A question that comes up frequently in our consultations with mental health professionals:

"I'm thinking of bringing another clinician into my practice. I can't afford to pay a full-time salary. Some of my colleagues who run group practices get a percentage of each clinician's collections. Would that be considered 'fee splitting'?"

Fee splitting is illegal in some states. And according to the ethics codes of APA, ACA, NASW and AAMFT, it is unethical. (Also see this brief article for psychologists by the APAPO Legal and Regulatory Affairs staff.)

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The defining characteristic of fee splitting is a payment or commission in exchange for a referral.

For example, let's say Dr. Adams has an agreement with Dr. Brown, whereby if one sends the other a patient, the referring doctor gets a "referral fee."

In this scenario, Dr. Adams refers Ms. Smith to Dr. Brown, who has a separate practice across town. Ms. Smith sees Dr. Brown and pays him $150. In turn, Dr. Brown sends Dr. Adams a check for $50 as a referral fee. This is clearly an example of fee splitting, and is unethical.

One ethical issue here is that Dr. Adams has a financial incentive to refer Ms. Smith to Dr. Brown, while she might be a better match for a mental health professional who does not have a referral-fee arrangement with Dr. Adams. In other words, a referral-fee arrangement has the potential to undermine the patient's best interests.

In another scenario, Dr. Brown works in Dr. Adams' office, and they have an agreement in which Dr. Brown pays 33% of collections to cover "overhead"? Would it still be fee splitting if the patient pays Dr. Brown $150, who in turn gives $50 to Dr. Adams?

Calling it "overhead" does not automatically put you in the clear. In order to minimize the interpretation of the arrangement as fee splitting, you need to separate the clinician's financial obligation to the practice owner from patient-specific parameters, as described below.

Alternatives that don't violate professional ethics codes

  1. Dr. Brown pays Dr. Adams a a flat fee for the use of office space, either by the hour or by the day (e.g., $30/hr or $200/day), regardless of what he charges patients, or what he collects, and regardless of who referred the patient.
  2. Dr. Brown works for Dr. Adams as an employee. All of Dr. Brown's clients - whether referred by Dr. Adams or not - make their payments to the practice, not directly to Dr. Brown. Then Dr. Brown is paid an agreed-upon percentage of the total income he generated.

For more information on ways to compute employee compensation, see Financial Management for your Mental Health Practice: Key Concepts Made Simple, by Jeff Zimmerman, Ph.D. and Diane Libby, CPA.

Compensation options are also described in an audio interview with Dr. Zimmerman, "Adding a Clinician to Your Practice: What You Need to Know

Get it in writing.

All agreements between practice owners and employees, independent contractors and/or subletters should be in writing. Do consult an attorney to draw up a contract. They have experience in anticipating what might go wrong, and how to prepare to deal with it.

Disclaimer: The above is for limited informational purposes only, and is not intended as professional legal or accounting advice.