Michael W. Davis, DDS, presents perspectives and legalities on fee-splitting and kickbacks in the dental profession.
Q: What are fee-splitting and kickbacks?
A: Fee-splitting and kickbacks may take a variety of forms. Sometimes they assume the model of kickbacks to referral sources. These parties may be other doctors or business entities that generate patient referrals for a financial (or large gift) inducement. These actions are strictly unlawful under the US federal Stark Law (tinyurl.com/yaghktnc) and Anti-Kickback Statute (tinyurl.com/ycrooolr). Thus, this represents unlawful activity for Medicaid providers (tinyurl.com/y7kk9zwl). A strictly fee-splitting arrangement is generated by splitting the patient’s fee to the dentist, with a third party. Thus, kickbacks and fee-splitting are very closely related and, at times, may represent the same violation.
Q: Why are fee-splitting and kickbacks viewed as unethical or unlawful?
A: A percentage of a doctor’s fees, which might ideally go towards enhanced treatment or reduced costs, are delivered to third parties without the knowledge or consent of the patient or payer of services (government or insurance company). This violates the doctor/patient relationship (contract), in which the disadvantaged party in the contract (patients) must have their interests held paramount.
The delivery of healthcare services is quite different than commerce of everyday goods and services. This is due to the gross inequity of a doctor’s expert knowledge compared to that of vulnerable patients.
Q: Are fee-splitting and kickbacks only problematic for the dental profession?
A: No, most states have anti-fee splitting and anti-kickback statutes for a variety of professions (a few states do not). These laws extend to physicians and other healthcare providers, as well as attorneys. Statutes can vary greatly from state to state. A few states specifically prohibit a percentage of a doctor’s revenues to be paid to third-party advertisers and marketers (kickbacks) or third-party management administrators (strict fee-split). Seemingly by contrast, under California Code 650(b), payments based on a percentage of gross revenues may lawfully be made to management service organizations (ie, dental service organizations [DSOs]) at fair market value. This term, “fair market value,” is the key consideration. Unfortunately, outside of North Carolina, vigorous enforcement of state codes prohibitive of fee-splitting and kickbacks are seriously lacking. Too few states enforce these laws, which serve to embolden violators. Federal enforcement of anti-kickback and Stark Laws is only somewhat better, which generally relates to fraud and abuse of the Medicaid and Medicare programs.
Q: Can you provide a few examples of how fee-splitting and kickback schemes are addressed in different states?
A: The North Carolina State Board of Dental Examiners (NCSBDE) issued an initial declaratory ruling on March 22, 2002, which was incorporated into their state’s dental practice act. The Management Arrangements Rule (MAR) addresses dentists who enter into contract agreements with dental practice management companies (DSOs). These contracts are subject to prior review by the state dental board. Both dentists and management companies are subject to potential discipline under the dental practice act for MAR violations. A non-dentist manager, who lacks a license, may be disciplined under statutes relating to the unlicensed and unlawful practice of dentistry. An amended declaratory ruling on December 7, 2010, went further in public protections against fee-splitting between a dentist and a DSO; the following 4 points are quoted from this ruling:
1. Management arrangements can be constructed with extensive detail and scope such that while any one element of the arrangement if taken alone may not be problematic, the sum total and scope of the array of services provided effectively cedes control of the practice to the management company.
2. Certain types of arrangements between the management company and the professional entity regarding the purchase or provision of supplies to the professional entity, with a concomitant “cost savings mark up” provision, have been used to shelter fee-splitting schemes.
3. Allowing management companies to provide a complete array of financial services as well as administrative services creates an environment where the professional entity becomes so economically indebted to the management company that termination of the arrangement and retention of the practice becomes problematic for the practitioner.
4. The health, safety, and welfare of the public is impacted by decisions generated by non-clinical personnel and, therefore, non-clinical personnel should at all times remain under the direct control and supervision of the professional entity, which should include the authority to hire, supervise, and fire those personnel at the sole discretion of the professional entity.
Furthermore, NC statutes specifically prohibit all professionals from paying a percentage of production revenues to third-party management companies (DSO fee-splitting) or marketing firms (kickbacks). Particularly with regard to kickbacks, the NCSBDE’s website reads, as follows: A law prohibits a healthcare provider from offering rewards for patient referrals. This is not to say that a “thank you” cannot be made; however, a prearranged agreement to compensate someone (financially, with a “gift,” or by crediting their account, for instance) is unlawful.
Likewise, New York statutes prohibit healthcare professionals from paying a percentage of production revenues to a management firm, as well as to the corporate practice of medicine (fee-splitting). On June 18, 2015, New York Attorney General Eric Schneiderman announced a settlement with a large chain DSO. The state’s investigation revealed that this DSO was willfully involved in unlawful fee-splitting between clinics and the management company. The DSO was reportedly controlling clinic bank accounts, utilizing non-licensed personnel to run dental clinics, employing deceptive advertising, upselling unnecessary dental services, and utilizing vague and incomplete finance agreements. The DSO was subjected to a $450,000 fine and a promise to fully amend their business practices (without admission of wrongdoing). Of note, this DSO also has state settlement agreements for related violations in Indiana, Massachusetts, and Pennsylvania.
Dr. Davis operates a solo general dental practice in Santa Fe, NM. He serves the legal community with expert witness work. He chairs his local dental society peer-review committee. He can be reached via email at mwdavisdds@comcast.net.
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