2023 Board Resources

ARTICLE 8 CORPORATE PRACTICE OF MEDICINE

8.1 Description . Many states have a corporate practice of medicine (“CPOM”) doctrine, which generally prohibits physicians from entering into partnerships, employment or professional services, or other arrangements pursuant to which the physician’s practice of medicine is in any way controlled or directed by a non-physician. There are myriad purposes given in each state for the prohibition or other restrictions on CPOM, but it broadly aims to guard against the infringement of business considerations on the independent medical judgment of a physician. Some states recognize exceptions to CPOM (e.g., permitting a licensed hospital or facility to employ licensed physicians), but the availability and scope of such exceptions varies from state to state. 8.2 Corporate Form . (a) Business Corporations Prohibited . CPOM is explicitly prohibited by statute in some states; for example, Colorado law plainly states that “[c]orporations shall not practice medicine.” 117 In other states, such as Washington, the CPOM doctrine derives from a statutory prohibition against practicing medicine without a license 118 coupled with well- developed case law prohibiting a business entity or nonprofessionals from employing physicians to render their professional services. 119 (b) Professional Services Entities Permitted . While certain states prohibit the formation of general business corporations for the purpose of rendering professional services, many states allow licensed professionals (such as physicians) to form a professional services entity such as a professional services corporation (PC) or professional services limited liability company (PLLC). Generally, each shareholder or member of a professional entity must be licensed to practice the profession for which the entity was formed. For example, in many states a PC organized to provide medical services may only issue shares to licensed physicians. Certain states also require all officers and directors of a professional services entity to be licensed. 8.3 Fee Splitting . In addition to the restrictions on corporate form, many states also prohibit a licensed physician from dividing or sharing fees received for professional services with non-physicians. For example, such fee splitting prohibitions may be implicated in connection with a physician practice’s relationship with a non-physician management services organization (MSO). Specifically, certain states such as New York prohibit a physician practice from paying the MSO a fee for the MSO’s services which is based upon a percentage of the physician practice’s revenues or net profits. New York law prohibits a physician to directly or indirectly requesting, receiving or participating in the division, transference, assignment, rebate, or splitting of a fee. 120 Additionally, New York law defines physician misconduct to include a physician permitting any person to share in the fees for professional medical services, other than 117 C.R.S. § 12-36-129(1). 118 RCW § 18.71.021. 119 See Columbia Physical Therapy, Inc. P.S. v. Benton Franklin Orthopedic Assocs., PLLC , 168 Wn.2d 421 (Wash. 2010); Morelli v. Ehsan , 110 Wn.2d 555 (Wash. 1988). 120 N.Y. Educ. Law § 6531.