Ohio Fee-Splitting Prohibitions and MSO Compliance for Healthcare Practices

Healthcare businesses operating in Ohio, including innovative telehealth platforms, medspas, dental practices, and chiropractic offices, must navigate a complex regulatory landscape, particularly concerning prohibitions against fee-splitting and the compliant structuring of Management Services Organization (MSO) agreements. Ohio law is clear and stringent in its stance against the division of professional fees with unlicensed entities, a principle designed to protect patient care from commercial exploitation and ensure medical decisions are based solely on clinical need.

Understanding Ohio's Fee-Splitting Prohibitions

Ohio Revised Code (ORC) and administrative rules governing various professional licensing boards explicitly prohibit licensed healthcare professionals from splitting fees or sharing professional income with unlicensed individuals or entities. The underlying rationale is to prevent lay interference in the practice of medicine, dentistry, chiropractic, and other licensed health professions, and to ensure that compensation for professional services directly reflects the value of the care provided, free from undue commercial influence.

For example, the Ohio State Medical Board has consistently interpreted its statutes and rules to prohibit arrangements where a physician shares a percentage of their professional fees with an unlicensed entity. While the specific language may vary slightly across different professional boards, the core principle remains consistent: professional fees generated from patient care belong to the licensed professional or professional entity, and cannot be divided with an unlicensed third party in exchange for patient referrals or administrative services that cross the line into professional practice.

Key statutes and rules to consider include:

• Ohio Revised Code (ORC) 4731.22(B)(20): This section, pertaining to physicians, allows for disciplinary action for "the division of fees for referring an individual to another person or for prescribing or recommending an individual's services or products to another person, unless the division of fees is between licensees who are jointly engaged in the practice of medicine and surgery, osteopathic medicine and surgery, or podiatric medicine and surgery, or between licensees who are members of a partnership, professional association, or corporation engaged in the practice of medicine and surgery, osteopathic medicine and surgery, or podiatric medicine and surgery."
• Ohio Revised Code (ORC) 4715.30(A)(14): For dentists, this section allows for disciplinary action for "the division of fees for referring a patient to another person or for prescribing or recommending a patient's services or products to another person, unless the division of fees is between licensees who are jointly engaged in the practice of dentistry or between licensees who are members of a partnership, professional association, or corporation engaged in the practice of dentistry."
• Ohio Administrative Code (OAC) 4734-1-03(E): For chiropractors, this rule states, "No chiropractor shall divide fees for referring a patient to another person or for prescribing or recommending a patient's services or products to another person, unless the division of fees is between licensees who are jointly engaged in the practice of chiropractic or between licensees who are members of a partnership, professional association, or corporation engaged in the practice of chiropractic."

These provisions highlight that fee-splitting is generally permissible only among licensed professionals within the same practice entity, not with unlicensed individuals or MSOs.

Management Services Organizations (MSOs) and Compliance

MSOs play a vital role in the modern healthcare landscape, providing essential administrative, non-clinical support services to healthcare practices. These services can include billing, coding, scheduling, marketing, IT support, facility management, and human resources. The challenge arises in structuring the financial relationship between the MSO and the professional practice to ensure it does not run afoul of fee-splitting prohibitions.

The critical distinction lies in the compensation structure. An MSO must be compensated for the administrative services it provides, not for professional services rendered by the licensed providers. Compliant MSO arrangements typically involve:

1. Fair Market Value (FMV) Compensation: All payments from the professional practice to the MSO must be for legitimate, identifiable administrative services and must be set at fair market value. This means the compensation should be consistent with what a willing buyer and willing seller, both knowledgeable of the relevant facts, would agree upon in an arm's-length transaction.
2. Fixed Fees or Per-Service Administrative Fees: MSO compensation should ideally be structured as a fixed monthly fee, a percentage of the practice's gross revenues (excluding professional fees), or a per-unit fee for specific administrative tasks (e.g., per claim processed, per patient scheduled). The key is that the compensation should not directly fluctuate based on the professional fees generated by the licensed practitioner for patient care.
3. No Percentage of Professional Fees: Directly or indirectly compensating an MSO based on a percentage of the professional fees collected by the licensed provider for medical, dental, or chiropractic services is a red flag for fee-splitting. This structure suggests the MSO is sharing in the profits of professional services, which is generally prohibited.
4. No Control Over Clinical Decisions: MSOs are strictly prohibited from exercising any control or influence over the clinical judgment or decisions of licensed healthcare professionals. The professional practice must maintain complete autonomy over patient care.
5. Clear Documentation: All MSO agreements must be clearly documented, outlining the specific services provided by the MSO, the compensation structure, and affirming the professional practice's independent control over clinical matters.

Implications for Specific Healthcare Businesses

• Telehealth Brands: Telehealth platforms often rely on MSO-like structures to provide technology, marketing, and administrative support to a network of independent licensed providers. These platforms must ensure their agreements with Ohio-licensed providers clearly delineate administrative services from professional services and establish compliant compensation models. Any revenue share or percentage-based compensation must be meticulously reviewed to ensure it's tied to administrative support, not a division of the professional fee for the virtual consultation itself.
• Medspas: Medspas frequently operate under MSO models where a management company handles the business aspects while a physician or other licensed practitioner oversees the medical procedures. The MSO's compensation must be for services like facility management, marketing, and equipment provision, and not a percentage of the revenue generated from medical aesthetic treatments (e.g., injectables, laser treatments) that constitute professional services.
• Dental Practices: Many dental practices utilize MSOs for back-office support, billing, and practice management. MSO fees must be justifiable as administrative costs, not a share of the revenue from dental procedures like cleanings, fillings, or orthodontics. The Ohio State Dental Board is vigilant about maintaining the integrity of professional dental practice.
• Chiropractic Offices: Similar to other specialties, chiropractic offices engaging MSOs must ensure that compensation is for non-clinical management services. Any arrangement where the MSO receives a percentage of fees for chiropractic adjustments or therapies would likely be considered illegal fee-splitting by the Ohio State Chiropractic Board.

Enforcement and Penalties

Violations of fee-splitting prohibitions can lead to severe consequences for both the licensed professional and the MSO. Penalties for licensed professionals can include:

• Disciplinary Action: License suspension or revocation by the respective professional board.
• Civil Penalties: Fines and restitution.
• Criminal Charges: In egregious cases, criminal prosecution for practicing medicine without a license (for the MSO) or other fraud-related offenses.
• Contractual Invalidity: MSO agreements found to violate fee-splitting laws may be deemed void and unenforceable.

For MSOs, operating in a manner that constitutes fee-splitting could expose them to charges of aiding and abetting the unlicensed practice of medicine or other professions, as well as potential fraud allegations.

Conclusion

Ohio's regulatory framework strongly safeguards against fee-splitting to protect the integrity of patient care. Healthcare businesses, particularly those leveraging MSOs, must proactively ensure their operational and financial structures comply with these prohibitions. This requires a thorough understanding of state statutes and board rules, careful drafting of MSO agreements based on fair market value principles for administrative services, and a clear separation between professional and administrative functions. Consulting with legal counsel specializing in Ohio healthcare law is highly recommended to mitigate compliance risks and ensure sustainable operations.

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Sources:

• Ohio Revised Code (ORC) 4731.22(B)(20): https://codes.ohio.gov/ohio-revised-code/section-4731.22
• Ohio Revised Code (ORC) 4715.30(A)(14): https://codes.ohio.gov/ohio-revised-code/section-4715.30
• Ohio Administrative Code (OAC) 4734-1-03(E): https://codes.ohio.gov/ohio-administrative-code/rule-4734-1-03
• Ohio State Medical Board: https://med.ohio.gov/
• Ohio State Dental Board: https://dental.ohio.gov/
• Ohio State Chiropractic Board: https://chirobd.ohio.gov/