We’ve talked here many a time about employment of prelicensed therapists. Most of our discussion has focused on employer abuses and how you can push back. But of course it’s worth noting that plenty of employers are fantastic, and that even a lot of the illegality in employment arrangements can be chalked up to well-meaning mistakes rather than purposeful villainy. It is in that spirit that we approach what seems to be one of the most common structures for paying prelicensed therapists who work in private practices here in California: Fee splitting.
In a fee split arrangement, the employer and employee agree to divide any client fees brought in by the employee in a proportional manner. For example, a prelicensed therapist working in a private practice might be paid 40% of the fees their clients pay, while the employer/supervisor keeps the other 60%.
One advantage of a fee split arrangement is that, in the eyes of many supervisors, it creates the right kind of incentives for the supervisee. The supervisee gets paid more when they either have more clients or when they raise their fees, something that many private practice supervisors want to encourage. If the supervisee was paid a flat rate, the theory goes, the supervisee would be incentivized to lower their rates (to the degree they’re allowed to control rates) to keep as many clients coming back as possible. However, while fee splitting arrangements are common, the question of whether they are legal and ethical is actually more than a bit gray, especially if the employer is referring patients to the associate.
Ed. note: This post is a lightly-edited excerpt from the new fifth edition of Basics of California Law for LMFTs, LPCCs, and LCSWs. In stock and available now at our main site.
Of course, state laws on this will vary, so it’s important to understand the law where you are.
California law generally prohibits health care providers from charging, receiving, or giving fees for client referrals. This protection appears to be in state law to ensure that referrals from one health professional to another are based solely on the best interests of the client, and not on what is financially best for the referrer.
The legal issue with a fee split is this: When a supervisor refers a client to their supervisee for treatment, the portion of the client fee that the supervisor ultimately keeps could easily be considered a kickback — a fee the supervisor receives as a result of making the referral. There’s even a provision in this section of California law that clarifies that the prohibition of referral fees applies “irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred.” Not every state has a law like this, though, so if you’re outside of California, check to see whether there is a parallel rule where you are.
The ACA Code of Ethics specifically prohibits fee splitting, and the NASW Code of Ethics prohibits social workers from “giving or receiving a payment for referral when no professional service is provided by the referring social worker.” In each of these cases, there is no exception given for when the referrer is the employer of the referee, though it is less clear whether supervising the social worker providing treatment would count as providing a professional service.
What makes this gray is that by working in the same practice, it could be argued that both supervisor and supervisee are parts of the same business entity, and therefore a fee split between them isn’t the kind of referral kickback that the ethical standards are aiming to prevent. But as noted above, the relevant section of state law is actually fairly strict. I’m not a lawyer, but it appears to suggest that the “same business entity” argument for fee splitting many not be enough to relieve the legal concerns.
The question could be settled by the Legislature through clearer statutory language, by the professional associations through clarification or interpretation of their codes, or by a court, if the court is called upon to settle a test case where someone is sued over fee splitting. In the meantime, those employers wishing to stay safely out of this murky area may prefer to set wage scales based on a flat hourly rate rather than a percentage of fees collected.