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Starting a Medical Practice: The Prohibition Against Corporate Practice of Medicine

Starting a Medical Practice: The Prohibition Against Corporate Practice of Medicine
Hendershot, Cannon & Hisey, P.C.

As a law firm with a thriving practice in both business law and health and medical law, we know the unique challenges providers face when starting any type of business, or when navigating mergers and acquisitions, joint ventures, and other endeavors designed to enable future success. When starting a medical practice, however, there are added challenges and risks, especially when it comes to the Corporate Practice of Medicine (CPOM or CPM) prohibition.

If you are considering starting a medical practice, compliance with varied health care laws – including health care fraud laws enforced by the state of Texas and the federal government – should be your top priority. While counsel from experienced attorneys like those at Hendershot, Cannon & Hisey, P.C. is vital to complying with the many regulations to which your practice is subject, we wanted to provide more information about one important consideration: the CPOM doctrine.

What is the Corporate Practice of Medicine Prohibition?

Many states in the U.S. have some type of law prohibiting the “corporate practice of medicine,” which may bar corporations, entities, and non-licensed individuals from practicing medicine, or from employing physicians to provide professional medical services.

The CPOM prohibition is rooted in public policy, and aimed at protecting everyday citizens from any control corporations may have in influencing medical decisions about their health care. Governments want to preserve the foundational bedrock of trust and ethics between patients and physicians, which is why many states have taken legislative steps to ensure a physician’s medical judgment is not clouded or inhibited by a non-licensed entity or individual.

While the concept behind the doctrine is simple enough in theory, its implications are far-reaching and restrictive, and something that must be addressed by any medical start-up as a best practice for ensuring regulatory compliance.

Texas’ Corporate Practice of Medicine Doctrine

Texas health care laws have been refined over the years to better address the complex relationships, coordination, and integration of care between physicians and various other providers, payers, or industry professionals in the modern medical industry. As such, many of the relationships established between physicians and these parties will likely implicate the Texas corporate practice of medicine doctrine, or related Texas health care laws.

The CPOM doctrine imposes far-reaching restrictions and prohibitions. Generally, the CPOM:

  • Prohibits non-licensed individuals and businesses from employing physicians who will provide medical care.
  • Places certain restrictions on transactions / agreements between licensed physicians and general business entities or any individual who is not licensed to practice medicine, including most management, collection, and billing arrangements.
  • Restricts general business entities and non-licensed individuals from directly receiving any physician professional fees.
  • Prohibits partnerships, employee relationships, fee splitting, and other arrangements between physicians and businesses / non-physicians where the physician’s fees or practice is in any way directed or controlled by non-licensed parties.

Texas’ CPOM doctrine applies broadly to any arrangement between physicians and non-physicians. In order for arrangements under the doctrine’s scope to be compliant, physicians must either:

  • Function as independent contractors; or
  • Meet statutory exceptions.

It is important to note that simply classifying a physician as an independent contractor does not automatically mean that’s the case in the eye of the law. As such, any medical contract involving independent contractors in a new or existing medical practice needs to be meticulously evaluated in accordance to the law, and constructed in a compliant manner.

Corporate Practice of Medicine Exceptions

While the CPOM restrictions and their practical effects vary from state to state, Texas has maintained broad prohibitions against the corporate practice of medicine, with only limited exceptions for certain arrangements. Common exceptions include:

  • Non-profit employment – The employment of physicians by non-profit, health-related corporations, or “501(a)” entities, is one of the most widely used statutory exceptions to Texas’ CPOM prohibition. To qualify, non-profits must be certified by the Texas Medical Board (under 62.001(b) of the Texas Occupations Code). Under this arrangement, physicians and non-physicians can participate jointly in corporate governance, provided physicians still maintain control over medical decisions.
  • Expanded exceptions – In 2011, the Texas legislature expanded statutory exceptions which allow for the direct employment of physicians by certain non-physician entities, including certain hospital districts, certain rural hospitals, and certain Texas counties for the purpose of inmate medical care. As with the non-profit employment exception, non-physician entities must adopt policies which ensure physician employees are able to exercise autonomous medical judgment when providing treatment and care. This includes policies related to peer review, utilization review, quality assurance, and credentialing.

Other exceptions include arrangements involving specific entities, such as a Texas Professional Association, private non-profit medical schools, and federally qualified health care centers.

The Importance of Evaluating Transactions / Agreements

Given the many restrictions created by the Texas CPOM doctrine, and the potential repercussions of violations, evaluating the nature of individual transactions with the help of experienced attorneys is critical for health care providers. When scrutinizing any transaction or agreement, our team focuses on ensuring they reflect the general premise of the CPOM doctrine: that medical judgement should not be controlled, made, or influenced by a non-physician. For example:

  • Because fee splitting between physicians and non-physicians is prohibited under the CPOM, any transaction / arrangement should ensure fees are obtained only for actual expenses, and not for profit / under the control of non-physician management.
  • Any management fees outlined in management services agreements must be set at Fair Market Value (FMV). This eliminates / reduces the potential for sub-FMV fees that are less than the agreed-upon services, provide an inequitable surplus of income to a physician practice, and which may allow management companies to improperly influence the way physicians provide medical care – clear violations of the doctrine.

When structuring relationships and drafting agreements with management services and other non-physician business entities early in the life of your medical practice, consulting with lawyers who know the law can help ensure arrangements you enter into are compliant. Investing in these evaluations from the very beginning can help eliminate larger problems in the future.

Ensuring Your Practice’s Compliance with the Texas CPOM Doctrine

If you are looking to start a medical practice, Texas’ Corporate Practice of Medicine doctrine is one of many considerations that can have far-reaching implications. Given what is in effect a mine field of regulatory legislation, our team at Hendershot, Cannon & Hisey, P.C. provides clients with the comprehensive counsel they need when starting a medical practice, reducing their risks, and paving the foundation for a compliant venture.

From entity selection, licensing requirements, and medical contracts to credentialing and compliance, our firm delivers the comprehensive counsel and representation clients need to reduce their liabilities and structure themselves for future liability. Call (713) 909-7323 or contact us online to speak with an attorney.

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