New York Attorney General Settlement Provides Guidance for Medical Practice Management Companies

In June, the New York Attorney General announced a widespread settlement with Aspen Dental Management, Inc. (“Aspen Dental”) based on the Attorney General’s finding that the dental practice management company engaged in the unauthorized practice of dentistry and illegal fee splitting under New York law.

The Attorney General’s investigation evidences enforcement of the corporate practice of medicine doctrine, which exists in many states and prohibits corporations owned by non-professionals from employing or otherwise contracting with physicians to practice medicine and charging for professional services, except in limited circumstances. In New York, like many states, the corporate practice of medicine doctrine emanates from prior court decisions, laws regulating professional corporations, and laws restricting the division of fees generated from professional services. The prohibition on the corporate practice of medicine is grounded in public policy concerns based on the principle that when a lay corporation holds a financial interest in a physician’s profits, the entity has a direct interest in and ability to control medical decision-making and impact the quality of care provided to patients.

The Attorney General’s announcement highlights the regulatory challenges faced by medical practice management companies that receive percentage of revenue compensation. In this case, Aspen Dental provided business support and administrative services to several independently owned dental practices. The Attorney General, however, determined that Aspen Dental held an impermissible level of control over the clinics, which included sharing in the clinics’ profits, marketing the clinics under the Aspen Dental trade name, incentivizing or otherwise pressuring clinic staff to increase sales of dental services or products, implementing revenue-oriented scheduling systems, and the hiring and oversight of clinical staff. Additionally, the Attorney General cited Aspen Dental’s control over the practice’s bank accounts and implementation of non-competition and non-solicitation agreements that effectively prohibited the practices from competing with any other dental practice affiliated with Aspen Dental.

As part of the settlement agreement, Aspen Dental will pay a $450,000 civil penalty. Aspen Dental will also cease exercising control over the practices’ professional decision making and not communicate directly with the clinics’ staff regarding dental care, sales of services or products to patients, or the amount of revenue generated from the services or products. The company also will not employ clinical staff, nor place any limitations on the practices owners’ practice of dentistry. Most importantly, Aspen Dental will no longer share in professional fees generated from the practice of dentistry by the clinics.

The settlement agreement provides guidance to medical practice management companies whom, in addition to providing business and administrative services, market medical practices and receive compensation based on a percentage of revenue. Physicians and management companies should always structure management agreements to comply with state fee splitting laws, the corporate practice of medicine doctrine, and other regulatory guidelines. For example, compensation of management companies should always be set at fair market value for commercially reasonable management and administrative services. Further, management companies should refrain from influencing professional decision-making in any way, and agreements with physician practices should reflect that all professional aspects of the practice remain the sole discretion of the practice. As state laws regarding fee splitting vary by state, a thorough analysis of each state’s laws should be performed prior to engaging in any agreement where a non-professional shares in fees generated from professional medical services. Finally, medical practice management companies’ marketing of medical practices may impact a fee splitting analysis under state law, and also raises additional concerns under federal and state anti-kickback laws.

Wachler & Associates represents medical practice management companies, as well as physician practices that contract with management companies. Our attorneys have experience structuring management agreements to comply with all federal and state laws, including fee splitting laws and the corporate practice of medicine doctrine, while at the same time furthering each client’s business objectives. If you or your healthcare entity needs assistance in structuring a compliant medical practice management agreement, or if you would like more information regarding the New York Attorney General’s settlement with Aspen Dental, please contact an experience healthcare attorney at 248-544-0888.

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