Corporate Practice of Medicine: Living or Dead?

Posted By Kate Harper, Monday, October 29, 2018

Corporate practice of medicine


[UPDATED July 22, 2021]

By Patrick O'Brien, Legal Coordinator, AmSpa

Many states prohibit non-physicians from owning medical practices either directly or through a business entity. This is known as the "corporate practice of medicine" doctrine, which AmSpa has previously discussed. The concern these states have with corporate practice of medicine is that the non-physician control will interfere with the physician's professional judgement in the physician-patient relationship. Whether or not that fear is founded, it has resulted historically in many states forbidding the practice. AmSpa Members: To see what your state's policy is, please view your state legal summary.

Over time, the practice of medicine has evolved and become more complex and interconnected. Physicians no longer practice with just a bag and a stethoscope. They render medical services through a team of professionals and specialists who utilize an array of advanced machines. This complexity and interconnectedness have weakened much of the original motivation for the prohibition against medical services being delivered in a corporate structure. Often, these prohibitions are seen more as a hindrance than an aid to effective care. There has been a general trend to move away from or weaken this prohibition. This has generally taken the form of passing statutes that affirmatively allow corporate practice or remove the restrictions.

On one end of the spectrum, you have states such as Alabama, which does not prohibit physicians from being employed by a corporation as long as the physician is free to use his professional judgment in making medical decisions. This is evidenced in their statutes and opinion letters from the attorney general's office. You also have states such as Idaho, where the Idaho Board of Medicine previously adhered to the doctrine, but in 2016, it affirmatively rejected the doctrine and would no longer discipline their licensees for practicing in a corporate structure. Similarly, when North Carolina adopted their registry and advertising rules for medical spas it was interpreted by the regulatory agency as allowing non-physician ownership.

On the other end of the spectrum, you have states such as California. State statutes clearly prohibit the practice of medicine by corporations, and the Medical Board of California actively polices and enforces it. These states and others like them provide medical spas with clear information on the types of business structures permitted. However, approved structures can still change with the passage of new laws or new case law. In California the recently shelved Senate Bill 642 (SB 642) would have restricted practices from entering many currently permitted agreements with management services organizations (MSOs) as a byproduct of the bill's attempt to strengthen professional autonomy. MSOs provide non-clinical support services to assist with the business end of running a medical practice and are popular solutions in states that otherwise restrict ownership for non-physicians.

Other states may have lax or infrequent enforcement of their prohibition. Wisconsin is an example: The state laws clearly prohibit laypersons from employing physicians to provide medical services as outlined in a Wisconsin Attorney General letter. However, there appears to be no recent history of enforcement actions for violating this rule. Wisconsin isn't alone—many other states have infrequent enforcement of their corporate practice rules. This lax enforcement may be a result of possible lower rates of board complaints on these issues, or the board may focus their attention on other practice violations. This can create uncertainty for people wanting to open a medical spa.

According to a recent report from the Physicians Advocacy Institute, nearly 70% of physicians in the U.S. were employed by corporate entities at the start of 2021. Those preparing to enter the medical spa field may look around and see examples in their state of non-physicians hiring on medical directors or partnerships between doctors and non-doctors. Depending on the state, these arrangements may be completely fine, or they may be in violation of that state's laws. Where there is lax or infrequent enforcement by the state's attorney general or the medical board, a medical spa may go years without issue. However, the risks remain. Future attorney generals or medical board members may change their policies and begin aggressively bringing enforcement actions. Or, if the medical spa or physician is brought to their attention for other reasons, such as a patient treatment complaint, the corporate structure may result in additional penalties or discipline. Additionally the improper business structure could be used as a challenge to contracts in disputes among business partners.

Just like you still wear your seatbelt even though you don't plan to be in a car accident, having the proper corporate structure for a medical spa is vitally important, even if no one has recently gotten in trouble over it. As the aphorism on ounces of prevention suggests, taking time to structure your medical spa correctly at the beginning of its life can be good insurance against possible future issues. If you would like to learn more about medical spas business structures and other legal issues, consider attending an upcoming AmSpa Medical Spa & Aesthetic Boot Camp or Medical Spa Show 2022.

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