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MEDICAL BOARD PUNISHES PHYSICIAN FOR ASSISTING IN THE CORPORATE PRACTICE OF MEDICINE

By Steven K. Sanborn, Mitchell Warner, P.A.

In June, 1998, the North Carolina Medical Board charged a physician with assisting a business corporation with the unauthorized practice of medicine. Under North Carolina law, a business corporation cannot obtain the authority to practice medicine. The physician, who was an employee of the Pinnacle Health Care, Inc., was punished because the medical services that he provided were attributable to his employer. In a related charge, the Board charged that the physician, by permitting the corporation to bill patients and third party payors for medical services, engaged in fee splitting.

On May 20, 1999, the physician entered into a consent order with the Board, whereby the physician agreed to a thirty day suspension of his medical license. The Board cited the "corporate practice of medicine doctrine", which prohibits a business corporation from practicing medicine.

The North Carolina Medical Practices Act grants the Board authority to discipline a physician for engaging in unprofessional conduct. However, a bill has been introduced in the General Assembly that would increase the prohibited acts under this statute to include: aiding in the unauthorized practice of medicine, allowing another person or organization to use a license issued by the Board, and fee splitting.

The corporate practice of medicine doctrine originated in the 1930s when corporations began contracting with physicians to provide medical services to their employees. In response to physicians who objected to lay people influencing medical decisions, the AMA adopted ethical provisions that prohibited lay entities from profiting from medical services provided by physicians.

The purpose for prohibiting the corporate practice of medicine is to avoid:

lay control of professional judgment
commercial exploitation of the practice of medicine
the division of physician loyalty between patient and employer

However, non-profit and public corporations were generally not restricted from providing physician services. Without a profit motive, it was viewed that there would be less of a threat of improper influence over physicians' judgment.

In 1955, the North Carolina Attorney General released an opinion that discussed the corporate practice of medicine doctrine, stating that non-profit and public hospitals may make arrangements and fix fees for physicians to provide medical services. However, in regard to private corporations, the opinion stated:

A private corporation is prohibited from practicing medicine, and employment by a corporation of a physician or surgeon to treat the ill in order that the corporation may profit therefrom is prohibited by the laws of North Carolina.

In addition to the exception for non-profit and public hospitals, other exceptions developed as the health care industry transformed. In 1973, Congress enacted HMO-enabling legislation which provided an exception to the corporate practice of medicine prohibition. The General Assembly followed by passing a statute that exempted HMOs from the corporate practice of medicine doctrine.

Another exception is a North Carolina statute that allows for the formation of professional corporations. With certain exceptions, all shares of the professional corporation must be owned by people licensed in the same profession. Professional corporations are also subject to the rules and regulations of the Board. Thus, physicians are required to manage their corporation consistent with the ethical standards of their profession.

While prohibited from entering employment relationships with corporations, physicians do have some flexibility in that they can enter into independent contractor relationships. However, physicians must be careful because even though a contract labels them as an independent contractor, they must still meet the legal requirements of an independent contractor relationship. The key determining factor is whether the entity has the right to control the manner and method of the physician's work.

Fee splitting is also grounds for disciplinary action. For example, if a practice manager or a practice management company is paid based upon a percentage of total profits, the Board may interpret this arrangement as fee splitting. In the employment situation, where a business corporation pays a physician a set fee, but charges a greater sum to the patient or third party payor, the Board may also interpret this as fee splitting.

With new forms of health care entities developing, questions regarding the applicability of the corporate practice of medicine doctrine to these arrangements continue to arise. As the Board continues to focus on these arrangements, physicians should closely scrutinize their contractual arrangements to assure that they are not assisting in the corporate practice of medicine. Failure to do so from the outset could not only cause irreparable damage to physician's medical practice, but could also cost physicians their medical license.

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The Medical Law Alert is a publication of the Mitchell Warner Health Law Group. Its purpose is to provide general information about significant legal developments, and should not be construed as legal advice on specific factual scenarios. For more information on the issues discussed in this publication, please contact Edward E. Hollowell at (800) 662-7403 or ehollowell@nchealthlaw.com