Ethical Concern - Referrals in an "informal" private practice

[NewMoonDream]

Hello everyone!

I am a newly licensed psychologist in California, and I have recently begun working with (for?) another psychologist (let's call him Dave) that I met through my post-doc. Dave runs a private practice, but it's not a group practice in the traditional sense - it works as if we are all independent contractors to his business. Kinda?

Here's where I'm a little confused on the situation: Dave basically rents a suite of offices that we all use - he pays for these directly. We do not pay rent to Dave per se, and any materials needed (test kits, toys, questionnaires) are paid for/reimbursed by Dave. I did not sign any contract, and I did have to get my own business license/tax ID. Dave passes along referrals to me, and I have to pay him a percentage of the client's fee for patients he refers to me (30%), and a lower percentage (20%) for referrals I get myself (since I'm using the space).

Dave does also provide weekly consultations to help me transition into private practice.

My concern is whether this business practice is illegal. I was re-reading the legal and ethics codes about fee-splitting and kickbacks, and it feels like this runs afoul of that, but I'm not really sure. I'm sure it would be fine if we were all employees of a business, but all of the psychologists that are part of this "practice" are all independent contractors. He has a website for the practice and has photos/bios for all the psychologists working under this umbrella, but we're not actually part of anything official. There are about 10 other psychologists part of this practice.

I'm incredibly torn right now. I've only gotten licensed fairly recently. I can't financially afford to leave this arrangement without work lined up and ready at another practice. I want to confront Dave, but I'm worried that I might be misunderstanding the legal/ethics codes on this. Plus, again, if I confront him and he shuts me out, them I'm screwed financially. I also don't know if he is even aware of this situation. He's a bit older (maybe late 60s?) so maybe this kind of situation was fine in the past?

I would really appreciate any insights or advice on this matter. Thank you in advance!

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[PsychPhDone]

Ok so you're presumably concerned about this from the business and professions code:
Paying, or offering to pay, accepting, or soliciting any consideration, compensation, or remuneration, whether monetary or otherwise, for the
referral of clients.

And this from ethics code: 6.07 Referrals and Fees: When psychologists pay, receive payment from, or divide fees with another professional, other than in an em-ployer-employee relationship, the payment to each is based
on the services provided (clinical, consultative, administra-t ive, or other) and is not based on the referral itself. (Seea lso Standard 3.09, Cooperation with Other Profession-als.)

 

[WisNeuro]

This sounds like Dave is potentially on the wrong side of classifying you as an independent contractor, I'd be real curious to see how his taxes are done.

 

[AcronymAllergy]

I could be wrong, but this doesn't sound like kickback/fee-splitting situation. You're not paying Dave for the referrals themselves separate of services you provide (i.e., you're not providing kickbacks by giving him $50 for every patient he sends your way, regardless of what services you do or do not provide for that patient). Rather, you're providing him a percentage of what you bill for services provided in exchange for various things (e.g., having a stream of referrals, use of office space and materials, etc.).

I do agree that the independent contractor situation could get tricky since he's providing the materials. If he's not telling you how or when to practice, that helps.

 

[PsyDWannabe]

I think you’re fine. The issue here doesn’t really directly concern you - it has to do with Dave making sure he understands the legal differences between W2 and 1099 so he doesn’t get in trouble with the IRS. But that’s not your problem.

 

[PsyDr]

Medicare/medicaid miiiiiiiiight be the only thing that makes this illegal. This is nuanced, and really depends on who collects the money, and when it is collected.

Otherwise, this is a wholly legal, albeit half @ssed LLC.

 

[NewMoonDream]

You're not paying Dave for the referrals themselves separate of services you provide (i.e., you're not providing kickbacks by giving him $50 for every patient he sends your way, regardless of what services you do or do not provide for that patient). Rather, you're providing him a percentage of what you bill for services provided in exchange for various things (e.g., having a stream of referrals, use of office space and materials, etc.).

See, this is why I wasn't sure. Because it does kind of feel that way. I mean, I'm paying Dave 20% of what I make on clients that I bring in independently - which we could say is covering the cost of renting the space and the materials. And then it's 30% of any referral that Dave sends me.

How is that any different from fee-splitting/kickbacks?

As another member mentioned from the ethics code:

“When psychologists pay, receive payment from, or divide fees with another professional, other than in an employer-employee relationship, the payment to each is based on the services provided (clinical, consultative, administrative, or other) and is not based on the referral itself.”

I am not under contract. I am not an employee. It feels like the fee I'm paying is based on the referral itself instead of the services provided. I feel like this situation would feel less questionable if I was paying a flat rate for rent/material usage. If it was like $1000/mo for renting the space and $1000/mo for access to materials/test kits/tests/office supplies/whatever, then I don't think I would have any problems.

One of my fellow psychologists here brought in about $15,000 in client fees last month. Since all of those came via referrals from Dave, that meant she paid him almost $5000. Maybe I'm just being overly sensitive to this, but that seems incredibly improper.


I appreciate you all coming in and giving your advice. I'll admit that a lot of this stuff really ends up confusing me, so I don't want to make a big deal out of something that isn't really a big deal.

 

[WisNeuro]

This sounds...suspect, may be worth a consult with an available ethics consultant and/or your liability carrier.

 

[NewMoonDream]

This sounds...suspect, may be worth a consult with an available ethics consultant and/or your liability carrier.

Yeah, maybe I need to find a professional consultant on this. I don't want to get Dave in trouble. He has been nothing but kind to me. I'm not trying to wreck his life or anything. I also don't want to be taking part in something that may be unethical or questionable legally.

 

[AcronymAllergy]

See, this is why I wasn't sure. Because it does kind of feel that way. I mean, I'm paying Dave 20% of what I make on clients that I bring in independently - which we could say is covering the cost of renting the space and the materials. And then it's 30% of any referral that Dave sends me.

How is that any different from fee-splitting/kickbacks?

As another member mentioned from the ethics code:

I am not under contract. I am not an employee. It feels like the fee I'm paying is based on the referral itself instead of the services provided. I feel like this situation would feel less questionable if I was paying a flat rate for rent/material usage. If it was like $1000/mo for renting the space and $1000/mo for access to materials/test kits/tests/office supplies/whatever, then I don't think I would have any problems.

One of my fellow psychologists here brought in about $15,000 in client fees last month. Since all of those came via referrals from Dave, that meant she paid him almost $5000. Maybe I'm just being overly sensitive to this, but that seems incredibly improper.


I appreciate you all coming in and giving your advice. I'll admit that a lot of this stuff really ends up confusing me, so I don't want to make a big deal out of something that isn't really a big deal.

I'm not an attorney, of course, but I believe the primary difference is that you're providing him a portion of the money you receive for services provided. You're not paying Dave just for sending you referrals, separate from any services provided. Said another way, if Dave refers a patient to you and you don't see that patient, you aren't then still giving Dave $50 for having sent the patient your way. The money you're sending to Dave is based on the services provided (i.e., it's coming directly from the money you're reimbursed for providing services).

One could make the argument that the additional 10% is to reimburse Dave for efforts spent in securing the referral source from which he sent you the patient(s), etc.

That's my read, anyway. The differential split probably isn't doing him any favors, but I can see how theoretically it makes sense if he's requesting a higher split when he was the person who had developed the relationships with the referral source(s).

 

[WisNeuro]

Yeah, maybe I need to find a professional consultant on this. I don't want to get Dave in trouble. He has been nothing but kind to me. I'm not trying to wreck his life or anything. I also don't want to be taking part in something that may be unethical or questionable legally.

You will also want to check out your state laws. Some states have specific statutes regarding fee-splitting and kickbacks that spells things out. It's a complicated situation, and this is why everyone should always consult with an attorney before entering into any kind of business arrangement.

 

[NewMoonDream]

That's my read, anyway. The differential split probably isn't doing him any favors, but I can see how theoretically it makes sense if he's requesting a higher split when he was the person who had developed the relationships with the referral source(s).

That's what gave me pause too. But then I keep coming back to line 6.07 of the ethics code.

“When psychologists pay, receive payment from, or divide fees with another professional, other than in an employer-employee relationship, the payment to each is based on the services provided (clinical, consultative, administrative, or other) and is not based on the referral itself.”

I'm not under any contact. We have signed no formal paperwork. Everything is informal agreements via email. Sending me referrals is the only "service provided" that I'm getting charged 10% of all client fees for. I still get the space, access to the test materials, and he'll still consult with me on clients even if he didn't refer them. That extra 10% is literally only paying for "you sent me this referral."

You will also want to check out your state laws. Some states have specific statutes regarding fee-splitting and kickbacks that spells things out. It's a complicated situation, and this is why everyone should always consult with an attorney before entering into any kind of business arrangement.

I'm in California. This is the information I could find:

California Board of Psychology Laws and Regulations:
§ 13408.5. Fee splitting, kickbacks, or similar practices A professional corporation shall not be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, Section 650 or subdivision (e) of Section 2960 of the Business and Professions Code. A violation of any such provisions shall be grounds for the suspension or revocation of the certificate of registration of the professional corporation. The Commissioner of Financial Protection and Innovation or the Director of the Department of Managed Health Care may refer any suspected violation of those provisions to the governmental agency regulating the profession in which the corporation is, or proposes to be engaged.

California Section 650
All of this stuff is so filled with jargon that it makes my head hurt.

Another website outlines it like this:

Kickbacks and fee-splitting are related, in that a “kickback” involves the payment to or from a physician (or, depending on the state, chiropractor, acupuncturist, nurse, other licensed healthcare practitioner) in exchange for a referral, while fee-splitting involves splitting the physician’s fee to the patient between the physician and a third-party. B&P 650 prohibits either/both.

So just based on California law, it feels like this whole setup is extremely illegal. But again, I'm terrible a parsing legal jargon and could be misunderstanding.

 

[AcronymAllergy]

That's what gave me pause too. But then I keep coming back to line 6.07 of the ethics code.

I'm not under any contact. We have signed no formal paperwork. Everything is informal agreements via email. Sending me referrals is the only "service provided" that I'm getting charged 10% of all client fees for. I still get the space, access to the test materials, and he'll still consult with me on clients even if he didn't refer them. That extra 10% is literally only paying for "you sent me this referral."


I'm in California. This is the information I could find:


California Section 650
All of this stuff is so filled with jargon that it makes my head hurt.

Another website outlines it like this:


So just based on California law, it feels like this whole setup is extremely illegal. But again, I'm terrible a parsing legal jargon and could be misunderstanding.

I've not run into situations where this type of setup has been illegal, at least to my knowledge, but agreed with WisNeuro--when in doubt, check with an attorney.

I'm not saying that you're in a contract with Dave or are an employee of his. It's more that you aren't paying him specifically for referrals and only for referrals. That is, to return to my example, you aren't giving him $50 every time he sends you a patient regardless of whether or not you provide any services to that patient. Rather, he's receiving a portion of money that you receive for services provided in exchange for a variety of things. I think that's where the demarcation is. But I dunno. Your best bet is probably to pay for an hour of an attorney's time who has knowledge/expertise in this area. Your state psych association may be able to recommend someone if you don't already have someone in mind. Our state psych association even provides an attorney consultation as a part of membership.

 

[NewMoonDream]

I'm not saying that you're in a contract with Dave or are an employee of his. It's more that you aren't paying him specifically for referrals and only for referrals. That is, to return to my example, you aren't giving him $50 every time he sends you a patient regardless of whether or not you provide any services to that patient. Rather, he's receiving a portion of money that you receive for services provided in exchange for a variety of things.

Yeah, I totally get you. I mean, I don't have a problem paying a portion of all my client fees, it's that extra 10% that just muddies the waters for me. Because in that way, I am paying him extra (literally up to hundreds of dollars if it is an assessment) for just the referral. If it was just "you pay 20% of all client fees, referral or not, for use of the space and access to the materials" then I think I wouldn't take issue with it. But that extra 10% is only due to the referral and I have a hard time explaining how that is not a kickback. If he referred them to another practice, he would not be getting that money. He's getting an extra boost of money specifically because he referred to me (and the others) even though we're not employee and have no contacts or anything like that.

 

[Sanman]

I think the devil is in the details here and because you have no contract it is hard to tell what you are paying for. Dave needs to see a lawyer and draw up a contract. This is a business, not a frat house.

 

[WisNeuro]

I've not run into situations where this type of setup has been illegal, at least to my knowledge, but agreed with WisNeuro--when in doubt, check with an attorney.

I'm not saying that you're in a contract with Dave or are an employee of his. It's more that you aren't paying him specifically for referrals and only for referrals. That is, to return to my example, you aren't giving him $50 every time he sends you a patient regardless of whether or not you provide any services to that patient. Rather, he's receiving a portion of money that you receive for services provided in exchange for a variety of things. I think that's where the demarcation is. But I dunno. Your best bet is probably to pay for an hour of an attorney's time who has knowledge/expertise in this area. Your state psych association may be able to recommend someone if you don't already have someone in mind. Our state psych association even provides an attorney consultation as a part of membership.

Yeah, I don't know the nitty gritty here, whether or not there is a formal contract here, the OP has entered into a contractual arrangement with Dave, even if it is verbal, from a legal standpoint. There is huge potential liability on both sides here.

 

[texanpsychdoc]

I own a private practice and have an independent contractor agreement that clearly spells out payments (e.g., when the contractor will be paid, based off of any and all fees collected from services rendered, and the % they take vs. what I would take). I wouldn't work for someone without a contractor agreement in place. But that's just me. For example, in addition to my day job with the VA and my private practice, I also contract with another practice based out of Colorado doing forensic/law enforcement evals and signed a contract with them that spelled out everything.

 

[Therapist4Chnge]

I own a private practice and have an independent contractor agreement that clearly spells out payments (e.g., when the contractor will be paid, based off of any and all fees collected from services rendered, and the % they take vs. what I would take). I wouldn't work for someone without a contractor agreement in place. But that's just me. For example, in addition to my day job with the VA and my private practice, I also contract with another practice based out of Colorado doing forensic/law enforcement evals and signed a contract with them that spelled out everything.

Same. The difference in fee % is what catches my eye as most problematic (besides the lack of written contract). I went back and forth with my attorney and an independent contractor last year because they wanted to negotiate a different financial arrangement if they brought in the patient, and there was no way to set it up w/o running into problems. Ultimately I kept to the original parameters of our independent contract agreement, as that was the cleanest approach. As an independent contractor they are free to take work elsewhere, but they quickly realized that I was already giving them a better deal than anyone else in town, so they dropped their request.

I'm not sure if a compromise could be giving a bonus a couple of times per year? I do this, but it is completely discretionary, and I provide them to my admin, psychometrician, and counselor. I like to do this because most haven't had a real bonus prior to working for me, and intermittent reinforcement provides the best motivation for people. My goal isn't to squeeze every last dollar from my contractors, as that is rarely good for a business long-term. Instead, offering bonuses ($200-$500 per contractor) a couple of times per year with a note highlighting their efforts and that they as people are appreciated goes a long way for retention. I'm very much a niche practice that requires a higher level of client (i.e. lawyer, sub-specialist) response, so what amounts to an hour here or there for legal billing pays for itself over the course of each year.

The literature on employee retention (in the biz world at least) demonstrates that while money is rarely the #1 reason why people leave their jobs, it can still be a factor. Usually people leave because of their direct boss, but also it could be the org goals and individual goals are different and/or they do not feel appreciated. I've seen enough churn & burn of office staff to know that I don't want to put my practice at risk over a few $'s and I really don't want the hassle of having to replace people because there are so many additional wasted hours anytime you need to replace someone.

 

[NewMoonDream]

Yeah, I don't know the nitty gritty here, whether or not there is a formal contract here, the OP has entered into a contractual arrangement with Dave, even if it is verbal, from a legal standpoint. There is huge potential liability on both sides here.

Yeah, there has been no formal contracts signed. Everything is via email/phone calls. The other issue is that Dave's private practice isn't some separate entity. It's just him. The cut is paid directly to him, he directly pays the building rent, etc, etc.

I feel stuck between a rock and a hard place with this. I don't want to cause any problems because I definitely need the work. But the more I look into this, the more it feels incredibly questionable.

What would you all recommend for getting an official opinion on this? Is this something I should reach out to the California Board of Psychology on? I'm hesitant to do such a thing because, again, if this is a problem, I'd like to give Dave a chance to correct things without larger organizations stepping in.

What is the best course of action for getting a definite answer on the legality of this? I mean, I guess that would involve reaching out to an attorney, but that's not really something I can financially afford to do right now.

 

[AcronymAllergy]

RE: an official opinion, I'd say your best bet is to consult an attorney with knowledge/expertise in this area, as you've said. If that's really not feasible, then maybe Dave would be willing to just provide you the same split regardless of where the patient came from (e.g., split the difference at 75/25, or even go with 70/30 for everything initially until you have an idea of how many patients you get via him vs. yourself and then work in a clause about renegotiating in 6 months).

And even if there's no formal contract, I'd definitely want something in writing. Even if it's just an email spelling out the terms of the split, what he'll provide, etc. Informal agreements can sometimes get iffy even with people you know well and have worked with before, and Dave doesn't sound like such a person.

Also, yes, it's odd that he doesn't have at the very least an LLC setup filing as a sole proprietorship. From a tax perspective if nothing else, that just doesn't make much sense. I don't know about the legality of that setup, especially in CA.

 

[WisNeuro]

Yeah, there has been no formal contracts signed. Everything is via email/phone calls. The other issue is that Dave's private practice isn't some separate entity. It's just him. The cut is paid directly to him, he directly pays the building rent, etc, etc.

I feel stuck between a rock and a hard place with this. I don't want to cause any problems because I definitely need the work. But the more I look into this, the more it feels incredibly questionable.

What would you all recommend for getting an official opinion on this? Is this something I should reach out to the California Board of Psychology on? I'm hesitant to do such a thing because, again, if this is a problem, I'd like to give Dave a chance to correct things without larger organizations stepping in.

What is the best course of action for getting a definite answer on the legality of this? I mean, I guess that would involve reaching out to an attorney, but that's not really something I can financially afford to do right now.

Agree with @AcronymAllergy , consult a lawyer first. Your bigger potential concern is a legal issue opposed to an ethical one at this point. It'll cost you a little up front, but I would always consult with a lawyer before entering into any business arrangement/contract. A little money up front can potentially save you potential fines/larger legal expenses/possible jail time on the back end.