Can Non-Licensed Individuals Own a Medical Practice?
Can Non-Licensed Individuals Own a Medical Practice?
In 1947 Oregon Supreme Court Justice Arthur D. Hay wrote in an opinion that, “if the competent practitioners were not clearly distinguished, the mass of the public would fall into the hands of quacks and charlatans when their most fundamental needs were at stake.” The case before Justice Hay was State ex rel. Sisemore v. Standard Optical Co. where the court ruled that a corporation whose owners were not licensed optometrists could not operate an optometry practice through employing licensed optometrists as employees. Today this concept is referred to as the Corporate Practice of Medicine or “CPOM”.
The CPOM doctrine, simply stated, prohibits corporations from practicing medicine or employing physicians to provide professional medical services.[1] The doctrine is applied in a majority of states, however, 19 states have no CPOM restrictions.
The public policy purposes behind the CPOM will likely be obvious and familiar to the readers of the Scribe. Simply put, a corporation’s obligations to its shareholders may not always align with a physician’s obligation to patients. The Oregon Supreme Court noted the various professional boards in the state serve, “to promote the health, safety, and welfare of the people of the state.” For physicians, the Oregon Medical Board is the agency responsible for protecting the public, however, it can only discipline licensed individuals. Therefore, if the Court in Sisemore were to allow corporations, quacks, or charlatans to practice medicine then they would be undermining the relationship between physician and patient because they could not discipline the corporation without a license.
Today, in Oregon, the ruling in Sisemore is still good law but the parameters of the CPOM are not crystal clear. In 1995, the Oregon Court of Appeals interpreted the Sisemore holding narrowly and determined it does not preclude a licensed entity from owning any ownership in a medical practice and opened the door for minority ownership by unlicensed persons. Moreover, some specific guidance was provided by the legislature specifically for professional corporations. The statute requires such entities to have a majority of shareholders and directors be licensed physicians and requires all officers except the secretary and treasurer to be licensed. See ORS 58.375.
Work-arounds to the CPOM do exist but not without significant risk.[2] The “friendly PC” Management Service Organization (“MSO”) model is designed to allow corporate ownership and control of the business and administrative side while the actual medical practice is maintained by licensed physicians or a medical director. These structures are complex and you should consult with an attorney to discuss the precise structure and risks.
However, it is important to be wary of the “too good to be true” medical director role. Although a position that pays well and only requires you to come in once a month may sound nice, the medical director is the person the OMB will be talking to if a complaint is received. In my conversations with Warren Foote, the senior assistant attorney general to the Oregon Medical Board, I have learned that the Board will view a medical director of a clinic as the “captain of the ship”. Complaints do appear before the OMB on CPOM issues, sometimes following an FDA audit or a patient complaint. If you take on a medical director role you should know that the buck stops with you.
The medical practitioner would be wise to tread carefully around this important doctrine. The consequences for violating CPOM can be severe and include: licensure revocation, civil liability for non-physician business partners, voiding of an underling business arrangement for illegality, and insurers seeking to recoup reimbursement payments due to illegality. After all, the consequences need to be severe to keep out the quacks and the charlatans.
Finally, several Attorney General opinions are relevant and have provided great insight into the issue. Engrav Law Office has compiled and extensively studied these opinions. The opinions provide windows into the nuanced area of the CPOM and should be considered before a determination is made. The AG opinions discuss physical therapy practices, chiropractic practices, dental offices and more.
* The CPOM is a complicated legal doctrine. The above is not legal advice and you should consult with an attorney before making any determinations for you or your practice.
[1] Hospitals are exempt. See 37 OP Atty Gen 963 (1975).
[2] See Op. Or. Att’y. Gen. No. 5689 (1984).
