What Is Fee Splitting and Why Is It Unethical?

A recent graduate of a psychiatry residency training program is invited to join a senior psychiatrist’s practice. The senior psychiatrist offers to refer patients to the new colleague as she builds her practice in exchange for 30 percent of the revenue from those patients. The senior psychiatrist will provide the junior colleague with a furnished office and receptionist support. This seems like a good deal to both psychiatrists, but just to be sure it’s acceptable, they ask their district branch ethics chair to approve it.

The Merriam Webster Dictionary defines fee splitting as “payment by a specialist (such as a doctor or a lawyer) of a part of his or her fee to the person who made the referral.” Although referral incentives are a common business practice in other industries, in medicine they erode the fiduciary relationship, potentially elevating a physician’s financial interests above the needs of the patient.

Rules about avoiding fee-splitting arrangements grew out of laws and government regulations concerning kickbacks. While blatant kickbacks are rarely seen in psychiatric referral patterns, the profession wants to guard against any arrangement in which a psychiatrist will receive compensation for making a referral, because such an incentive may compromise objectivity in deciding on the most appropriate treatment plan for a patient. “Referrals by the psychiatrist should be based upon the training, competence, specific skills, and ethical qualifications offered by the professional to whom a patient is to be referred” (letter to the editor in the January 3, 2003, Psychiatric News by Richard Milone, M.D., and Wade Myers, M.D.).

Section 2
of APA’s Principles of Medical Ethics With Annotations Especially Applicable to Psychiatry concerns our duty to uphold the standards of professionalism. Article 7 states, “An arrangement in which a psychiatrist provides supervision or administration to other physicians or nonmedical persons for a percentage of their fees or gross income is not acceptable; this would constitute fee splitting. In a team of practitioners, or a multidisciplinary team, it is ethical for the psychiatrist to receive income for administration, research, education, or consultation. This should be based on a mutually agreed-upon and set fee or salary, open to renegotiation when a change in the time demand occurs.”

The APA’s Ethics Committee expressed this from a different perspective in an opinion issued in 1976 and updated in 1978 and 1990: “A physician is licensed by the people of a state to provide medical care. He is not licensed to establish an entrepreneurial business when the care of patients is subordinated to profit” (Opinions of the Ethics Committee on the Principles of Medical Ethics, K.2.b., 2017). Although it is acceptable to receive compensation for providing office space and administrative support to other health care providers, the compensation should be negotiated as a fixed fee, not tied to referral volume. Alternatively, the health care colleague could be paid a salary if the psychiatrist wants to receive all the revenue from services billed by the colleague.

The district branch ethics committee chair instructs the psychiatrists that they have two options that are ethical. The senior psychiatrist could hire the junior colleague as an employee. The senior psychiatrist would keep all the revenue generated by the junior psychiatrist, who would be paid a salary and perhaps an incentive bonus based on volume of billing. This is similar to how many clinical psychiatrists are paid in academic medical centers. Alternatively, the junior associate could pay the senior psychiatrist a fixed fee in return for the office space and administrative support, but not tied to referrals or billing revenue.

In addition to avoiding fee splitting, the latter arrangement preserves the most autonomy for the junior colleague. Because the rent and administrative fee will be the same every month, the senior psychiatrist won’t have a reason to monitor how many patients are being seen or how many days off are taken. As is often the case, the ethical path works well for both patients and providers. ■

APA’s ethics documents can be accessed here.