Health Law Alert: Recent Case Has Far-Reaching Implications For Physician Contracts
Knoxville Academy of Medicine Bulletin – February 2010
By Ian P. Hennessey

A recent case decided by the Tennessee Court of Appeals has potentially far-reaching implications for contracts between physician groups and hospitals.  On November 24, 2009, the Court released its opinion in Cookeville Regional Medical Center Authority v. Cardiac Anesthesia Services, PLLC, a case involving a wrongful termination claim under a contract between the hospital and an anesthesia group for cardiac anesthesia services.  When sued by the anesthesia group for wrongful termination of the contract, the hospital asserted, and the Court held, that the contract was unenforceable under Tennessee law for violation of the fee splitting statute.

Under T.C.A. § 63-6-225, it is a Class B misdemeanor “for any licensed physician or surgeon to divide or to agree to divide any fee or compensation of any sort received or charged in the practice of medicine or surgery with any person, without the knowledge and consent of the person paying the fee or compensation, or against whom the fee may be charged.”  Under its contract with the hospital, the anesthesia group assigned all of the gross fees it collected from performing cardiac anesthesia services to the hospital in exchange for a monthly fee, but retained 20% of its gross fees as compensation for its “billing and aggressive collection efforts.”  In effect, the hospital paid the anesthesia group a significant monthly fee in exchange for the collections turned over to the hospital (which acted as an income guarantee or subsidy for the anesthesia group).  Nevertheless, the Court held that the requirement that the anesthesia group remit 80% of its collections to the hospital constituted impermissible fee splitting.  Consequently, the contract between the anesthesia group and the hospital was held to be unenforceable.

As of the date of this article, it is unclear whether the Tennessee Supreme Court will hear the case on appeal.  As it presently stands, Cookeville Regional Medical Center Authority v. Cardiac Anesthesia Services, PLLC, reinvigorates the Tennessee fee splitting statute which may now be used defensibly in contractual disputes.  In addition, physicians risk potential criminal charges for violation of the statute.  Therefore, physician groups and hospitals should carefully review their contracts to ensure that their financial arrangements do not violate the fee splitting statute.  If necessary, contracts should be amended or renegotiated so that their terms are consistent with Tennessee law.

Disclaimer: The information contained herein is strictly informational; it is not to be construed as legal advice.