New health services bring new risks to consider

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

Evolving notions of health and wellness have introduced a plethora of new services to patients, many of which have less to do with medical necessity than with cosmetic appearance. Today, patients can receive a spa service, a nutrition consultation, and a full-body MRI scan all in a day's work.

However, the regulations that govern health care practices have yet to promulgate provisions that specifically relate to the operation of clinics that offer "spa-medicine" services and elective, nontherapeutic procedures. This article looks at the unique problems encountered by these types of clinics and legal pitfalls for health care risk managers to avoid.

Patients are presented with a variety of options: "medi-spas" that provide cosmetic services in luxurious surroundings, in conjunction with medical care from plastic surgeons or dermatologists; vision therapy clinics that only perform LASIK eye surgery; and centers that perform full-body CT or MRI scans. These clinics are staffed by licensed physicians and nonlicensed employees, such as cosmeticians, plastic surgery counselors, and holistic medicine practitioners. Often, a nonphysician is the first point of contact for a patient. For example, plastic surgery counselors guide patients through the decision-making process and show them before-and-after photographs to "sell" them on the procedure, and optometrists perform initial consultations and refer patients to LASIK specialists.

The patient may not even see the physician until the day of the procedure. The relationships between physicians and nonlicensed persons can create what seems like a sensible opportunity for incentive pay programs wherein, in exchange for referrals, the nonlicensed person receives a commission from the physician. This can be a tremendous liability risk for the physicians and the participating health care organizations. Risk managers must be aware of this potential for significant civil and criminal violations.

Beware 'corporate practice of medicine'

Though the arrangements can be problematic in all states, the risk is higher in California, Colorado, Illinois, New York, and Texas, which have statutes that limit the ability of physicians to be employed by nonphysician entities or to split fees with non-physicians. These are known as "corporate practice of medicine states."

Health care providers involved in such arrangements can face tremendous liability, but does this mean that physicians should not award bonuses or commissions to any nonlicensed staff members? Not necessarily. The key rule, however, is that incentive programs should not be linked to referrals or business-generated. For example, practice managers should not be paid based upon a percentage of total profits. Health care risk managers should recommend performance-based incentive programs, in which eligibility is based on monthly evaluations using criteria such as quality of work and patient care. Bonus programs that are based on a percentage of net income are illegal.

To the extent that nonlicensed staff members cause patients to be referred to the clinic for physician services, the fees paid to the physician for performing these services should remain constant. For example, the physician should not receive less compensation for Botox injections he or she performs because someone other than the physician was responsible for getting the patient in the door.

Must not influence doctor's judgment

What types of conduct are construed as exerting influence or control over a physician's professional judgment? In corporate practice of medicine states, the following types of decisions should be made by physicians only and would constitute the unlicensed practice of medicine if performed by a nonphysician:

  • determining what diagnostic tests are necessary for a particular condition;
  • determining what kinds of procedures should be performed;
  • determining the need for referrals to another physician/specialist;
  • determining how many patients a physician must see in a given period of time.

Physicians are just one of many categories of health care providers, and a host of other non-physician providers are developing subprofessions that involve limited licensure and fill an important need in a specialty. With new forms of health care entities developing at tremendous pace, questions regarding the applicability of the corporate practice of medicine doctrine to these new entities continue to arise.

Health care risk managers should closely scrutinize their entities' contractual agreements, to assure that they are not assisting in the corporate practice of medicine.

(Leila Narvid, JD, is an associate in the general civil litigation practice group at Sideman & Bancroft in San Francisco. She can be reached at