Corporate Practice of Medicine

In the complex world of healthcare, the “corporate practice of medicine” is a term that frequently arises. Corporate practice of medicine refers to legal doctrine systematically restricting ownership of medical practices by corporations and other non-licensed entities and further restricting such entities’ employment of physicians to provide professional medical services.

This doctrine is rooted in the overarching principle that both the ownership of the healthcare entity and the provision of healthcare services should remain in the hands of licensed medical professionals, ultimately promoting the goal that clinical, professional medical decisions are made solely in the interest of patient care, free from undue corporate or business influence.

Key Points:

• Professional Judgment:
  • Safeguards the independent exercise of professional medical judgment by physicians, ensuring that decisions about diagnosis, treatment, and patient care are made based on clinical expertise rather than business objectives.
• Ownership Restrictions:
  • Prohibits non-physicians and non-licensed entities from owning medical practices in jurisdictions that recognize the corporate practice of medicine doctrine, reinforcing that medical services and control over medical practices must remain with licensed individuals.
• State Regulations:
  • Vary by state; some states strictly enforce the corporate practice of medicine doctrine, while other states permit limited corporate involvement under specific legal structures or regulations.
• Purpose:
  • To protect patient welfare by maintaining the integrity and independence of medical decision-making, ensuring that financial and business considerations do not compromise the quality of care provided to patients.

Why Does it Matter?

For Healthcare Providers:

• Autonomy:
  • Physicians must retain full autonomy in making medical decisions without interference from business owners, investors, or corporate management.
• Compliance:
  • Understanding and adhering to state-specific laws governing the corporate practice of medicine is critical to avoid regulatory scrutiny, disciplinary actions, or litigation.

For Corporations:

• Legal Boundaries:
  • Corporations must be aware of and respect the limitations on ownership and delivery of healthcare services, ensuring that any relationship with a medical practice complies with applicable legal doctrines.
• Structural Considerations:
  • Entities looking to engage in healthcare services must carefully structure their operations, often working with licensed professionals through compliant models, to maintain operational viability while adhering to legal requirements.

Exceptions and Models:

Although the corporate practice of medicine doctrine is widely recognized, there are exceptions and models designed to allow business entities to participate in the healthcare industry without violating the core principles of the doctrine:

• Management Services Organizations (MSOs):
  • MSOs offer non-clinical administrative and management services to healthcare providers, allowing physicians to focus on patient care while the MSO handles business operations. MSOs do not control or influence clinical decision-making.
• Professional Corporations (PCs) and Professional Limited Liability Companies (PLLCs):
  • Medical practices may be organized as PCs or PLLCs, which must be owned and operated by licensed healthcare providers. These entities can provide a corporate-like structure while ensuring compliance with the doctrine.
• Direct Employment by Permitted Entities:
  • In some states, hospitals, academic medical centers, or other specified entities are permitted to employ physicians directly, provided certain safeguards are in place to preserve the physicians’ clinical independence.
• Friendly PC Model:
  • In certain jurisdictions, business entities may indirectly participate by entering into management arrangements with physician-owned professional corporations, where the licensed professional retains legal control over the practice.

Key Takeaways

Understanding the corporate practice of medicine doctrine is critical for all stakeholders in the healthcare sector — from physicians and healthcare organizations to investors and legal advisors. Whether structuring a medical practice, engaging in management services, or expanding healthcare operations, careful consideration must be given to both the ownership of the legal entity and the delivery of healthcare services. This doctrine remains a cornerstone in maintaining the integrity, independence, and quality of patient care, balancing the evolving demands of healthcare business models with the fundamental need for professional clinical judgment.

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