> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Fee-splitting rules, explained

> The sibling doctrine to CPOM: why sharing professional fees with non-licensees is restricted, why percentage-of-revenue management fees are scrutinized, and how flat and cost-plus fees respond.

**Fee-splitting** rules prohibit a licensed professional from sharing professional fees with an unlicensed person or entity. They are distinct from the corporate practice of medicine doctrine, they exist in states that have no CPOM doctrine at all, and they are the reason a percentage-of-collections management fee is safe in some states and dangerous in others.

<Warning>
  Fee-splitting rules live in medical practice acts, board regulations, professional ethics codes, and sometimes insurance and anti-kickback statutes. Whether your specific fee structure violates your specific state's rule is a question for counsel licensed there.
</Warning>

## The rule in one sentence

A licensee may not divide, share, or split the fees earned for professional services with someone not licensed to provide those services.

## Why it exists

Three rationales, which overlap with but are not identical to CPOM's:

1. **Referral incentives.** If a non-licensee's income rises with the volume of services, they have an incentive to generate services, including unnecessary ones.
2. **Professional independence.** A party with a direct claim on professional fees has leverage over how those fees are generated.
3. **Patient trust.** The patient believes they are paying for professional judgment, not for a revenue share flowing to an unseen third party.

Note the middle one: this is the same concern CPOM has, arriving from a different direction. CPOM asks *who controls the practice*; fee-splitting asks *who gets the money*. Regulators frequently treat them as two views of the same problem, which is why an aggressive fee structure can create CPOM exposure even where the governance is clean.

## The problem for MSO-PC structures

The management fee is, by construction, money the PC earns from professional services being paid to a non-licensee. That is the fact pattern the rule describes.

Every MSO-PC structure therefore depends on a distinction: **the fee is compensation for administrative services rendered, not a division of professional fees.** How persuasively you can hold that line depends almost entirely on how the fee is calculated.

## The three fee structures, ranked by exposure

| Structure                     | How it works                             | Fee-splitting exposure                                                                                                |
| ----------------------------- | ---------------------------------------- | --------------------------------------------------------------------------------------------------------------------- |
| **Flat fee**                  | Fixed monthly amount, periodically reset | **Lowest.** Unconnected to what the practice collects. Plainly a price for services.                                  |
| **Cost-plus**                 | MSO's actual costs plus a stated markup  | **Low.** Tethered to services actually provided; the markup is a margin on cost, not a share of professional revenue. |
| **Percentage of collections** | A stated percentage of practice revenue  | **Highest.** Structurally identical to sharing professional fees.                                                     |

The compliance ranking runs exactly opposite to the ranking investors prefer, which is the central tension of MSO economics. See [Where the profit lives](/concepts/finance/where-the-profit-lives).

## Where percentage fees are riskiest

**New York** is the canonical strict jurisdiction. New York Education Law and associated regulation restrict fee-sharing with unlicensed persons, and the state has a long history of treating percentage-based management fees skeptically. Practitioners in New York overwhelmingly structure MSO fees as flat or cost-plus.

**Florida** has an explicit patient brokering statute and fee-splitting provisions in its practice acts, and its Health Care Clinic Act regime interacts with them. Percentage arrangements draw attention.

**Other states with active fee-splitting doctrines** include California, Texas, New Jersey, Illinois, and Connecticut, though the analysis in each differs and the practical tolerance varies. Some states restrict percentage fees only where they are tied to referrals or to specific service types.

**Permissive states**, those without meaningful fee-splitting restrictions, allow percentage arrangements routinely. This is real: a percentage fee that would be a problem in New York is unremarkable elsewhere.

Check your state's page for the specific rule: [CPOM by state](/reference/legal/states/new-york).

**Multi-state groups cannot run one fee structure everywhere without checking.** A percentage-of-collections MSA that works across your first three states may be a problem in state four. The usual solution is a base MSA with state-specific fee riders. See [Evolve the fee structure](/guides/agreements/evolve-the-fee-structure).

## What makes a fee defensible

Regardless of structure, the same factors improve the analysis:

**Fair market value.** The fee approximates what an unrelated party would charge for the same services. This is the anchor for everything else, and it is why groups commission FMV studies. See [Set the management fee](/guides/agreements/set-the-management-fee).

**Commercial reasonableness.** The services are real, needed, and actually delivered. A fee for services the MSO doesn't provide is indefensible under any structure.

**Documented services.** The MSA specifies what is provided, and the MSO can evidence it: staffing, systems, deliverables, service levels.

**No referral linkage.** Nothing in the fee varies with the volume or value of referrals. This is where fee-splitting overlaps the federal Anti-Kickback Statute. See [Stark, AKS, and why comp design is constrained](/concepts/compliance/stark-and-anti-kickback).

**Actually paid.** A fee that accrues forever and is never paid in cash is evidence it was never a real price for real services, and it is a specific diligence red flag.

## The overlap with anti-kickback law

Fee-splitting is state law about professional fees. The **federal Anti-Kickback Statute**, 42 U.S.C. § 1320a-7b(b), is criminal law prohibiting remuneration to induce or reward referrals of items or services reimbursable by federal healthcare programs.<sup>1</sup>

They are distinct, but a percentage-based arrangement can implicate both: state fee-splitting because it shares professional fees, and AKS if the arrangement's structure rewards referral generation. Many states also maintain **all-payer** anti-kickback analogues that reach commercial payers where the federal statute does not.

A structure can be AKS-safe and still violate state fee-splitting law. Clear both.

## The practical arc

Most groups do not pick one structure and keep it. The common progression:

```mermaid theme={null}
graph LR
    A[Launch<br/>Flat monthly fee] --> B[Scale<br/>Cost-plus markup]
    B --> C[Mature<br/>Percentage, where lawful]
```

**Flat at launch** because the MSO's service scope is thin, the fee is easy to FMV-support, and the PC needs predictable costs before revenue stabilizes.

**Cost-plus as the MSO absorbs real services**, because the cost base becomes measurable and the markup gives investors a defined recurring margin while staying tethered to an FMV anchor.

**Percentage only where state law tolerates it**, and often never.

The transition mechanics matter: amendment versus restated MSA, board consents, a refreshed FMV study *before* the new fee takes effect, and a per-state fee-splitting re-check for every PC moving to the new structure. See [Evolve the fee structure](/guides/agreements/evolve-the-fee-structure).

**Retroactively repricing past periods to increase MSO earnings before a fundraise is the classic diligence red flag.** It converts a fee question into a credibility question, and buyers price credibility.

## Sources

1. 42 U.S.C. § 1320a-7b(b) (Anti-Kickback Statute). [OIG overview](https://oig.hhs.gov/compliance/physician-education/fraud-abuse-laws/); safe harbors at 42 C.F.R. § 1001.952.


## Related topics

- [Set the management fee](/guides/agreements/set-the-management-fee.md)
- [Evolve the fee structure (fixed → cost-plus → percentage)](/guides/agreements/evolve-the-fee-structure.md)
- [Draft the management services agreement (MSA)](/guides/agreements/draft-a-management-services-agreement.md)
- [The corporate practice of medicine doctrine](/concepts/model/cpom.md)
- [Where the profit lives: MSO economics and fee structures](/concepts/finance/where-the-profit-lives.md)
- [Stark, AKS, and why comp design is constrained](/concepts/compliance/stark-and-anti-kickback.md)
- [MSA clause anatomy](/reference/legal/msa-clause-anatomy.md)
- [New York — CPOM & MSO reference](/reference/legal/states/new-york.md)