Einiger & Associates

New York Healthcare Law

Let the Unlicensed Bewareby Scott Einiger, Esq.

“View Article As Seen In New York County Medical Society – MM News: Legal Briefs”

The following article is provided by Scott Einiger, Esq. and Basil H. Kim, Esq., from the firm of the Medical Society of the State of New York’s special counsel, Abrams Fensterman.

The Corporate Practice of Medicine: Let the Unlicensed Beware

The Corporate Practice of Medicine (CPM) doctrine is a legal area often misunderstood by practitioners in New York and by those in other states that enforce this rule of law. Usually thought of as only a liability trap for the unwary practitioner, CPM instead creates a tremendous business advantage for MDs/DOs and is a substantial barrier to entry for potential competitors who are either unlicensed or in lower licenses. While there is no doubt that failing to structure the corporate or business relationship with lesser licensed or unlicensed individuals correctly may result in substantial civil and licensure implications, this article will focus on the substantial advantages to practicing in a state that enforces this rule of law as protective of an MD’s unique training and license.

The CPM doctrine was established by the American Medical Association for the protection of both the public and the profession of medicine. The primary intent of the CPM doctrine is to ensure that only licensed medical professionals deliver medical care and to remove the potential influence of external factors in treatment decisions. As the “practice” of medicine is increasingly viewed as the “business” of medicine, the CPM doctrine seeks to remove any potential conflicts of interest that may arise between a physician’s medical judgment and desire to provide quality patient care versus outside business and financial interests. The prohibition on the CPM is found in both statutory and common law.

“There is no doubt the state has a strong interest in protecting the health and safety of its citizens.” People v. Pustilnik, 14 Misc.3d 1237(A), 836 N.Y.S.2d 502 (2007). This is the fundamental basis upon which the CPM doctrine stands. In New York statutes, there is no single provision that directly prohibits the corporate practice of medicine. Rather, the restriction is based on an interpretation of several statutes, including New York Education Law §6522 and New York Business Corporation Law §1501.

Exceptions to the Doctrine
There are several exceptions to the CPM doctrine. First, not-for-profit medical or dental expense indemnity corporations or hospital service corporations organized under the Insurance Law may employ licensed physicians. Second, properly chartered medical schools may hire physicians, and teaching hospitals may enter into fee sharing arrangements commonly known as “faculty practice plans.” Third, employee health and school health programs, where physicians and nurses are on salary and premises to perform health services as needed, are permitted. Finally, businesses may hire physicians to serve in advisory or consultation roles where no direct patient care is administered.

One final “exception” to the doctrine is that professional corporations or partnerships that are owned only by physicians may employ other physicians and share fees and profits among themselves. It is this provision that provides both business advantages and opportunities for physicians in the State of New York.

The Business Advantage of the Corporate Practice of Medicine
Debates around continuing the CPM doctrine in New York State continue, especially in light of recent health care reforms and ballooning health care costs. One side of the debate holds that the corporate practice prohibition should be removed (as it has been in many states) because it hinders efficiencies and business relationships. The other side of the debate is that the removal of the prohibition would weaken the physician/patient relationship, affect the medical judgment of the physician and introduce an unwanted financial variable into the health care delivery equation.

Though physicians may view the CPM doctrine as a restriction on their ability to work for business entities or to create relationships as they desire, the doctrine also prohibits non-licensed (or lower licensed) individuals from entering into the marketplace and competing with physicians. For example:
John, a businessman, opens a limited liability company (LLC) in New York City where he employs physicians to provide health care screenings to community members at a discounted, out-of-pocket rate. John also provides all of the equipment and supplies necessary to provide these screenings. Satisfied patients spread the word and the business grows. Over time, John advertises his business and is able to make a profit, while also improving the community’s overall wellness through the screenings.

Although this LLC may appear to make sense from a business (and even from a community wellness) perspective, “John” is illegally engaged in the corporate practice of medicine. Non-physicians may not employ physicians. LLCs, because they are not professional corporations (PCs or PLLCs), may not provide professional medical services; in fact, professional corporations may only be owned by professionals, such as physicians. John and his LLC are considered to be fraudulently holding themselves out as permitted to practice medicine in New York State and are thereby prohibited from engaging in this business.

It is this very prohibition that ultimately benefits physicians. In other states where the CPM prohibition has been abolished, physicians are facing stiff competition from lay individuals, business persons and corporations looking to enter the marketplace and provide medical services. Additionally, some physicians in those states are facing challenges in their individual practices, being forced to balance their own medical decision making against the business interests of those who own and operate the health service entities.

Although the value of the CPM prohibition remains a source of debate in New York, it is still the law of the land. Note that this does not, however, mean that physicians cannot enter into business relationships with non-physicians. Rather, it simply means that the relationships must be created appropriately and in accordance with New York State laws. Providers should take advantage of this provision as providing a tremendous business advantage over potential competitors who are unlicensed or in lower licenses. Most importantly, the prohibition maintains the integrity of the medical profession and the crucial patient/physician relationship, preventing outside business influences from having an impact on medical decision making.

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