Management service organizations can raise red flags with investigators as they are often used by non-professionals as a means to improperly operate and control a medical practice. A management company or administrative services company providing only administrative services to a medical practice is permissible. However, due to the State Farm Mut. Auto Ins. Co. v Mellela, 4 NY3d 313  decision and increasing scrutiny, many management company operators engaging in improper practices, have created a negative reputation for an otherwise legitimate service, which in different formats is used by hospitals.
A management company and medical practice run the risk of getting into trouble if the management company does not charge flat fees for services rendered at fair market value. Based upon professional responsibility, a medical professional could potentially be exposed to sanctions, penalties and loss of license if the arrangement is a disguised fee splitting or kickback scheme. These allegations are often raised by an insurance company or government investigator if a management company and a medical practice have a set of contract fees which continually change.
Investigators can use the fact that the fees change as a basis to prove that there are illegal kickbacks or fee splitting and that the monies paid to the management company are really based on the revenue of the medical practice and not based on the value of the services actually provided.
Many physicians and management company owners need to be aware that the landscape of the management company contract and the laws of health care are constantly changing and being updated. A management contract must be specifically tailored towards a specific deal and many companies get into trouble because they download generic, boilerplate forms off the Internet or try to copy an existing form from an associate who has a different deal.
Additionally, as a protection for a manager operating a business, the contract is of utmost importance because the management contracts held by the management company are its sole assets. The value of these contracts is what would determine the sale price of a management company. Proper restrictions in the contract and a contract that covers a longer period of time would increase the overall value of the business.