New York fee-splitting and the flat-fee rule

Most states are just now discovering MSO economics. New York wrote the rule before the modern MSO existed and has never blinked: a licensed professional may not share fees with an unlicensed entity, and a management fee calculated as a percentage of practice revenue is fee sharing. The prohibition sits in the Education Law's professional misconduct provisions (section 6530(19)) and the Board of Regents rules, and it lands on the physician's license, which is what separates New York from states where the downside is contract risk. The MSO loses a customer. The doctor faces a misconduct charge.

Enforcement is not theoretical. The state's position on percentage arrangements has been consistent through decades of guidance, medical society warnings, and litigation, up through the fee-splitting and control disputes still reaching the Court of Appeals in 2025. Structuring a New York MSA as if this rule were dormant is a bet nobody advising the deal will co-sign.

What survives

Fees that do not move with revenue. A flat fee, set in advance for a term. A cost-based fee that charges actual cost plus a fixed component. Fair market value support behind either, because a fee that overshoots the services can be attacked as disguised profit sharing no matter its shape.

The reset cadence matters as much as the shape. A flat fee revisited annually, off a documented cost build, is a fee. A "flat" fee recalculated every quarter to land near 30% of collections is a percentage fee with extra paperwork, and the pattern is exactly what a reviewer is trained to find. Same for per-encounter and per-patient fees that track volume: the closer the fee tracks the practice's revenue drivers, the more it reads as sharing.

Setting the New York number

The flat-fee rule does not tell you what the number should be, which is where most New York MSAs quietly fail. The defensible path is the same two-check build used anywhere else, with the output frozen as a fixed dollar amount.

Start with the cost of the delegated services. Non-clinical cost benchmarks by specialty frame the base: the median specialty carries 46.6% of net revenue in non-clinical cost, internal medicine 37.4%, dermatology 61.4%. Price the categories the MSO delivers against the practice's expected revenue, add a market markup, median 22.7% on cost, and fix the resulting dollar figure for the term. An internal medicine practice expecting $4 million in net revenue, full non-clinical scope, supports a fee in the neighborhood of $1.8 million a year. Written into the MSA as $1.8 million, not as 46% of whatever comes in.

That last step is where compliance lives. The arithmetic can reference revenue expectations; the fee cannot ride them. If volume doubles mid-term, the MSO's costs rise and the next annual reset captures it, which is both compliant and how arms-length service contracts already behave.

The trap in the middle

New York MSAs get in trouble at the seams. Fees billed as flat but trued up against collections. Side letters adjusting the number when the practice has a good quarter. Below-market fees paired with above-market obligations flowing back to the MSO. And control terms that make the fee moot, since an MSO that effectively owns the practice has bigger problems than fee structure, as the corporate practice cases keep demonstrating. The structure comparison has the state-by-state view, but the short version is that New York is the strictest large market, so a multi-state platform that standardizes on New York's rules rarely has to restructure twice.

Common questions

Can an MSO charge a percentage of revenue in New York? No. Percentage-of-revenue management fees are treated as fee splitting under the professional misconduct rules, and the exposure sits on the physician's license.

What management fee structure is legal in New York? A flat fee or cost-based fee set at fair market value, fixed for its term and reset on a schedule tied to costs, not collections.

How often can a flat fee be reset? Annually is the common norm, or on MSA amendment. What matters is that resets follow documented cost changes rather than tracking revenue.

How do you prove a flat fee is fair market value? With the build-up: the cost of the delegated services, benchmarked by specialty, plus a market markup. The median comparable-manager markup is 22.7% on cost.

Sources and method

Based on New York Education Law section 6530(19), the Board of Regents professional conduct rules, and state guidance on management arrangements, as reflected in current health-law analyses. Benchmark figures are free-tier medians from the MSOs module: cost benchmarks from public CMS data covering roughly 1.1 million clinicians, markups implied by 73 outsourced-services comparables in the Scope Research Healthcare M&A Valuation Database. The worked example is illustrative arithmetic on those medians.

This article is general regulatory and market information, not legal advice, and not a fair market value determination. Consult healthcare counsel and a qualified appraiser for any specific arrangement.