Ethics, Fee Splitting, and Independent Contractors

This may not be completely relevant to this website, but it is practice management and we do want to have some of that here. Sooo…I received this email last week:

I just enjoyed completing your Five Elements of Acupuncture Medical Ethics course online from Blue Poppy and I was confused by something you mentioned. I practice in Oregon and most practitioners I know are independent contractors who are paid a portion of the fees paid by patients, while the owner of the establishment gets the other portion. Is this unethical or just a practical business arrangement for those who chose not to own their own business? Is there a difference between a percentage paid and a flat rate per patient? I would appreciate whatever feedback you may have on this.

Thank you for the class and your insight.

Sincerely,

I want to attempt to answer these questions.Before I begin, there is a lot that is mixed all together here. And I am not a lawyer. And proud of it. So anything I say should be taken with a grain of salt, especially since there are some state laws that get involved here and I know little about California state law (where I live) and even less of Oregon’s. I did talk with my cousin, the lawyer and confirmed/gave me insight on several of these issues. But one should always consult a lawyer about these issues…

So right off the bat, there are two major issues here: the idea of fee splitting and independent contractor status. We will take these one at a time.

Fee Splitting

Fee splitting is illegal. Probably, most likely. There are two major federal laws that address this: the Stark Law and Federal Anti Kickback Law. These, together basically state, among many other things, you cannot fee split. Fee splitting is defined as one medical practitioner referring to another and receiving some sort of payment for the referral. It can refer to a percentage arrangement: you come work for my office and I will take 50% of what you earn from patients. This, on the surface can seem like an okay deal when say an acupuncturist has this relationship with a chiropractor. The idea would be that the chiropractor would refer patients to the acupuncturist and then receives a part of the fee back. It seems like a win-win situation; the acupuncturists gets patients and the chiropractor earns more money. But there is another party here: the patient. And the reason why this is probably illegal and definitely unethical (again, probably) is that the chiropractor has a built in incentive to refer patients, whether or not they really need acupuncture services. In other words, the chiropractor may refer a patient just to {gasp} make money. Whether or not the referral is made with the patient’s medical necessity in mind, it looks like there may be an ulterior motive and that doesn’t look or smell (or even taste) good.

And that is what these laws are trying to prevent: the breach of the patient’s trust or the appearance thereof. So that is the crux of whether or not fee splitting is illegal and it seems pretty straightforward. And of course it never is. There are exceptions to these laws. State laws may change some definitions or specifically state that acupuncturists are not medical practitioners. In other words, these laws may not even apply.

However, whether or not they apply to those of you in Oregon (or any other state), it is probably really easy not to have any issues around fee splitting. Just pay rent. Rent can be hourly and therefore you can have the benefits of fee splitting without any of those pesky legal concerns. So if you are charging $50 for a treatment (all numbers are for example only and are not suggestions for nor do they reflect actual transactions) [I have to have that parenthetical in order to avoid collusion…a whole other topic], Then hourly rent can be $25 per hour. And voila, you have a 50-50 fee split without a fee split. Of course there can be state laws that don’t permit this arrangement. And rent would need to be “reasonable” (yet another topic). But wait, there’s more…and that takes us to independent contractors.

Independent Contractors

So independent contractor status is not really federal law; it is IRS regulations. Mostly. State laws and state tax code could play a role as well. So what is it and why would someone want to be one?

An independent contractor (IC) is the opposite of an employee. It is someone who provides work on a contract basis and is NOT an employee. In other words, there is no employer saying you need to do this or that during this particular time and they can fire you if you don’t. It implies freedom. In fact, common tests say that independent contractors tend to make their own hours, charge fees as they wish, and provide their own tools and materials to get the job done. The IRS has this page to help one decide if they are an IC or an employee.

So why would one want to be an IC? The short answer is, generally, one doesn’t. It means you have to pay self-employment taxes. For example, you have to pay both the employer’s and employee’s taxes for FICA, rather than just the employee’s contributions. And there are no employee benefits. But “employers” really like it. It means that they don’t have to pay employee taxes, worry about payroll, pay benefits, and just generally not have to deal with most of the hassles of being an employer.

Where a problem occurs, is when an “employer” says that you are an IC when they are still telling you when to be there, how much to charge, and providing supplies. They can get in trouble for this and owe back taxes and possibly fines, if the IRS rules you are not an IC. If you, as acupuncturist, are told you are an IC and it ends up the IRS says you are not, there probably isn’t a huge consequence for you, other than some temporary discomfort while the status shifts.

So back to our discussion of paying rent. To help solidify IC status, the IC should pay for their own supplies. But the “owner/employer” can charge a straight supply fee. So to be (probably) legal, there should be an hourly rental fee and a supplies fee. So instead of charging $25 in rent as in our example above, it is better to charge $20 in hourly rent and a $5 supply charge per patient. And that pretty much solidifies independent contractor status.

Acupuncture Ethics & the Bottom Line

In summary, it is most likely illegal to fee split. Being an independent contractor is not necessarily straight forward. And I am not a lawyer. [I just like to repeat that last sentence] But there is a whole other issue here, which is whether or not fee splitting is illegal (which it probably is), it is probably unethical and the practice should be avoided. I know this is the standard in our profession and this is a really big ask,  but it is for the best.

About sperb

Dr. Greg Sperber is author of Integrated Pharmacology, Combining Modern Pharmacology with Chinese Medicine published by Blue Poppy. He received a masters and doctor of acupuncture and Oriental medicine from Pacific College of Oriental Medicine, San Diego, a medical degree from Flinders University of South Australia, and a master of business administration from National University. Currently he is the Director of Clinical Services, Clinical Chair, and Professor at PCOM and is a past president of the California State Oriental Medical Association.
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