Legal risks arise in interdisciplinary MD-DC practice

When medical doctors collaborate with other licensed healthcare providers (such as chiropractors) in a multidisciplinary, clinical care or integrative medicine setting, legal risks can arise that require careful navigation.

Integrative medicine and multidisciplinary clinical care

When we create new models of healthcare, or models that cut across discipline, we’re blazing new territory not only clinically, but also legally.

The easiest path is to import the swathe of existing healthcare law into the complementary and alternative medicine, integrative care, or multidisciplinary clinical care setting.

I wrote a lot about integrative medicine legal challenges in a book with co-authors some years back, The Practice of Integrative Medicine: A Legal and Operational Guide. Since then, integrative healthcare has become more mainstream; however, our law firm has seen enforcement action on the rise with respect to corporate practice of medicine issues.

It’s not easy to find actual cases, since enforcement actions often begin with an investigation and end up either being resolved, or in penalties being imposed. This is all on the government side, and it’s rare to see a court case and judicial opinion. So it was interesting to come across All State Insurance v. Northfield Medical, Superior Court of New Jersey.

Let’s dive in.

Too much control by the chiropractor

The plaintiffs in this case alleged that the defendants “promoted a concept of inter-disciplinary medical practice, medical doctors and chiropractors, which resulted in a chiropractor controlling the practice even though the practice employed medical doctors.”

Grafted onto this was a claim for insurance fraud, based on claims submissions to insurance by the multidisciplinary practice.

Plaintiffs sued the chiropractor, and his attorney.

In a nutshell:

The chiropractor owned 49% of a medical center while the MD owned 51%
The chiropractor promoted the practice through educational seminars (at which the attorney spoke)
The plaintiff was “impressed with the practice model” presented at the seminars and purchased defendants’ services to set up his own multi-disciplinary practice
The business model involved a management services organization (MSO) which leased space and equipment to the medical corporation

What the court objected to in the multidisciplinary MD-DC arrangement

The court, in summarizing the facts, stated that:

In the seminar, the chiropractor taught that chiropractors could actually be in control of the business rather than medical doctors.
The chiropractor believed “that his chiropractor clients needed protection from ruthless medical doctors” who would otherwise “walk away with the business”.
To keep the chiropractor in control, the MD would execute a blank resignation and assignment of stock so that the chiropractor could, at any time, swap in a new MD.
The DC and MD also executed contracts requiring substantial payments from the professional medical corporation to the MSO, and substantial payments in the event of termination.

According to the court:

The purpose of these documents was to leave the medical corporation dry and, in effect, to permit the business corporation to control the medical corporation by creating significant financial obligations.

In addition, the sublease agreement provided for automatic renewal unless terminated by the MSO, and did not allow the medical corporation to terminate without the MSO’s consent.

In these ways, the management services agreement “was designed and intended to render” the medical corporation “profitless, and to keep it indebted at all times to the management company, thereby making” the medical corporation “valueless” to the physicians.

Also:

The management company’s compensation was calculated entirely by the MSO.
The medical corporation could not terminate without six months prior notification to the MSO, and could not terminate the management agreement for any reason (if it did, it would have to pay liquidated damages of $100,000).
The MD could not take control of the medical facility.

Thus there was no “bona fide ownership interest” of the medical corporation by the physicians.

And, it turned out that neither physician ever met the chiropractor in person, nor visited any office of the medical corporation or treat a patient there.

We’ve previously reviewed legal risks arise in interdisciplinary MD-DC practice

We’ve previously reviewed some of the legal risks arise in interdisciplinary MD-DC practice, in these blog posts:

Although these legal risks arise, they can be managed.

It’s important, though, to ensure that the medical portion of the arrangement is respected, and that there is no undue intrusion by the MSO — or in this case, by the nonphysician chiropractor — into the practice of medicine.

The case, while it arose in New Jersey, serves as a lesson in other states, whenever a nonphysician corporation or clinician intrudes too much into the practice of medicine, by exercising excessive control over the physicians’ business fates.

How the court wrapped this up

Essentially the court saw this as an unfair arrangement in which the chiropractor retained all the control and profit, and denuded the medical doctor of the same:

[The chiropractor] urged the creation of a corporate model that appeared to comply with appropriate state regulations as to ownership and control, but due to various devices, undated documents, penalty clauses and one-sided agreements created in actuality a business entity which was not owned as it appeared by a medical doctor, but actually by a chiropractor. His knowledge of this manipulation is clearly established through trial. He consistently testified that his goal was to help his client, the chiropractor, so as to prevent control by the medical doctor.

His documents created a subterfuge that was clearly misleading. His advice at seminars also included clearly erroneous advice. Don’t bother with malpractice insurance he advised. If the medical corporation is sued, simply start another so that when trial comes, the first corporation will have no assets and judgments would be meaningless. Don’t file Medicare or Medicaid claims with this practice model he urged. The Federal government is more diligent than the States in enforcing the regulations prohibiting a chiropractor to control a medical doctor. In essence, he taught how to break the law without being caught.

Some lessons for MSOs, multidisciplinary practices, and integrative medicine models, going forward

There’s a saying that “hard cases make bad law.”

We’re not saying that this is a hard case or bad law — simply that when the court says something like that final sentence, it’s clear that the facts made a very strong impression on the judge of an attempt to evade legal rules.

That means that on the flip side, it’s hard to pick apart the facts and calculate with mathematical precision exactly which control lever tipped the scales against this arrangement.

The Court’s real beef is with the use of “subterfuge in developing medical practices.” The Court also notes: “when something is to good to be true, it usually isn’t true.”

MSOs cannot practice medicine, plain and simple – and whatever levers of control they might exert, there are legal limits.

Sometimes MSOs want to include fewer or greater (or different) levers of control in the management agreement. When giving counsel on the MSO side, it takes a great deal of judgment and savvy to find the right mix to give the MSO value, without being so aggressive as to trigger enforcement action or liability. Contact us if you’d like guidance, from either the MSO or physician side.