How Healthcare Ventures Can Craft a Corporate Practice of Medicine Legal Strategy


This is Michael H. Cohen, founding attorney and President of the Cohen Healthcare Law Group. Welcome to today’s Healthcare Legal Adventure.

Corporate Practice of Medicine Woes

Is the corporate practice of medicine a historical anachronism that’s going to be done away with over time or even in the very short term? So many healthcare ventures come up against this corporate practice of medicine issue and frankly they don’t know how to deal with it. Typically what happens is you have a business owner or the entrepreneur or the healthcare venture and the venture wants to let’s say launch a couple of clinics. These clinics tend to be highly specialized. They could be for example anti-aging clinics or clinics dealing with a new stem cell technique or some new technology, something really special that is going to be used and deployed against a variety of healthcare conditions.

And they want to launch these clinics all over so they come to us and they say “Hey, we’ve heard through the grapevine that corporate practice of medicine we know is a big issue in a state like California. It’s also big in Texas, Illinois, New York, and some other states. But in the states that aren’t big on corporate practice of medicine, can we own and operate these clinics? Can we hire a physician? Can we make this business model work? Because frankly, we’re not doctors and our investors are not medical doctors and are counting on us. And look if you follow the projections here we’re going to be making a million dollars our first year and then three x that the next year and then we’re going to jump to 10 million and pretty soon it’s going to be a $50 million company. We just have to get this one legal stumbling block we heard that you know something about corporate practice of medicine, fee splitting, and kickbacks. Can you help us out?” And that’s where the conversation begins.


The Corporate Practice of Medicine (CPM) doctrine continues to befuddle, beleaguer, and bewilder healthcare companies seeking to venture with physicians and non-physician entrepreneurs.

Strong v. weak corporate practice of medicine

One of the tricks about corporate practice of medicine is that it varies by state and in some states the corporate practice of medicine is a really big deal. It’s a really big prohibition. And in other states it’s not such a big deal. We call that the strong form of corporate practice of medicine prohibition and the weak form. And the weak form is you cannot control and direct the activities of a physician, a medical doctor in any sphere unless you’re another licensed medical doctor or physician. Or for example you’re a professional medical corporation like a medical group organized as a professional medical corporation. That’s the weak form and simply prohibits the worst kinds of violations.

The strong form is like the way that California interprets the corporate practice of medicine prohibition, which is to say there’s a whole bunch of things that people who are not doctors will do and we regard these “behaviors” and subtle controls as being examples of the corporate practice of medicine. And we’re here to enforce aggressively against those violations. So for example in California determining what kinds of diagnostic tests are appropriate for a particular condition, that’s a corporate practice of medicine violation. Now you might say to yourself look I’m a healthcare enterprise, I’m setting up a medical spa, I’m setting up a certain type of center. It’s going to branded with our name, maybe focuses on integrative medicine, maybe functional medicine, maybe anti-aging medicine, maybe some kind of new technology, maybe it focuses on men’s health or women’s health or some other aspect of health and wellness. And we’re not going to determine what kind of diagnostic tests are appropriate. That’s the doctor’s province. We’re not engaged in corporate practice of medicine. They can’t find a violation here.

But by the way when we ask about what this company is doing they want every patient to go through a particular program, a particular set of procedures, or if you come here you get this menu of services, if you go there we’re going to give you that menu. Now what’s really interesting is that everything that makes sense from a business level raises compliance flags on a legal level. And everything that makes sense and is airtight and nailed down from a compliance level, from a legal regulatory and liability perspective is in some sense going to be antithetical to making a profit, to the business level. So you don’t want a lawyer who’s just going to say no. Just say no is a terrific slogan if you’re Nike. Or just say no to fatigue if you want to run a four minute mile. Or a marathon or a triathlon or an iron man or an iron woman. But just saying no is not a good idea here.

So the thing is when you’re developing a program you’ve got kickback issues, you’ve got corporate practice of medicine issues whenever you bundle services and you have to be careful that the healthcare venture, the business side, the entrepreneur can’t be unduly seen by, let’s say the California Medical Board as predetermining what diagnostic tests are appropriate for the patient. So we have to be very strategic and that’s why we say in our tagline that we provide legal strategies and solutions to businesses that accelerate health and wellness because frankly without these legal strategies and solutions they’re flying blind and they’re just going to run smack into enforcement issues.

Healthcare entrepreneurs face corporate practice of medicine legal challenges

Let’s take a look at another one that’s on the list of the California Medical Board. And again, the goal of this podcast is not to be comprehensive and exhaustive. There’s only so much you can listen to hearing about the law. But we do want to give you some samples so you can understand just how you have to think strategically when these legal roadblocks hit. And even more so to anticipate them so you don’t fall into the next pothole. You don’t want that to happen. So here’s another one. Determining the need for referrals to or consultation with another physician specialist. Again, you might say hey, I’m the medical spa, I’m the brad owner of the management company for a string of medical clinics. I’m pioneering this particular brand of healthcare, particular brand of wellness, particular brand of medicine, and we’re going to license the heck out of it and showcase it and create a string of clinics. We’re not really determining who gets referred to whom for what medical condition. That’s medicine and I know the difference and I’m on the business side.


Corporate practice challenges medical management (MSO) organizations, especially in New York AG, as shown by recent enforcement action.

Well, but here it is, what does it mean to determine the need for referrals to or consultation with other physician specialists? Again, if you’ve created a program and you’ve decided that a customer, a client walks in the door and they need A followed by B followed by C, so everybody who comes in is going to get this customized program, by the way at a discount which will raise the fee splitting issues. Could that be seen as a corporate practice of medicine violation? And California Medical Board actually has three different buckets. So we’ve only talked about two out of four bullets on the first bucket, which is the examples of the types of behaviors and subtle controls that the corporate practice of medicine doctrine is intended to prevent. That’s one bucket.

Second bucket in the California Medical Board list of corporate practice of medicine violations are consists of the following “business” or “management” decisions and activities resulting in control over the physician’s practice of medicine. Those decisions should be made says the California Medical Board by a licensed California physician and not an unlicensed person or entity such as you the healthcare venturer. And they include things such as, just to give you one out of five bullets, ownership and control of the patient’s medical records. So who actually technically owns the medical records is going to be a big factor in whether there’s a corporate practice of medicine violation. Now ownership is a bit of a funny concept given that we can digitally make endless copies of a patient file, of course subject to HIPAA. But it’s not like the old days where everything was in a manila folder. The manila folder was kept in a creaky file cabinet and I remember going to the vet and seeing manila folders in these file cabinets and it’d be like a dog sitting on their little doggie bed and the nurse would have to gently move the pet so that she could get to these paper files.

So things are obviously digitized and what’s ownership if you can have copies? But still we have to specify in the proper legal document as to who owns the medical records and it has to be the physician. So that’s bucket number two. An example of how strictly California looks at corporate practice of medicine.

And last, the California Medical Board states that the following types of ownership and operating structures are prohibited. For example non-physicians, meaning you the healthcare entrepreneur if you’re the entrepreneur listening to this podcast, as opposed to you the physician who might be listening. But you might be involved in a healthcare venture as well wearing your non-medical hat. So here the California Medical Board says that the corporate practice of medicine prohibits non-physicians owning or operating a business that offers patient evaluation, diagnosis, care, or treatment. So there again we go to the clinic that offers package A and package B, is that clinic arguably, from the regulator’s perspective, operating as a business that offers patient evaluation.

Evaluation. You can’t even get around the word diagnosis because they’ve got evaluation, diagnosis. Watch out where lawyers give you a string of words separated by a comma, often there’s a catch all, there’s a kitchen sink, and it’s all included. The bottom line, corporate practice of medicine, says the California Medical Board, is intended to prevent unlicensed persons from interfering with or influencing the physician’s professional judgment. And they regard interfering as a very broad category and what it finds is that in all these examples above the California Medical Board would find a corporate practice of medicine violation and it would also say that the physician, what’s the risk to the physician? Well they could be aiding and abetting the unlicensed practice of medicine by the healthcare entrepreneur.

So this is very, very dangerous territory. I remember a long time ago I rented a car from Hertz. I’m not casting any aspersions on Hertz but I rented the car in New York City and it turned out there was a giant pothole literally as I was pulling into the driveway for Hertz. I was really mad about it. The tire blew. I had to pay for it. You would think that being a lawyer I would have this aggressive litigious personality and I would immediately file a complaint and Michael vs. Hertz rather than pay the $100. But anyway, no I didn’t decide to challenge the mighty corporation. I think I paid for the tire and it didn’t consume months of my life or years getting into a kerfuffle, or some kind of dispute with those people. But it was very bad that the pothole was inconveniently situated right in front of the rental place, which surely I was not the first person. But in the law we call that a trap for the unwary. So here you are outside the store ready to rent your dream vehicle or you’re ready to start your dream healthcare venture and then there’s this giant pothole here which you might or might not find out about.

I mean you can do a web search for corporate practice of medicine, you’ll find these big internet summaries. They supposedly tell you state by state. When you dig into them what you find is these rules are not in a statute often. So you can’t even look up the law. You can’t just look up the legislation that says if you do A, B, and C ding, boom, penalty, enforcement, physician discipline, criminal and civil violation often for the healthcare enterprise. Possibly even a felony, not just a misdemeanor. You can’t really look it up. You look at these summaries and it’ll say the court said in such and such a case, you read the case it’s back from 1930 or even 1980. Who cares? It’s all like the last century. So even then these are cases. They’re interpreting the law. The cases interpreting the law are law but they’re not often as clear and as much a primary authority as a statute which tells you the rule is.

And then you’ve got what the medical board says which is often different than or more aggressive than what the cases and statutes say. You have all these different sources of law and interpretation of law and dos and don’ts and maybes and if we have these factors then we can go after you but we’re not going to tell you for sure. This makes for a very nuanced discussion and particularly so where you want to brand not only intrastate but also interstate. And where you want to build what’s not a franchise but essentially looks and feels like a distributor network of healthcare centers across the country. And that’s where you need a lawyer who understands corporate practice of medicine and some research and some very nuanced discussion. Sometimes it can be done in a more thumbnail fashion but oftentimes it takes really reviewing the sources where you can find all these different rules and then piecing it together and then giving advice specific to the kind of healthcare venture operational model that you’re trying to flow.

Unlicensed practice of medicine cuts broadly

To give you the flavor of what some of the rules look like in different states, so for example, here are some sample statutes from Florida. So we start with the practice of medicine legal definition. The statutory definition of the practice of medicine is

the diagnosis, treatment, operation, or prescription for any human disease, pain, injury, deformity or other physical or mental condition.

That’s a pretty broad definition. The diagnosis, I mean anything that involves health where you say that there’s some problem and the cause of it is X, Y, Z, that’s a diagnosis. That’s a very broad word. Treatment, also very broad. It’s not just limited to you’re in the hospital and the doctor prescribes a drug. Prescription, does it include recommending supplements? I mean big legal challenges and legal boundary issues there.

And then look at the rest of the definition. For any human disease, okay well that’s for disease. Pain, what’s pain? Oy vey it’s a pain. Injury, pretty broad. Deformity, all right, that’s more specific. And then we have the kitchen sink, great legal catch all, or, the two most dangerous letters OR, also stands for operating room, or other, meaning everything else, physical or mental condition. So the practice of medicine is defined very broadly and there is actually a case from the Florida court of appeal which says that a physician can be employed by a corporation. So this sounds like weak prohibition against corporate practice of medicine in that employing the physician in itself would not necessarily be a corporate practice of medicine violation. However, one medical doctor asked the Florida Board of Medicine as to whether he or she could be employed by a general business corporation and here’s what the board said. Section 458.32711(A) of the Florida statutes provides that it is a felony of the third degree, that doesn’t sound very good, to practice medicine or attempt to practice medicine without an active license. It is the board’s interpretation, meaning that they will enforce based on this interpretation if they want to, that the foregoing section does not prohibit the practice of medicine by dually licensed medical doctors as employees of a Florida corporation or of a Florida partnership as described herein.

There’s no clear statutory prohibition in chapter 458 Florida statutes which prohibits medical doctors from engaging in the practice of medicine through a business entity as proposed herein. They can practice through that business entity and we’ve come across this kind of weak corporate practice of medicine statement in other states but there’s often a corollary which is that the non-physician employer, whether an individual or corporation, cannot in any way control the physician’s clinical practice, nor could they unduly intrude into clinical decision making.


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What does it mean to control? What does it mean to unduly intrude? Teenager has a door closed, mom comes in without knocking. Have they unduly intruded? That’s one of those descriptive adjectives that changes everything. So there is enforcement discretion here and you have to think about all the things that imply having control or unduly intruding on the clinical environment. And really that’s a factual inquiry. So we have to look at every single situation because supervision, direction, control, these can all bleed over into the clinical domain, pardon the metaphor. So we advise caution and we have to take a close look and we even look at for example what California has said, even though it’s a different state, to see whether some aggressive enforcement, prosecutorial authority in Florida might think along the strong corporate practice of medicine lines even though the board itself has articulated a weak corporate practice of medicine doctrine based on statutes.

Now again, we’re not trying to just say no and we’re not trying to be the most conservative lawyers in the book. At the same time we’re here to protect people and our job is to be optimists and enthusiastic about the healthcare venture and to think entrepreneurially and to think out of the box, and also to know what’s in the box so that we can also titrate that against what the conservative advice would be.

Now remember that whenever you think about corporate practice of medicine you are also thinking about kickbacks and fee splitting. That’s for another day, another podcast. But just remember that those are twin issues. They’re very connected and we have to think about those two together.

Craft your corporate practice of medicine legal and regulatory strategy

Another thing to remember is that enforcement authorities have many tools at their disposal. Many, many enforcement tools. Even the prohibition against the corporate practice of medicine is not as strong in a given state as it is in California, still there are many tools. So again, we have to look at the facts. And what we like to do with our clients is we like to have them give us a business plan but it isn’t pages and pages and pages and pages. And we’re not looking at the Excel spreadsheets that are expelling wave upon wave of projection about how they’re going to be the next big hit. We actually just want a one page summary of the operational flow.

We want to know who is doing what. What exactly are the services that the non-physician corporation or LLC is promoting, is performing? What are the marketing arrangements? What are the management arrangement? What are the administrative duties? What are their responsibilities? What are the services? Who’s branding the effort? Is it the healthcare venture, the entrepreneurial enterprise that’s branding the health and wellness clinic or is it the medical group? Is it the group of physicians? What’s the name on the face?

And we’re also looking at things like a fictitious name permit requirement, at least in California. Or similar requirements in other applicable states. We’re looking at HIPAA. We’re looking at liability and risk management issues. We’re looking at informed consent. We’re looking at whose name goes behind each of these legal documents. We’re looking at who it is that interfaces with regulators. We’re looking at the definition of the practice of medicine and who gets licensed and what it includes and what it excludes. We’re looking at how corporate practices of medicine doctrine is articulated, not only by statutes but also by courts and by agencies like the medical board. Typically our health and wellness clients are not only focused on medicine but they also quite often incorporate other professions, other modalities. We had an inquiry just today as to whether this particular branded practice is or is not within the scope of practice within the legal authority within the statutory definition of not medicine, but chiropractic.


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The theory of our client being that they would like to go ahead and have regulatory sanction in a good sense, in other words regulatory allowance, for creating this therapy, for licensing this therapy. Not talking about a state license, I’m talking about a licensing arrangement where they can get royalties for promoting their brand. Are there are many such movements. There are dance movements and yoga movements and a variety of healing therapies where the proponent has been very successful in creating again, almost a franchise model and they’ve worked successfully to steer around the prohibition against unlicensed practice of medicine or corporate practice of medicine.

So let me close on a strong note because if you’re able to listen to a lawyer for 20 minutes, even an optimistic lawyer, you’re able to withstand the dos and don’ts, the rules, the boundaries, the shapes, the interstices of law and tolerate a lot of ambiguity. And you find it intellectually interesting as well as critical, vital, crucial to the success of your healthcare enterprise. At the same time know that we are very strong in terms of promoting the dreams of our clients, articulating the business model in a way that puts them on a good footing, because nobody wants to be surprised. Nobody wants to be shut down. Nobody wants to be hit from the side like let’s say that the hit may not come from a regulator. They might leave you alone. But what about a disgruntled investor? Or a toxic employee who then fashions a lawsuit out of some argument that the regulatory compliance has not been up to snuff.

Or what if the company’s successful and its three to five years down the road and now you want to sell in the millions of dollars. But you haven’t lined your compliance ducks up in a row. So that’s what we do. We line up the ducks. We want them to align favorably. We want the Age of Aquarius to be there for all of our clients when the earth is aligned and when the moon and the stars are aligned. I’m not remembering the exact lyrics but that’s what we want. We want the big exit. We want it to be happy. We want it to be successful. And we want to keep people out of trouble. An ounce of prevention is worth a pound of cure. So when you look at corporate practice of medicine don’t think like Rocky and Bullwinkle, we’re doomed, we’re doomed, it’s tough out there. In the same point you don’t want to run roughshod all over these rules. You want to give them due respect and think strategically about the business model and as we work together sometimes there are slight adjustments that can be made. Pardon the pun to the chiropractors but chiropractors make adjustments so that nerve energy can flow freely throughout the body.

That’s actually a typical statutory definition of the practice of chiropractic. And that’s what we do. That’s what we do as lawyers. We make adjustments in the business model informed by legal advice so that the flow of the energy of the business can align correctly. We don’t want any legal or regulatory subluxations. We want the neck to fit nicely on the rest of the spine and we want it all aligned so that it looks good. So that it looks good when you start the enterprise so you get your funding so your investors are happy so your business is humming along. We want the legal regulatory and compliance aspects to be aligned during the venture as it grows so that there are no attacks, either frontal from the boards or other enforcement authorities or from the side from disgruntled shareholders, employees, competitors even. We’ve seen that as well. And we want the business to be sound on a sound legal footing so that it is poised for exit from the very beginning.

And last but not least, we want to titrate our legal compliance with you the business owner in mind because a lawyer who just says no is not the lawyer that you want. The lawyer who’s a yes man or a yes woman, we don’t want that either. You don’t want that either. You want someone who can titrate, who can be nuanced, who can think creatively with that spark of imagination, yet is also mindful of the risks, appropriately precautionary, not crazy in either direction, but getting it just right. Because that’s going to move you through in a way that’s strategic, that’s sensible, and that moves you forward.

Continuing your healthcare legal adventure

You’ve been listening to the Healthcare Legal Adventures podcast. This is Michael H. Cohen, President and founder of Cohen Healthcare Law Group. If you’d like to hear more episodes simply go to Go to the tab that says blog/podcast and you can download more episodes or visit our other website at where you’ll find online courses, DIY forms, and other resources to help you with your healthcare legal adventure. We look forward to seeing you on the next episode.

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