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On June 25, 1999, in PhyMatrix Management Co., Inc. v. Bakarania, Fla. Dist. Ct. App., No. 97-4534, 6/25/99, the Florida First District Court of Appeal, in a per curium decision, affirmed a 1997 Board of Medicine ruling that a physician practice paying a percentage of net income to a physician practice management company ("PPMC") in return for "practice-expansion activities" is engaging in illegal fee-splitting in Florida. The PPMC's "practice-expansion activities" involved developing contracts with insurers, hospitals, and other medical providers designed to generate patient referrals to the practice. The court's decision cannot be appealed.
The Bakarania case came before the Board of Medicine in 1997 when Dr. Bakarania asked the Board for advice about the legality of a contract between PhyMatrix Management Co. and Access Medical Care, Inc., a group medical practice which he was considering joining. Noting that the management company received 30 percent of the physicians' net income in return for services which included practice enhancement activities, attorneys for Dr. Bakarania argued that the payment methodology violated the prohibition against fee splitting in the Florida Medical Practice Act. The Board of Medicine agreed. As written, the ruling could be interpreted to bar all percentage-fee contracts. While not binding outside of Florida, because the Florida statutory provision is similar to those in other states, the decision had a chilling effect upon the growth of PPMCs across the country.
Another recent decision from Florida, however, is not so restrictive. Two weeks before the Florida appellate court's affirmance of the Bakarania decision, the Florida Board of Medicine issued a declaratory statement, ruling that percentage fees paid to a management firm are permissible under the fee-split bar if the percentage fees are not tied to activities that are designed to bring more patients into the practice. The case involved a proposed contract between an anesthesiology practice and a management company, where the management company would be paid 50 percent of net collections up to $10,000 a month to be responsible for office space, staff, equipment, personnel, and billing and collection services but not for the types of "practice enhancement" activities with which the Board took issue in the Bakarania case. Although the specific rationale underlying the Board's decision will not be known until its final order is published sometime next month, the decision is significant for the PPMC industry since it appears to confirm that percentage-based arrangements involving only basic management services will not run afoul of the Florida fee-splitting law.
Reading the two decisions together, it appears the legality of percentage-based contracts between PPMCs and Florida physicians depends upon the types of services the PPMC is contractually required to provide. To the extent the management company provides traditional administrative services, such as billing and collections, the fee-split law should not be implicated. However, PPMCs wishing to furnish marketing services designed to generate referrals appear to be restricted to contracts which provide a flat fee for practice expansion activities.
It is ironic that these developments arise from Florida, one of a handful of states which does not prohibit the corporate practice of medicine. Thus, PPMCs operating in Florida can achieve the financial results they seek by restructuring their relationships with physicians from independent contractors to employees. Should other states follow the lead of the Florida Board of Medicine, that option may not be available and PPMCs will be forced to consider alternative financial arrangements with its physicians.