December 1, 2016

Corporate Medicine

Key materials

The “corporate practice of medicine” doctrine arose out of early-20th-century efforts by the American Medical Association to professionalize medicine through the development of an ethical code preventing quackery and the commercial exploitation of physicians. Its proponents insist that any person who “practices medicine” must be licensed by the government and that healthcare professionals may not assist unlicensed people or entities to practice medicine. These principles have been extended to encompass not only the delivery of healthcare itself but also business and financial administration for medical providers. The expansion of the doctrine into healthcare management inhibits the development of innovative business models that could potentially lower the cost and improve the quality of medical care. States that enforce the corporate practice of medicine doctrine in effect assert that people or entities that are not licensed by the state to practice medicine may not significantly influence the delivery of medical services. 

The era of the autonomous solo practitioner is long gone, and it is doubtful that the clinical decisions of doctors and other healthcare professionals were ever unaffected by financial considerations. In the current healthcare-policy and economic milieu, the corporate practice of medicine doctrine tends to inhibit efficient organization of healthcare systems, positive innovation, and improvement in quality. Instead of furthering the doctrine’s stated goal of protecting physicians’ autonomy in decision-making—long gone in the era of HMOs and hospital-based practices—it constrains the formation of an integrated healthcare system. An enforced ban, for example, prohibits a licensed physician and an unlicensed person from forming a limited liability company in which the doctor provides medical services and the unlicensed person handles business administration. Additionally, the doctrine complicates the provision of health care across state lines since state law and enforcement practices vary dramatically, making interstate business alignment difficult and hazardous. 

States are able to ban the corporate practice of medicine because of their inherent police powers. Noncompliance by physicians and other medical professionals can lead to criminal sanctions and disciplinary action by a licensing board. Additionally, a state attorney general can dissolve an entity deemed to be formed illegally. Unfortunately, the doctrine is often manifested in a largely incoherent and unpredictable array of state-based laws, legal precedents, and expert opinions that are disparately enforced. State statutes, regulations, court decisions, and attorney general opinions may all include prohibitions impacting the possible legal structuring of healthcare entities and redefining the nature of collaborations and reimbursement decision-making. 

The HOAP index’s Corporate Subindex analyzes (1) the presence or absence of the corporate practice of medicine doctrine in state law, and more particularly (2) whether businesses are prohibited from employing licensed professionals to provide medical care, (3) whether entities that provide medical services are required to be owned or operated by licensed professionals, and (4) whether professional fee-splitting between licensed and unlicensed providers is prohibited.