Corporate practice of medicine is the legal principle that restricts non-physicians from directly owning or controlling medical practices or influencing physicians’ clinical decisions. Targeted at private equity’s influence on health care through affiliated management services organizations (MSOs), Congress has introduced legislation that would establish nationwide corporate practice of medicine restrictions beyond what is in place in all but a few states. Some states have meaningful restrictions, while other states have no restrictions at all.
The Stop Corporate Takeovers of Physicians Act (the Proposed Act) provides that, other than non-profits and hospitals, an entity that is not majority-owned by licensees cannot control a medical practice, employ or engage licensees, or engage in the practice of medicine.
The Proposed Act also:
- contains a flat prohibition on non-competition covenants unless the physician owns 25% or more of the medical practice; and
- provides that any owner of a medical practice must be licensed and present in the state where services to patients are furnished and “substantially engaged” in delivering medical care.
Under the Proposed Act, an MSO may not, among other things:
- enter into any agreement that restricts the transfer of ownership of a medical practice;
- establish its own medical practice (i.e., an MSO forms and places a friendly physician in a new practice);
- enter into a contract for management services unless:
- the medical practice enters into the contract at arm’s length using its own legal counsel and financial advisors; and
- any compensation payable to the management services organization is fair market value;
- advertise the services of a medical practice under any name that is not the medical practice; or
- control or exercise de facto control over the administrative, business, or clinical operations of a medical practice, including control over:
- hiring and termination of employees;
- schedules and compensation of licensees;
- the period of time a patient may be seen;
- disbursement of revenue;
- revenue targets;
- decisions regarding coding;
- negotiations with payors; and
- rates and charges for services.
The Proposed Act defines “licensee” by reference to the Social Security Act. A “licensee” means a physician or an advanced practice provider, such as a physician assistant or nurse practitioner. The Proposed Act does not preempt any state law that is more restrictive. It also creates a private right of action for anyone injured by a violation of the Proposed Act, further providing that the plaintiff may obtain treble damages and attorneys’ fees. It is unlikely that the Proposed Act will be enacted this year given the time left in this legislative session, but its introduction may spur states to pursue similar restrictions or it may be enacted next year.
Should you have any questions regarding the above or wish to have your organization’s services evaluated for compliance with applicable laws, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].