corporate practice of medicine

Corporate Practice of Medicine: Finding Your Way Through the Maze

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Contact Information

Matthew MiloneHolland & Hart LLP

9555 Hillwood Drive, 2nd FloorLas Vegas, Nevada 89134Telephone: 702-222-2561

E-mail: [email protected]

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Overview

Subjects covered:– What is the corporate practice of medicine– History of the corporate practice of medicine– Sources of corporate practice of medicine restrictions– Models used in various states– Current state and federal views on the corporate

practice of medicine– Current trends and future outlook for corporate practice

of medicine.

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What is the Corporate Practice of Medicine Late 19th/Early 20th Century – two models of patient

treatment emerge:1. A corporation hires or contracts with a physician to

provide medical services to its own employees and their families.

– “Contract practice”2. Hospitals or other non-physician owned health care

entities employed physicians to provide medical services to the public.

– “Corporate Practice”

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What is the Corporate Practice of Medicine Today, the corporate practice of medicine

typically refers to:1. Employment of a physician by a corporation; or2. Investment/Ownership in a medical practice by

an unlicensed person.

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What is the Corporate Practice of Medicine Corporate practice of medicine usually refers to

medical doctors and/or doctors of osteopathic medicine

Beware:– Many states have separate statutory provisions and

licensing boards for D.O.’s & M.D.’s These statutes can be subject to differing

interpretations Even where statutes are the same or similar, differing

M.D. & D.O. boards may interpret and apply the statutes differently.

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What is the Corporate Practice of Medicine Beware:

– Other professionals (dentists, optometrists, etc…) may have additional restrictions in a particular state Nevada – Statutory restrictions on the corporate practice

of dentistry and management services organizations Idaho – Additional restrictions on the corporate practice of

veterinary medicine Florida – Generally viewed as not having corporate

practice of medicine restrictions, but does have restrictions on the corporate practice of dentistry and optometry.

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When is the Corporate Practice of Medicine an Issue Partnerships between professionals with different

licenses Investment in medical practices by unlicensed

persons Ownership of practice by key administrative

employees Employment of physicians by hospitals and other

medical facilities Ownership of medical group or practice by

unlicensed persons

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When is the Corporate Practice of Medicine an Issue States typically do not consider ownership of a

medical facility (hospital, imaging center, skilled nursing facility, etc…) as violating the corporate practice of medicine.– Physician employment by such entities varies from state

to state. Trend has been to limit physician ownership of

facilities:– Anti-referral laws (Stark, Anti-Kickback Statute)– Physician owned hospital expansion prohibitions (ACA §

6001)

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Sources of Corporate Practice of Medicine Restrictions Most common:

– Statutes– Attorney General Opinions– Medical Board decisions and/or position statements– Court decisions

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Sources of Corporate Practice of Medicine Restrictions Attorney General Opinions and Medical Board

Positions are often based on the interpretation of statutes that do not expressly forbid the corporate practice of medicine:– Fee splitting provisions– Aiding in the unlicensed practice of medicine– Defining a “person” under the medical licensing statutes

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History of the Corporate Practice of Medicine 1869 Professional Journal:

“In all of our American colleges medicine has ever been and is now, the most despised of all the professions which liberally-educated men are expected to enter.”

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History of the Corporate Practice of Medicine Mid to late 19th Century – AMA takes steps to

legitimize practice of medicine:– Credential Medical Schools– Create professional criteria and standards– Push non-traditional practitioners to fringes– Eliminate practices such as traveling medical providers

Late 19th / Early 20th Century– AMA began lobbying efforts at the state level to create

licensing statutes & medical boards

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History of the Corporate Practice of Medicine Early 20th Century –AMA and other physicians

groups took on what they saw as primary threats to the physician in the marketplace:– Contract practice– Corporate practice– Hospitals

While the AMA was not able to prevent the expansion of hospitals it was successful in limiting contract practice and corporate practice

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History of the Corporate Practice of Medicine AMA’s efforts paid off:

– Medicine grew to one of, if not the, most esteemed professions in America

– Criteria to receive a medical degree increased– Harder to obtain a licensee– State laws protected physician autonomy– Fees for medical services and physician incomes

increased

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History of the Corporate Practice of Medicine 1970’s – Federal Action

– HMO act passes allowing for creation of entities that employ physicians (staff model HMO)

– FTC orders that the AMA’s Principles of Medical Ethics were inherently anti-competitive

– FTC ordered AMA to modify ethical restrictions on physician contracts and payment structures

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History of the Corporate Practice of Medicine 1980’s – 2000’s

– Growth of hospitals and managed care organizations– Increased federal regulation of health care

HIPAA Stark and other referral laws ACA

– Some states begin to reconsider corporate practice of medicine restrictions

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Current Status of Corporate Practice of Medicine Thirty-Three States have some form of corporate

practice of medicine restriction– Enforcement varies from state to state– Prohibitions and exceptions are state specific

Seventeen states and the District of Columbia are generally viewed as not having corporate practice of medicine restrictions

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Current Status of Corporate Practice of Medicine Federal Government:

– HMO act remains law HMOs are generally viewed as an exception to corporate

practice of medicine restrictions in most states– Failure to comply with state corporate practice of

medicine restrictions do not create a “false certification” for purposes of the federal false claims act. Ebeid ex rel. U.S. v. Lungwitz 616 F.3d 993 (9th Cir. 2010)

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Current Status of Corporate Practice of Medicine Accountable Care Organizations:

– A new exception to corporate practice of medicine?– Does the Affordable Care Act preempt state corporate

practice of medicine restrictions with regard to ACOs– ACOs can be formed by: ACO professionals, including

physicians and nurse practitioners, in group practice arrangements; networks of individual practices of ACO professionals; joint ventures between hospitals and ACO professionals; Hospitals employing ACO professionals.

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Current Status of Corporate Practice of Medicine Pressures on Physicians:

– Increased administrative burdens payment requirements, electronic medical records, etc…

– Increasingly complex regulatory environment referral laws, privacy laws, health reform

– Uncertainty of future reimbursement– Increased costs of medical equipment and devices to

remain competitive

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Current Status of Corporate Practice of Medicine Many physicians looking at various practice

models:– Hospital or medical facility employment– Larger medical groups– ACOs/ IPAs– Investment from unlicensed persons– Sell medical practice to larger entities

This has caused many to reconsider the corporate practice of medicine

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AMA Principles on Physician Employment Adopted at the 2012 Interim Meeting of the AMA

House of Delegates Address “unique challenges to professionalism and

the practice of medicine arising in the face of physician employment.”

Acknowledges the reality of physician employment:– “Physicians should be fee to enter into mutually

satisfactory contractual arrangements, including employment, with hospitals, health care systems, medical groups and other entities as permitted by law…”

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AMA Principles on Physician Employment Attempts to prevent conflicts of interest and

preserve physician integrity– Employed physicians should be free to exercise “personal

and professional judgment”– Patient welfare must take priority over profit– Agreements must be negotiated in good faith– Agreements should provide for a fair hearing process or

other due process before termination for cause– Physicians discouraged from entering into to non-competition

agreements– Only physicians should participate in peer review of

employed physicians.

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Complying with AMA Principles

All contracts and job descriptions should stress the requirement of the physician to exercise his or her own independent professional judgment.

Explain that any existing quality assurance, utilization review, payment arrangement, or similar plan should not be interpreted to impede or interfere with the independent medical judgment of the physician in treating patients.

Set forth compensation arrangement in detail and have the parties agree that the arrangement will not affect professional judgment.

Identify procedure for termination with cause. Contain provisions regarding notification of patients, ownership of

records, etc… upon termination. Identify dispute resolution procedures.

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AMA Principles on Physician Employment Existing state laws may echo AMA Principles. Examples:

– Utah Code 58-67-802 - allows for employment of physicians, but prohibits interference with professional judgment

– Colorado Revised Statute § 25-3-103.7 allows employment of physicians by certain health facilities, with limitations: Employer cannot influence professional judgment of physician Compensation cannot be based on a percentage of the fee

collected or otherwise incentive unnecessary use of services Staff bylaws cannot discriminate on the basis of employment

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Typical Exceptions to Corporate Practice of Medicine HMOs/MCOs Professional Corporations Hospitals

– Varies from state to state– Some states recognize profit v. non-profit or public v.

private distinctions Other Medical Facilities

– Varies from state to state

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Typical Exceptions to Corporate Practice of Medicine Areas for Concern:

– Management Services Organization (“MSO”) MSO provides all equipment, property, employees,

etc… MSO receives a fee (in many cases a % of profit) Must look at fee-splitting laws Some states (e.g. California) have additional

restrictions on MSOs Where MSO is owned by a referral source, referral

laws must be complied with.

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Typical Exceptions to Corporate Practice of Medicine Areas of Concern:

– Friendly Physician/ Nominee Physician owns a professional corporation, but allows non-

physicians to control business. Profits are assigned to non-physician

Fee splitting concerns Physician ethical requirements: aiding in the unlicensed

practice of medicine or allowing the use of medical license by another person

– Medical Director Relationship Physician acts as a medical director of non-physician owned

entity Some states restrict (California)

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Typical Exceptions to Corporate Practice of Medicine In states that allow professional corporations:

– How can ownership of the professional corporations be structured Does state law permit any percentage of professional

corporation to be owned by unlicensed person? Assignment of interest to trust? Assignment of profits? Allowance for unlicensed board members and

officers?

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Enforcement

Who enforces:– Board of Medical Examiners:

Does state law provide Board power to reach unlicensed persons

– State Attorney General Penalties:

– Injunction from engaging in activity– Revocation of corporate form (creates liability issues)– Loss or suspension of medical license– Criminal penalties for practicing law without a license

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Enforcement

Enforcement of corporate practice of medicine is inconsistent

Each state differs in its level of enforcement activity

Some states may not be actively enforcing because they are unsure of the results of a court challenge

Even within states, different boards may enforce differently

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Specific State Issues(Not a Complete Statement of State law)

Nevada Utah Idaho California Colorado

CPOM Restriction

Yes No. But Certain Limitations Apply

Yes Yes Yes

Source of Restriction

Nevada Attorney General Opinions- AGO 1977-219- AGO 2002-10

Statutes- Utah Code 58-67-802- Utah Code 58-67-501(1)(c)

- State Board of Medical Examiners Position- Case LawSee e.g. Worlton v. Davis, 249 P.2d 810 (1952)- February 26, 2007 Memorandum to BME (identifies exceptions)

- Medical Board of California Decisions (Relying on Business & Professional Code §§2052 & 2400)- Attorney General Opinions- Case Law (some inconsistency)

Statutes- CRS §12-36-134 (1)(g)(7)- CRS §12-36-117(m)But see:- CRS § 25-3-103.7 (health facilities)- CRS § 6-18-301, et. seq. (provider networks)

Scope Employment of a physician by a corporation or unlicensed person

Interference with medical judgment or physician/ patient relationship

Employment of a physician by a corporation or unlicensed person

- Employment of a physician by a corporation or unlicensed person- Physician not exerting control of relationship where treatment of patients is at issue (e.g. MSOs)

- Physician practicing with or in a joint venture with an unlicensed person and/or corporation- Employment of a physician

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Nevada Utah Idaho California Colorado

PotentialExceptions

- HMOs- Managed Care Organizations- Professional Corporations - Other entities regulated by the Nevada Commissioner of Insurance (?)

As long as the parties do not engage in prohibited conduct, physician employment relationships are allowed.

- HMOs/ MCOs- Professional Corporations- Jails and Private Prison Facilities- Public Health Districts- County Hospitals - Private Hospitals- Skilled Nursing Facilities- Other Medical Facilities (?)

- Professional Corporations (51% can be owned by physician 49% can be owner by certain other licensees)- HMOs/ Prepaid Health Plans- Medi-Cal Managed Care Plans- Narcotic Treatment Programs- Non-profit research clinics- Non-profit community clinics

- Professional Service Corporations-Certain Health Care Facilities (e.g. hospitals, hospices, community mental health centers, long term care facility). -Licensed Provider Networks, including HMOs.

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The following are generally viewed as not having a corporate practice of medicine restriction:

Alabama, Alaska, District of Columbia, Florida, Louisiana, Maine, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, Rhode Island, South Dakota, Utah, Vermont, Virginia, and Wyoming.

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In states without restrictions still watch out for:– Interference or control over independent medical judgment– Compliance with professional corporation requirements– Ethics rules concerning treatment of patients– Fee splitting and other similar restrictions– Referral restrictions– Liability for ownership– Check that additional restrictions on different professions

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Looking Forward

Evolution of corporate practice of medicine:– Additional exceptions – ACOs– State legislative action

If physicians support change, will legislatures act?– Challenges to enforcement– Continuing evolution of AMA Principles

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CONCLUSION

“The surer method of achieving the benefits of corporate medical organization without possible attendant evils would be by enactment of legislation specifically authorizing the corporate form but carefully regulating its activities so as to insure the highest response to professional ethics by the corporation as an entity and by its physicians”

Yale Law JournalDecember 1938

corporate practice of medicine

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