The corporate practice of medicine (CPM) refers to a situation in which medical decisions are taken out of the hands of individual doctors and instead are controlled, even in part, by non-physicians, such as medical management organizations (MSOs).

It can also exist where non-physicians are compensated for doctors’ medical decisions. This control of physicians by non-physicians, such as a corporation’s management, may be exercised in arrangements such as:

Any professional without a license to practice medicine who seeks a business relationship with a medical practice often encounters the CPM doctrine. This doctrine prohibits the practice of medicine by a corporation. Public policy considerations underlie the doctrine, including concerns that any degree of control of a medical professional by a party who is not licensed to practice leads to undesirable outcomes, such as:

  • The commercialization and devaluation of the licensed health professions;
  • Lack of confidence on the part of the public in the doctor-patient relationship and the licensed professional’s exercise of independent judgment;
  • Permission of unlicensed corporate entities to practice medicine without being subject to professional standards, including ethical standards, regulations, and their enforcement.

The main problem is that it would lead to treatment of patients that is presented as medical care but is, in fact, the sale of services motivated solely by the desire to profit and not to improve the health of the patient. The most common example would be unnecessary treatment. Unnecessary treatment occurs when a doctor prescribes a treatment or other service that a patient does not in fact need to improve their health or treat a medical condition. Rather, the doctor wants to provide the treatment or service in order to receive the fee for it.

What constitutes the corporate practice of medicine is not always obvious, however, and both non-licensed professionals and the licensed professionals may inadvertently violate this doctrine. A business lawyer can provide valuable guidance in this area.

It also pays to keep in mind that in some states the unauthorized practice of medicine is a crime. It may be a misdemeanor or a felony depending on the particular facts of a case. Further, the aiding or abetting of any person to engage in the unlawful practice of medicine may be a crime.

In Illinois, the practice of medicine without a license is subject to a civil penalty of up to $5,000.

In California, the crime of practicing medicine without a license can be charged as either a misdemeanor or a felony. Conviction of the crime charged as a felony carries a penalty of up to 3 years in jail.

In New York state, a person who practices medicine without a license can face fines of up to $10,000. In addition, the unlicensed practice of medicine in New York is a class E felony. A Class E felony in New York is punishable by a minimum of 1 year imprisonment and a maximum of 5 years.

If the person’s actions amount to fraudulent behavior, they can be considered as constituting criminal fraud, leading to more fines and possibly jail time. Of course, if a person engaged in the unlicensed practice of medicine were to injure a patient, the consequences would be more severe.

Why Is the Corporate Practice of Medicine Prohibited?

States prohibit the corporate practice of medicine based on the view that it is better for public health and safety if only doctors are licensed to practice medicine.

If corporations or other entities that are not licensed to practice medicine were allowed to engage in the practice, they would face a conflict of interest between the demands of the corporation and its profit motive and the best interests of the patient. The goal of the CPM ban is to separate medical from business decision-making.

Where Is the Corporate Practice of Medicine Prohibited?

The law in the various states continues to change, but the states that now prohibit the corporate practice of medicine include California, Colorado, Illinois, Iowa, New Jersey, New York, Ohio, and Texas.

In California, for example, the prohibition against the corporate practice of medicine sets strict rules regarding contractual arrangements between physicians and non-physicians. Non-physicians, corporations that are not medical professional corporations and limited liability companies are not allowed to contract to provide medical services. They also may not enter into contracts with physicians to have the physicians provide medical services, either as employees or as independent contractors.

Under California’s CPM laws, a non-physician cannot own a medical clinic or hire physicians. However, they can own a management entity and this entity can serve as an administrative or MSO for a clinic or medical practice. Medical practices are often organized as professional medical corporations in California.

The California Medical Association formed a committee to study the issues involved in the prohibition of the corporate practice of medicine and to develop a response to the existing business arrangements in the profession. The committee prepared a list of decisions which would affect, directly or indirectly, the practice of medicine and assigned authority to make the decisions to the appropriate entity.

The list indicated that either a professional medical corporation or MSO should have the authority to make decisions and the level of authority the professional medical corporation or MSO should have, i.e. whether its authority should be exclusive, advisory, shared or joint.

The decisions that a professional medical corporation or practicing physician should make exclusively are as follows:

  • Setting policies for medical practice;
  • Deciding which medical conditions can be referred to another specialist;
  • Deciding which diagnostic tests are appropriate for a particular medical condition;
  • Deciding what information should be noted in a particular patient’s medical records;
  • Deciding whether a particular patient visit requires a particular billing code;
  • Communicating purely clinical medical information to patients;
  • Determining whether an emergency medical condition exists.

In the view of the California Medical Association, the listed decisions are considered to be those that fall within the exclusive domain of the medical doctor and an MSO should not be involved in them. Of course, it is important to keep in mind that these are simply guidelines in the state of California, and should not be considered as exhaustive. Moreover, other states may have different guidelines or rules. The point is, however, that these kinds of decisions should be made by licensed medical professionals and not administrators or business managers.

While the states listed above prohibit the corporate practice of medicine, they have also enacted several exceptions to the ban. Depending on a state’s particular laws, institutions that may not be subject to the prohibition may include hospitals, clinics, universities, and professional corporations. In addition, in some states, doctors may be allowed to form professional corporations that are licensed to practice medicine, but only doctors control the corporation.

Do I Need an Attorney?

If you are a doctor searching for employment, or if you are considering incorporation of your practice, you should be informed about laws that regulate the corporate practice of medicine in your home state. An insurance lawyer with experience in the particular issues involved in a medical practice can advise you on how to structure your business in a way that is lawful and will not offend the CPM ban in your state, if your state has such a ban.