A percentage-of-revenue management fee is barred in some states, allowed in others, and a flat fee is safe in none of them if it is inflated or paired with control. The part operators miss is who brings the challenge. In the reported cases we read, it usually came from inside the deal or from a payer. It rarely started with a regulator.
Where a percentage is barred
New York. Fee sharing includes any arrangement where the amount paid for “furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee” (Educ. Law § 6530(19)). Read the second half. “Otherwise dependent upon” reaches a flat fee that steps up with revenue tiers. The detail is in New York corporate practice of medicine.
Illinois. A licensee “may not divide, share or split a professional service fee with, or otherwise directly or indirectly pay a percentage of the licensee’s professional service fees, revenues or profits to anyone for: (i) the marketing or management of the licensee’s practice” (225 ILCS 60/22.2(f)). A violation is also an unlawful practice under the state’s consumer fraud act, enforced by the Attorney General. The one carve-out is billing and collection, at “a fair market value fee,” and only if the practice controls its charges and its deposit account.
North Carolina. The Medical Board’s position is direct: “a licensee cannot share revenue on a percentage basis with a non-licensee. To do so is fee splitting and is grounds for disciplinary action.”
Florida. The statutes speak of referrals, and the percentage problem comes from how the Board of Medicine and a court read them. In Gold, Vann & White v. Friedenstab, the Fourth District held that a management agreement paying a percentage of the revenue that “the management services and practice enhancement would generate” was “an indirect method of fees for patient referral.” The court quoted the Board: “payment of a reasonable flat fee in return for provision of management services, including practice enhancement, is appropriate and allowable under Florida law, payment of a percentage of the revenue the management services and practice enhancement generate is not permissible.” The trigger was a manager whose duties included growing the practice.
Where a percentage is allowed
California permits consideration “based on a percentage of gross revenue” if it is “commensurate with the value of the services furnished” (Bus. & Prof. Code § 650(b)). Epic Medical Management v. Paquette upheld a percentage management fee on that basis. Read the case before you rely on it. It was review of an arbitration award, the court reasoned in the alternative, and the contract on paper was a cost-plus formula that the parties had replaced in practice with a revenue split. The court compared fees to costs and found “a rough correlation.”
Tennessee says its fee-division statute “does not prohibit a physician from compensating any independent contractor that provides goods or services to the physician on the basis of a percentage of the physician’s fees,” adds that “the percentage paid must be reasonably related to the value of the goods or services provided,” and then: “Payments by physicians in return for referrals are prohibited.”
Federal law, where it applies, moved in the same direction. Since January 19, 2021 the management contract safe harbor requires the “methodology for determining the compensation” to be set in advance, where it once required the total. A formula can qualify if it reflects fair market value and ignores federal program referrals. OIG’s older worry still stands. In Advisory Opinion 98-4 it wrote that a manager paid a share of revenue who also runs billing “has an incentive to maximize” that revenue, and that “percentage billing arrangements may increase the risk of upcoding.”
The structures, side by side
| Structure | Where it is a problem | Where a source accepts it | What gets attacked |
|---|---|---|---|
| Percentage of revenue or profit for management | New York, Illinois, North Carolina; Florida where duties include marketing or growth; Texas when paired with control | California and Tennessee, if tied to value | The form itself, or the link to patient volume |
| Percentage for billing and collection only | New York’s wording covers “personnel services” | Illinois, at fair market value, with practice-controlled charges and accounts | Who controls the money |
| Flat monthly fee | Anywhere, if far above value or reset to follow revenue | Florida’s Board; Illinois; the federal safe harbor | The amount, and how often it moves |
| Cost plus a margin | No bar found | California, in Epic | Whether the cost records are real |
| One vendor supplying space, equipment and management | New Jersey’s Board called it “highly imprudent”; New York in Carothers | Each piece must stand on its own value |
We found no statute, board statement, advisory opinion or case that discusses tiered fixed fees, per-service fee schedules or annual true-ups. If someone tells you one of those is approved, ask for the citation. A state missing from this table has not been researched here. It has not been cleared.
Who actually brings the challenge
Boards discipline physicians for fee splitting, and Illinois gives its Attorney General a consumer fraud claim. The reported cases show other plaintiffs.
Your own counterparty. In Gold, Vann, a Florida trial court declared a practice’s service agreement with its management company illegal for fee splitting, and the appellate court agreed, sending the case back only to decide which clauses could be severed. In Flynn Brothers, a Texas court refused to enforce a management contract that gave the manager “66.67% of the profits” of the practice, the right to trade on the physician’s license, and the right to select medical staff, “all in contravention of the Medical Practices Act.” The court left the parties where it found them. In Epic, the doctor and the management company had fallen out, the company won in arbitration, and the doctor argued on appeal that the contract was illegal. An unlawful fee is a way out for whichever side wants one.
Insurers and payers. In Carothers, New York’s Court of Appeals held that a practice controlled by non-physicians was ineligible for insurer reimbursement, with no finding of fraud required. There was no percentage fee in that case. The money left through equipment leases priced far above value, which the court treated as evidence of control. A fixed charge set too high is attacked the same way a percentage is.
The promoters’ own exposure. In Northfield, New Jersey’s Supreme Court upheld insurance fraud liability against the people who designed and sold a structure built on interconnected leases and management contracts.
Why MDside quotes a fixed fee
Our position differs from a common market practice, so here it is plainly. We charge a fixed fee against a written scope, and we do not take a share of clinical revenue, including in states where we lawfully could. A percentage makes the management company’s income rise with patient volume, which is the fact every one of these authorities looks at first. It also fails in the first state you expand into that bars it. A fixed fee still has to be supported, and fair market value for MSO fees covers how.
What this means for you
Find the fee clause and ask three questions. Does any part of it move with revenue, collections or patient count? Does your state bar that form for management services? Could you show what the fee buys, at cost, if your own counterparty claimed it was illegal? If the first answer is yes and you operate in New York, Illinois, North Carolina or Florida, change the form before you argue about the amount. Then check the rest of the agreement against the twelve MSA clauses, because a lawful fee inside a controlling contract still loses. The same logic applies to physician pay, covered in percentage fees and fee splitting.
Related reading
Frequently asked questions
Is a percentage of revenue management fee illegal?
In some states. New York treats payments that are a percentage of, or dependent upon, a licensee’s receipts as fee sharing. Illinois bars paying a percentage of fees, revenues or profits for marketing or management. North Carolina’s Medical Board calls percentage revenue sharing with a non-licensee fee splitting. California and Tennessee allow a percentage tied to the value of the services.
Is a flat management fee always safe?
No. A flat fee far above the value of the services, or one that is reset so often that it follows revenue, draws the same attack as a percentage. In Carothers, New York’s Court of Appeals treated above-market fixed lease charges as evidence that non-physicians controlled the practice. New York’s statute also reaches fees otherwise dependent upon receipts.
Can a billing company charge a percentage of collections?
Illinois expressly allows a fair market value fee for billing and collection based on a percentage, if the practice controls the charges and collections go to an account in its sole control. New York’s statute covers personnel services without that carve-out. OIG has long warned that percentage billing increases the risk of upcoding where federal programs pay.
Who can challenge an MSO fee?
A medical board, a state attorney general in Illinois, an insurer refusing to pay, and the other party to the contract. In Texas and California cases, one side argued that the management agreement was illegal when the relationship broke down, and a Florida court declared a percentage agreement illegal in a dispute over it. An unlawful fee gives either party a way out.
This is general information, not legal advice. Rules vary by state and change. Confirm your own facts with counsel.