Corporate Practice of Medicine

Health care businesses must carefully consider who may own, operate, manage, and control a medical practice. State corporate practice of medicine laws regulate the extent to which corporations, private investors, management companies, and other non-physician entities may own medical practices, employ physicians, or participate in decisions involving patient care.

The corporate practice of medicine doctrine is intended primarily to preserve a physician’s independent professional judgment and prevent business interests from improperly influencing medical decisions. However, the rules are not uniform across the United States. Some states impose significant restrictions on physician practice ownership and control, while others permit broader corporate involvement or recognize exceptions for hospitals, health systems, professional entities, and other organizations.

For physicians, investors, management companies, and health care organizations, determining the proper legal structure before starting or acquiring a medical practice can help avoid licensing problems, regulatory investigations, contractual disputes, and allegations of the unauthorized practice of medicine.

What is the Corporate Practice of Medicine?

The corporate practice of medicine, often referred to as “CPOM,” generally describes state laws and regulatory principles that restrict unlicensed persons or business entities from practicing medicine or exercising improper control over licensed physicians.

The precise requirements depend on state law. Some jurisdictions restrict ownership of medical practices to licensed physicians or other specifically authorized health professionals. Others permit corporations to employ physicians but restrict the corporation’s ability to interfere with clinical judgment.

The underlying concern is that medical decisions should be based upon the interests and needs of the patient rather than the financial objectives of an owner, investor, employer, or management company.

For example, issues may arise when a non-physician business owner attempts to control decisions regarding:

• diagnosis and treatment;

• referrals to specialists;

• selection of medications or medical procedures;

• ordering diagnostic testing;

• patient admission, discharge, or transfer;

• clinical staffing and supervision; or

• other decisions requiring professional medical judgment.

Corporate practice restrictions may also extend beyond obvious treatment decisions. Depending upon the state, questions involving the hiring and termination of physicians, control of medical records, payer contracting, billing practices, clinical equipment, and scheduling may implicate physician-control requirements.

Who Needs to Consider Corporate Practice of Medicine Laws?

Corporate practice restrictions can affect many types of health care arrangements, including:

• physician practices and medical groups;

• private equity and other health care investors;

• management services organizations (MSOs);

• telemedicine and digital health companies;

• urgent care and outpatient medical practices;

• concierge and direct primary care practices;

• behavioral health organizations;

• medical spas and wellness businesses;

• hospitals and health systems; and

• companies seeking to partner with or employ physicians.

These considerations frequently arise during medical practice formation, acquisition of an existing practice, development of an MSO structure, or creation of a joint venture between physicians and non-physician investors.

A transaction that is permissible in one state may require a very different ownership or management structure in another. For that reason, organizations operating across multiple jurisdictions should evaluate corporate practice requirements on a state-by-state basis.

Strategic Defense and Resolution Agreements

Where state law restricts non-physician ownership of a medical practice, businesses sometimes use a management services organization, or MSO, to provide non-clinical administrative and business services to a physician-owned professional entity.

The physician-owned entity generally remains responsible for the practice of medicine and professional clinical decisions. The MSO may provide appropriate non-clinical services such as office administration, technology, accounting support, facilities, marketing, staffing support, or other management functions through a Management Services Agreement.

An MSO arrangement, however, does not automatically solve corporate practice concerns. Agreements must be structured so that the management company does not obtain impermissible control over the physician or the delivery of medical care. The allocation of authority between the MSO and medical practice is therefore an important part of both the transaction structure and the governing agreements.

What Can Happen if a Practice Violates Corporate Practice Rules?

The consequences vary significantly by jurisdiction and by the nature of the arrangement. Improper structures may raise concerns involving the unauthorized practice of medicine, physician licensing, professional discipline, unenforceable contracts, fee arrangements, billing practices, or other health care regulatory requirements.

Corporate practice concerns can also overlap with other regulatory issues. Ownership, management compensation, referrals, and financial relationships should therefore be evaluated together with applicable Anti-Kickback, Stark Law, fee-splitting, licensing, and health care regulatory requirements.

Addressing these issues when a business is first structured is typically more efficient than attempting to restructure ownership, management contracts, or financial arrangements after operations have begun.

What Can G2Z Law Group Do for My Health Care Business?

G2Z Law Group advises physicians, physician practices, health care organizations, entrepreneurs, and investors regarding corporate practice of medicine compliance and medical practice ownership structures.

Our attorneys can assist with evaluating applicable state requirements; forming physician professional entities; structuring physician and non-physician ownership arrangements; establishing MSO and physician-practice relationships; reviewing management authority and clinical-control provisions; drafting Management Services Agreements; and evaluating proposed acquisitions, affiliations, joint ventures, and investment arrangements.

Because corporate practice laws differ substantially among states, there is rarely a single structure appropriate for every health care business. We work with clients to develop arrangements that address both their business objectives and applicable health care regulatory requirements while preserving the professional independence required for patient care.