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by Richard D. Weber, J.D.
MDA Legal Counsel
Published in the June 1998 issue of the Journal

Question: A company has offered to buy my practice and employ me as a dentist. The company advised me that I would have no further responsibility with administration and overhead, and I could simply devote all my time to practicing dentistry. It is my understanding that I would be paid a percentage of my fees, in addition to a substantial amount of up-front money for my practice. Is this legal?

Answer: Assuming the purchasing company is not owned by dentists, and is not a nonprofit corporation, it would be illegal for the company to employ you as a dentist to practice dentistry. Dentists and other health care professionals may only be employed by professional corporations or limited liability companies and, in both instances, the P.C. or L.L.C. must be owned by dentists. The only other exception to employing a dentist or other health care professional would include a nonprofit corporation, such as a hospital.

It is probable that the company that approached you is a practice management company. Such PMCs typically purchase the assets of a dentist, but not the dentist's practice itself. The PMC would then lease the assets back to the dentist, who would practice as an independent contractor, not as an employee. The dentist would probably retain his or her own professional corporation or business entity. That entity would retain possession and ownership of the patient records. All professional services would be performed by the dentist within the context of the dentist's practice entity, and not the PMC. The assets necessary to practice dentistry would be leased to the dentist's professional corporation or practice entity, and the dentist would pay rent to the PMC. This structure would not violate Michigan law, with one possible exception.

If the compensation paid by the dentist to the PMC was based upon a percentage of the dentist's fees, it could be deemed to be fee-splitting. Fee-splitting is illegal in Michigan. The Public Health Code precludes fee-splitting as an unethical business practice. The Michigan Penal Code makes it a misdemeanor for a physician or surgeon to divide fees or pay a commission, but this statute does not specifically apply to dentists.

There are no appellate court decisions in Michigan interpreting the fee-splitting statute. Significantly, the Florida Board of Medicine recently ruled that a PMC's contract with a group of 13 Tampa Bay physicians that called for a 30 percent share of increased profits is illegal under Florida laws against fee-splitting. This Florida Board of Medicine ruling is now the subject of an appeal in the Florida courts.

The ruling by the Florida Board of Medicine shocked the health care community, not only in Florida but elsewhere. Opponents claim that the ruling is an unprecedented application of fee-splitting and is contrary to traditional percentage fees charged by PMCs. If the ruling is upheld in the courts it could impact not only PMCs, but managed service organizations, independent practice associations and even hospital-owned practices. Whether the Florida courts will affirm this ruling is an open question.

It is also an open question as to whether the statutes in Michigan would be interpreted in the same way. Without judicial precedent interpreting fee-splitting statutes, no definitive opinion can be rendered. It is clear, however, that statutes precluding fee-splitting were enacted decades ago, prior to the vast changes in health care structuring and financing, including the growth of managed care. It is possible that the Florida courts and the Michigan courts, if they are confronted with the issue, would limit the application of these statutes to direct payment of a percentage of a specific fee in exchange for a specific patient referral, but not extend the law to the payment of a percentage of the total fee revenue for a specified period to a PMC.

It is important to realize that statutes making fee-splitting illegal apply to dentists and other health care professionals, and not practice management companies. Although PMC contracts could be voided on the basis that they include illegal fee-splitting, it is the health care professional, not the PMC, who is in violation of the law and subject to possible licensure discipline.

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