Profit-sharing that works (and complies with the law)

February 22, 2019
Ericka L. Adler, JD
Ericka L. Adler, JD

Shareholder at Roetzel & Andress

It’s great that you want to share the wealth with your nonphysician employees. Just make sure you draft a policy that also meets state and federal laws.

Medical practices are always looking for new ways to incentivize employed physicians to improve the profitability and efficiency of the practice. This often takes the form of profit-sharing plans, incentive bonuses, and the like. I have seen some of these plans work extremely well for medical practices.

Many medical practices look to apply the same profit-sharing approach to nonphysician employees, such as nonphysician providers and practice managers. However, it’s important for practices to seek legal advice before developing such a financial strategy. The reason is that many states laws prohibit fee splitting.

Fee splitting can be defined differently by states and licensures. In many states, this prohibition means that sharing a percentage of a medical practice’s profits with nonphysicians violates the licensing statute of the physician owners. However, some states allow certain combinations of professionals to practice together and share profits.

Although this fee splitting restriction may seem unfair, there can be repercussions for medical practices that violate or fail to comply with the rules. Thus, it’s important to be aware of your state’s legal requirements. Unfortunately, many physician practices develop profit-sharing or similar plans with their financial advisers without consulting an experienced health lawyer. This can mean those plans need to be revised or undone at a later date.

If your state does not allow nonphysicians to share in the profits of a medical practice, you still have options to reward them. Here are three approaches I have seen:

  • Create a flat bonus based on achieving certain targets such as completion of records, reduction in waiting times, decreased waste of supplies, and similar tasks.

  • Create a percentage bonus based on expenses rather than profit. Some practices strive to reduce expenses, so sharing a percentage of the reduced expenses can be an effective approach. A percentage of other practice measurements aside from profit may also be permissible.

  • Form a management company that is tasked with overseeing some or all of the practice operations. Nonphysicians can own or participate in profits of the management entity.

It’s important to note that many state statutes focus on prohibiting a percentage of profit but do not seem bothered by bonuses that are a flat amount. Additionally, some fee splitting prohibitions focus on profit but only for professional services. Looking at how the state defines professional fees can reveal opportunities for the permissible sharing of profit to nonphysicians in the practice.

Encouraging practice staff to help achieve financial goals is important and worthwhile. Make sure you work with your legal and financial advisers to devise a plan that not only works for your practice but also complies with the law. Of course, it’s important to make sure that any plans also comply with applicable federal laws, too.

Ericka L. Adler has practiced in the area of regulatory and transactional healthcare law for more than 20 years. She represents physicians and other healthcare providers across the country in their day-to-day legal needs, including contract negotiations, sale transactions, and complex joint ventures. She also works with providers on a wide variety of compliance issues such as Stark law, Anti-Kickback Statute, and HIPAA. Ericka has been writing for Physicians Practice since 2011.