Health Law Legal Update

Tennessee Court of Appeals Reviews Tennessee Fee-Splitting Law in Recent Case

          
Stephen D. Barham          Jacob C. Parker

Case Summary

A recent case should prompt hospital-based providers and physicians’ groups working in hospitals to review their professional services agreements to ensure they comply with Tennessee law.  Specifically, providers should reevaluate and renegotiate payment arrangements with hospitals or be certain that their patients know and consent to any fee splitting arrangement.  Otherwise, if a later dispute between the physician and the hospital arises, the payment arrangement may violate T.C.A. § 63-6-225 (“the fee-splitting statute”) and could be used to declare the contract unenforceable.

The case at issue, Cookeville Regional Medical Center Authority v. Cardiac Anesthesia Services, PLLC, was recently argued before the Tennessee Court of Appeals. The Court's opinion was issued on November 24, 2009, and revolved around the fee-splitting statute, which prohibits a licensed physician or surgery center from dividing or agreeing to divide any fee received or charged in the practice of medicine or surgery with any person without the knowledge or consent of the person paying the fee or against whom the fee may be charged.

The Court reviewed the legality of a contract between the Cookeville Regional Medical Center (“Center”) and Cardiac Anesthesia Services (“CAS”) in light of fee-splitting restrictions on healthcare providers found in the code.  The contract required CAS to remit 80% of its gross fees collected for rendering anesthesia services to patients at the Center.  The contract allowed CAS to retain 20% of its fees as compensation for its “aggressive collection” efforts.  Further, the Center paid CAS a flat monthly rate of $70,833 per month the first year of the contract, $72,583 each month the second year of the contract, and $74,386 per month during the third year of the contract.

Not long into the first year of the contract, the Center notified CAS that it was in breach of the contract and terminated it.  Litigation subsequently ensued.  In defense of CAS's breach of contracts claims, the Center asserted that the contract was unenforceable because the payment provisions violated the the fee-splitting statute.

In looking at the relationship between the Center and CAS, the Court of Appeals found that the patients were not aware of the fee splitting arrangement, and that the arrangement by which the physicians' group paid 80% of its billed fees to the Center was fee splitting and in violation of the statute.  The Court held: "Nevertheless, whatever the purpose, the point is that the statutory provision simply and clearly prohibits physicians from splitting their fees without permission, except to pay for goods or services."

Given the newness of the opinion, The Tennessee Supreme Court has neither re-considered nor overturned the Court of Appeals’ opinion. Accordingly, physicians’ groups that have similar pay arrangements with hospitals in which they work should take care to consider their current contracts to ensure compliance with the the fee-splitting statute.

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