Corporate Practice of Medicine
What do radiologists need to understand about corporate entities and radiology?
The ACR Legal Office receives occasional inquiries regarding the corporate practice of medicine. Most often, the caller is looking for a way to block a corporate entity not owned by radiologists from practicing radiology using employed radiologists. They want to know if such arrangements are prohibited by law.
As an initial explanation, the corporate practice of medicine doctrine essentially bars corporations owned by non-professionals from practicing medicine or employing physicians to do so. A doctrine is a legal precedent set by a ruling that becomes applicable to cases with similar circumstances. The theory behind the doctrine is that control by non-physicians could lead to divided priorities among employed physicians trying to meet the medical needs of their patients while under pressure to meet the financial goals of the owners.
In essence, the public policy concern is that the employed physician might not be able to exercise independent medical judgment regarding patient diagnosis and treatment. While this may seem like a relatively simple concept, it is quite complicated, in part because each state has differing laws, regulations, administrative rulings, and court opinions addressing the subject. Over 30 states maintain varying restrictions on the corporate practice of medicine.1
For example, some states merely bar individuals who do not have a medical license from employing physicians or splitting fees with licensed physicians. Other states, including New York and California, have a general ban on the corporate practice of medicine but have exceptions for professional corporations that are physician owned, teaching hospitals, and HMOs.2 States such as Michigan and Texas authorize certain hospitals to employ physicians. However, Michigan only allows not-for-profit hospitals to employ physicians, prohibiting for-profit entities from doing so.3 Notably, Tennessee bans a hospital and its affiliates from employing radiologists, except at research hospitals.4 Further, some states permit hospitals to employ physicians for inpatient treatment, but not for outpatient treatment. States such as New York and California also regulate financial incentives for physician services through fee-splitting laws.5
Do corporate practice laws preserve independent medical decisions by radiologists and lead to better patient care? Or do they reflect outdated care-delivery ideas that prevent physicians from collaborating more effectively with health systems? There is no evidence to support either position convincingly. Regardless, ACR members should understand why these laws matter. Corporate practice statutes may affect whether and how radiologists position themselves in legal structures with other physicians and health systems.6 ACR members who evaluate and negotiate an alternative payment model such as an accountable care organization have to address corporate practice issues, among other state law matters.
Additionally, corporate practice laws can affect contracts between radiologists and third-party insurers. Some payers have tried to recoup payments made to physicians or refused to pay for medical care, contending that the contract is unenforceable because it violates a state’s corporate practice ban.7 Yet some courts have rejected that argument.
A Minnesota federal court ruled that State Farm could not avoid making further payments to a mobile MRI provider. The provider had contracted with radiologists who were employed by a reading service company to interpret MRI studies.8 State Farm argued that it should not have to pay the provider once it sent the studies to the radiologists because the provider violated Minnesota’s corporate practice law. However, the court ruled that the mobile MRI provider, a lay-operated entity, did not violate the state’s corporate practice law as it communicated directly with patients’ physicians by sending imaging studies and the reading company’s interpretations.
Finally, the emergence of medical management companies that sell services to physician practices has raised concerns that these companies are actually an end run around corporate practice bans. At the very least, management companies that offer services at below fair market value raise the possibility that such pricing would provide more income to the physicians and thus impair their professional judgment in medical decision-making. Recently, the AMA has addressed attempts by hospitals, medical management companies, and others to obtain legislation that would preempt state corporate practice laws. AMA policy effective since 1991 states, “The AMA vigorously opposes any effort to pass federal legislation preempting state laws prohibiting the corporate practice of medicine.”9
We have described in a prior column how the integration trend has influenced, voluntarily or not, many members and their groups.10 These groups may provide opportunities to practice more effective and efficient care. However, corporate practice laws mean that you must continue to exercise due diligence when considering various arrangements. Check applicable corporate practice laws, medical boards, and attorney general opinions in your state.
By Bill Shields, JD, LLM, CAE, and Tom Hoffman, JD, CAE