Avoid the corporate practice of medicine

By Leila Narvid, JD, Associate, General Civil Litigation Practice Group, Sideman & Bancroft, San Francisco

Risk managers must assure that the fast changing face of health care does not draw their organizations into the "corporate practice of medicine," which brings significant liability risk.

The corporate practice of medicine doctrine has three primary tenets:

1. A nonlicensed individual or entity cannot employ a physician or any other health care professional to practice medicine.
2. Entities that provide health care services cannot be owned or controlled by nonlicensed persons or corporations.
3. Licensed health care professionals may not divide or share a professional fee with a non-licensed person or entity.

These tenets all exemplify the principle that medical decision making should be entirely free of layperson and corporate control, and that physicians should be free to exercise professional judgment and remain fully accountable for their actions. Put another way, if a lay entity has a financial interest in a physician's "bottom line" or "profit," then the entity has a direct interest in and ability to control the medical side of the business, such as how many hours the physician will work, what type of procedures will be performed, and what type of medical technology should be used.

For example, in California, actual "medical" control need not be established to show a statutory violation. (See California Business & Professions Code §§650, 2052, and 2400.) Rather, the law recognizes that many business decisions have direct and indirect medical implications and prohibits arrangements that provide for the potential of inappropriate lay control. Similarly, in Maryland, a physician is subject to discipline if the physician "pays or agrees to pay any sum to any person for bringing or referring a patient or accepts or agrees to accept any sum from any person for bringing or referring a patient." [Health Occupations Article, Maryland Code §14-404(a)(15).]

Penalties may be severe

Statutory penalties for corporate practice of medicine can be severe. Medical professionals can lose their licenses, and employers can be prosecuted for furthering the illegal activity. Professional organizations, such as the American Academy of Ophthalmology, have taken the initiative to promulgate ethical guidelines that address fee-splitting and corporate practice of medicine.

The American Academy of Ophthalmology issued voluntary guidelines that urge eye surgeons not to accept referrals from optometrists in exchange for a cut of the professional fee, even if the optometrist will be responsible for handling the patient's postoperative care.

(Editor's note: For the guidelines, go to www.aao.org/aao/member/ethics/employment_referral.cfm.)