you. And in Florida and Texas, treat any link between the director’s pay and patient flow as a criminal exposure rather than a negotiation point. See how Florida directorships are priced and what medical direction involves.
Related reading
Frequently asked questions
Is it legal to pay a medical director a percentage of revenue?
In New York, not where the director or MSO is outside the licensed persons listed in Education Law 6530(19). In California, only where the percentage pays for services other than referrals and is commensurate with their value under Business and Professions Code 650(b). In Florida and Texas, any element that rewards bringing in patients is a criminal offense under 817.505 and Occupations Code 102.001.
What is the penalty for fee splitting?
It ranges from professional discipline to felony prosecution. New York treats it as professional misconduct. California’s 650(i) allows up to a year in county jail on a first conviction. Florida’s patient brokering statute is a third-degree felony rising to first-degree at 20 or more patients. Texas 102.001 is a Class A misdemeanor, a third-degree felony on a repeat.
Is a percentage-based MSO fee fee splitting?
It depends on the state and the substance. North Dakota protects lawful entity distributions and targets compensation for services not rendered or for referrals. California permits a percentage commensurate with real management services. New York does not permit a non-licensee to share in professional fees at all. A percentage with documented services behind it is defensible in some states and unlawful in New York.
Can a medical director be paid per patient?
A per-patient payment scales with volume and reads as compensation for referrals or for treatments the director did not render. It is inside New York’s 6530(19), California’s 650(a) where it is an inducement, Florida’s 817.505 and Texas’s 102.001. A fixed fee that is adjusted when the menu or site count changes achieves the same scaling lawfully.
Does the federal anti-kickback statute apply to a cash-pay med spa?
The federal statute, 42 U.S.C. 1320a-7b(b), applies where a federal health care program pays for the item or service. A purely cash-pay aesthetic clinic usually sits outside it. State statutes such as Florida’s 817.505 and Texas’s 102.001 apply regardless of payer, so cash-pay does not remove the exposure, it moves it to state law.
This is general information, not legal advice. Rules vary by state and change. Confirm your own facts with counsel.