Doctors Inc. - Can a Corporation Practice Medicine?

As business opportunities abound for both licensed physicians and non-licensed entrepreneurs and investors, in the ownership and operation of ambulatory care facilities, drug treatment facilities, and diagnostic testing facilities, physicians, licensed practitioners, and businesspersons must ensure that the structure of their business complies with the Corporate Practice of Medicine (CPOM) doctrin

Nikitas Moustakas
March 01, 2018

As business opportunities abound for both licensed physicians and non-licensed entrepreneurs and investors, in the ownership and operation of ambulatory care facilities, drug treatment facilities, and diagnostic testing facilities, physicians, licensed practitioners, and businesspersons must ensure that the structure of their business complies with the Corporate Practice of Medicine (CPOM) doctrine.

In essence, the CPOM doctrine, which is applicable in both Pennsylvania and New Jersey, prohibits a licensed practitioner from providing health care services as an employee of a general business corporation or a business entity in which the shareholders are not all licensed practitioners (with certain specific exceptions).

The basis for the CPOM doctrine is to create a wall between the practitioner, who must act in patient’s best interests, and corporate shareholders, who seek to maximize profits, thereby eliminating any influence in the provision of medical care from a corporate shareholder.

As such, careful consideration must be utilized in determining how a business is structured and who the shareholders may be. The following are several common structures which are generally permissible.

Solo Practice.  A practitioner may practice solo and/or may employ or otherwise remunerate other licensed practitioners to render professional services within the scope of practice of the employee’s license, provided that the employee’s license does not exceed that of the employer’s license (i.e. a nurse may not employ a physician).

Limited Liability Company, Professional Association, Partnership.  Limited liability companies, partnerships, and professional associations are expressly allowed under the New Jersey regulations provided that such entity is composed solely of health care professional shareholders, each of whom is duly licensed or otherwise authorized to render the same or closely allied professional services.  Closely allied fields include chiropractic, dentistry, nursing, nurse midwifery, optometry, physical therapy, podiatry, psychology, and social work.

Associational Relationship with Other Practitioner or Professional Entity. In this scenario, a practitioner would be an employee or independent contractor, for any form of remuneration, of the other practitioner or professional entity, provided that the employee’s license does not exceed that of the employer’s license.

Shareholder or Employee of a General Business Corporation.  Such a form is permissible, but is limited to the following circumstances, in which the corporation is:

  • Licensed by the New Jersey Department of Health and Senior Services as a health maintenance organization, hospital, long- or short-term care facility, ambulatory care facility or other type of health care facility or health care provider, such as a diagnostic imaging facility;
  • Not in the business of offering treatment services but maintains a medical clinic for the purpose of providing first aid to customers or employees and/or for monitoring the health environment of employees;
  • A non-profit corporation sponsored by a union, social or religious or fraternal-type organization providing health care services to members only;
  • An accredited educational institution which maintains a medical clinic for health care service to students and faculty; or
  • Licensed by the State Department of Insurance as an insurance carrier offering coverage for medical treatment and the licensee is employed to perform quality assurance services for the insurance carrier.

In less common circumstances, but likely of greater interest to non-licensed investors and businesspersons, a licensed health care professional may have an equity interest or be employed by a professional practice (including a professional service corporation or limited liability company) which is a limited partner to a general business corporation which, in turn, has a contractual agreement with the professional service entity.

In such a scenario, the general business corporation may contract to provide the professional practice with services exclusively of a non-professional nature, including  office management, hiring of non-professional staff, provision of office space and/or equipment and servicing thereof, and billing services. Meanwhile, the licensed practitioner is responsible for all medical care and establishment of patient fees.  Given that in these circumstances a practice is effectively divided between medical and non-medical operations, opportunities arise for non-licensed investors and entrepreneurs to take advantage of the proliferation of medical businesses while remaining in compliance with the CPOM doctrine.

Ultimately, there are a variety of business structures which allow practitioners to provide professional services while being employed, partnering with, and/or engaging the services of other licensed professionals, and even creating business arrangements with non-licensees.  However, given the structural complexity of many such medical entities (including captive practices and MSOs), it is vital to ensure that any corporate/business arrangements comply with the requirements of the CPOM doctrine.

About The Author
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Nikitas "Nick" Moustakas is a founding member and current managing member of the firm. His practice focuses on corporate and business counseling, trademark application, outside general counsel, information technology, healthcare, employment, and other transactional business representation, for ...

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