New York Law Review

Tag: fee splitting

  • Albany Medical College v. Lobel, 107 N.Y.2d 983 (1986): Enforceability of Faculty Practice Plans

    Albany Medical College v. Lobel, 107 N.Y.2d 983 (1986)

    A medical college’s faculty practice plan, allowing it to share in fees generated by faculty physicians, is a valid exercise of its corporate powers and does not constitute illegal corporate practice of medicine or fee-splitting.

    Summary

    Albany Medical College sued Dr. Lobel, a former faculty member, seeking to recover patient records, office equipment, and patient care revenues he allegedly diverted after starting his own practice. The College argued that its faculty practice plan entitled it to a share of the fees generated by Dr. Lobel. The New York Court of Appeals held that the College’s claim was valid, as its corporate charter empowered it to promote medical science, and its faculty practice plan did not constitute illegal corporate practice of medicine or fee-splitting. The Court also affirmed the College’s ownership of patient records, subject to the defendant’s right to obtain copies.

    Facts

    Albany Medical College employed Dr. Lobel as a teacher, researcher, and supervisor in its plastic surgery division.

    Dr. Lobel left Albany Medical College and started his private plastic surgery practice.

    Albany Medical College sued Dr. Lobel to recover office equipment, patient records, and fees and revenues from patient care allegedly diverted by Dr. Lobel.

    Procedural History

    Special Term granted summary judgment, dismissing the complaint.

    The Appellate Division, Third Department, reversed the Special Term’s decision.

    The Appellate Division granted leave to appeal to the Court of Appeals and certified a question of law.

    The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether a medical college’s faculty practice plan, which allows it to share in fees generated by faculty physicians, constitutes an illegal corporate practice of medicine or illegal fee-splitting.

    Whether patient records generated by a faculty physician are the property of the medical college.

    Holding

    1. No, because the medical college’s corporate charter empowers it to promote medical science and instruction, and its treatment of patients does not constitute an illegal corporate practice of medicine or illegal fee splitting.

    2. Yes, because the financial and patient records generated are clearly the property of the plaintiff (Albany Medical College), subject to the defendant’s (Dr. Lobel’s) right to obtain copies.

    Court’s Reasoning

    The Court of Appeals relied on the Albany Medical College’s corporate charter, which empowers it to promote medical science and instruction. This power allows the college to operate a faculty practice plan where it shares in the fees generated by faculty physicians.

    The court reasoned that such arrangements do not constitute an illegal corporate practice of medicine under Public Health Law § 2801-a or illegal fee splitting under Education Law § 6509-a and 8 NYCRR 29.1(b)(4). Citing People v. Woodbury Dermatological Inst., 192 NY 454, 457, the Court stated that the treatment of patients by the college does not violate prohibitions against corporate practice if the corporation is empowered to promote medical science.

    The Court found support in prior cases, such as Adamsons v Wharton, 771 F2d 41, 43, which characterized similar claims as “farfetched at best.” Other cases cited in support of this view included Gross v University of Tenn., 620 F2d 109, 110 and Kountz v State Univ., 87 AD2d 605.

    Regarding the patient records, the Court held that these are the property of Albany Medical College, referencing Public Health Law § 17, and citing Matter of Hernandez v Lutheran Med. Center, 104 AD2d 368 and Damsker v Haque, 93 AD2d 729. However, the Court clarified that Dr. Lobel retains the right to obtain copies of these records.

  • Psychoanalytic Center, Inc. v. Burns, 46 N.Y.2d 1002 (1979): Enforceability of Arbitration Award Based on Prior Fee Allocation

    Psychoanalytic Center, Inc. v. Burns, 46 N.Y.2d 1002 (1979)

    An arbitration award calculating damages based on a prior fee allocation between a psychotherapist and a treatment center does not constitute illegal fee-splitting and is enforceable, provided it arises from a breach of contract and not a voluntary, prospective fee-splitting arrangement.

    Summary

    This case addresses the enforceability of an arbitration award in a dispute between a psychoanalytic center and a psychotherapist who formerly worked there. The arbitrator determined that the psychotherapist breached an agreement not to treat the center’s clients after his departure and awarded damages based on the fees he received from those clients, mirroring the parties’ prior fee allocation. The New York Court of Appeals held that this award did not constitute illegal fee-splitting and was enforceable because it was a damage calculation arising from a breach of contract, not a prearranged agreement to split fees prospectively.

    Facts

    The Psychoanalytic Center, Inc. and Robert Burns, a psychotherapist, had an agreement under which Burns worked at the center. The agreement contained a clause that, upon termination of his association with the center, Burns would not treat any of the center’s clients. Burns discontinued his association with the center and subsequently treated clients of the center, allegedly in violation of the agreement.

    Procedural History

    The dispute was submitted to arbitration. The arbitrator found that Burns had breached the agreement. The arbitrator then made an award of damages to the Psychoanalytic Center. The damages were calculated based on the fees Burns received for treating the center’s clients, using the same allocation formula that was in place when Burns was associated with the center. The Supreme Court confirmed the arbitration award. The Appellate Division reversed, finding the award constituted illegal fee-splitting. The Psychoanalytic Center appealed to the New York Court of Appeals.

    Issue(s)

    Whether an arbitration award that calculates damages for breach of contract based on a prior fee allocation between a psychotherapist and a treatment center constitutes illegal fee-splitting that violates public policy and regulations prohibiting such practices.

    Holding

    No, because the arbitration award was a computation of damages resulting from a breach of contract and not a voluntary, prospective agreement to divide professional income in a manner that could compromise professional responsibility.

    Court’s Reasoning

    The Court of Appeals reasoned that the regulation prohibiting fee-splitting (specifically, regulation 72.2 (subd [a], pars [4], [5]) of the Commissioner of Education) aims to prevent voluntary, prospective arrangements for dividing professional income that might threaten a professional’s responsibility to clients. The court emphasized that the arbitration award in this case was not such an arrangement. Instead, it was a calculation of damages resulting from Burns’s breach of contract. The court stated, “What are prohibited by the regulation are certain voluntary prospective arrangements for the division of professional income in circumstances where such a practice might threaten or impair the discharge of professional responsibility to clients. There is nothing of that here.” The court distinguished between an agreement to split fees in advance and a calculation of damages after a breach, even if that calculation mirrors the parties’ prior fee arrangement. The court noted that the computation of damages “is not invalidated because it was predicated on the parties’ own prior division of client revenue or the circumstance of the precise arithmetic parallel thereto.” The court found no violation of public policy and reinstated the Supreme Court’s judgment confirming the arbitration award.