New York fee-splitting and the flat-fee rule
New York has treated percentage-of-revenue management fees as fee splitting for decades, and it is considered professional misconduct, not a technicality. Which leaves two primary options: a flat or cost-based fee structure.
While most states are just now discovering MSO economics, New York has had a rule in place that dates back to before modern MSO structures existed: 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 is from the Education Law's professional misconduct provisions (section 6530(19)) and the Board of Regents rules, and it can impact the physician's license, which is what separates New York from states where the downside is simply contract risk: the doctor faces a misconduct charge.
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.
What to do instead
Structure management fees so that they do not change with revenue. A flat fee, set in advance for a term, or a cost-based fee that charges actual cost plus a markup component. Fair market value support is still needed for either, because a fee that does not correspond with the services provided can be attacked as disguised profit sharing regardless of its structure.
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, same for per-encounter and per-patient fees that track volume: the closer the fee comes to tracking the practice's revenue, the more it can be interpreted as sharing.
Setting the number in states like New York
The flat-fee rule does not tell you what the number should be. The defensible path is the same two-check build, with the output frozen as a fixed dollar amount.
Start with the actual cost of the services to be provided by the MSO, add a market markup, or profit factor, and fix the resulting dollar figure for the term. Non-clinical cost benchmarks by specialty can help provide support, even though they are presented as a percentage of practice revenue: the median specialty has 46.6% of net revenue in non-clinical cost, internal medicine is 37.4% at the median, for example, while dermatology is 61.4%.
The analysis can reference revenue expectations, but the fee cannot be based on 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 typically behave.
The trap in the middle
New York MSAs seem to get in trouble at the seams: Flat fees billed as such but trued up against collections later, or side letters adjusting the number when the practice has a good quarter. And of course control terms can make the fee moot, since an MSO that effectively owns the practice has bigger problems than fee structure, as demonstrated by corporate practice cases. Our structure comparison has the current state-by-state view (consult an attorney before relying on this), but the short version is that New York is the strictest large market, so a multi-state platform that standardizes based on New York's rules rarely has to restructure.
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 includes the physician's license.
What management fee structure is legal in New York? Flat fees or cost-based fees and their variants. 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. The resets should occur following documented cost changes rather than tracking revenue.
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.