In today’s video, we discuss the “friendly PC” model and how PCs and PLLCs, or Professional Corporations and Professional Limited Liability Companies, can work with MSOs without getting shredded by regulators.

I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group. We help healthcare industry clients navigate healthcare and FDA legal issues and launch, or continue to scale, their health and wellness product success.

Dr. George called our law firm yesterday about a “friendly PC” model he was offered by a new telehealth startup.  The telehealth startup had strung Dr. George along for some months with an independent contractor, consulting agreement; they promised him equity; right now they were pressuring him to sign a series of documents, formalizing their relationship more broadly.

Dr. George wisely wanted a legal review.

Along the way, Dr. George had raised concerns about corporate practice of medicine and other issues; but the law firm representing the telehealth company tried to reassure Dr. George: after all, this was a “friendly PC” transaction, and therefore posed no legal trouble.

Friendly, our legal team told Dr. George, perhaps too friendly.  The healthcare startup’s lawyers were using what I called the classic Jedi Mind trick.  You simply look the regulators in the eye, and say, as Obi-Wan did in Star Wars: these droids are not the one you’re looking for.  And of course the regulators just nod and they go… “these doctors are not the one we’re looking for”.

The corporate practice of medicine rule says that healthcare startups can’t practice medicine. Among other things, in a state with a strong corporate of medicine rule, the healthcare startup can’t hire and fire medical doctors, can’t refer to those doctors as part of their “medical team,” raise risk when they call the doctor a “medical director,” (we’ve addressed this on our blog) and appear to the regulators to intrude in lots of small ways into medical decision-making.

Jedi mind tricks are not a defense.  Reassuring emails are not a defense.  Even contractual provisions, promising to indemnify against liability for medical decisions, are not a defense against regulatory peril.

One of the business principles I often refer to is the three-strikes rule.  Here, there was the pressure to sign right away—strike one. The false reassurances: strike two.  Lulling the MD into a false sense of security with promises of indemnification that would only go partway toward relieving the exposure—strike three.  And then, of course, the coziness between the MSO and the professional corporation the MD was supposed to form—strike four.

And there were many more.  I’m not going to get deep into the weeds here, nor reveal anything more specific about this proposed arrangement.  Let’s just say we’ve seen a lot of variations and my spidey-sense is tingling.

We’ve seen lots of MSO arrangements, and they’re all different, and while they all have certain things in common, the specific details as I’ve just said can vary, as can the extent to which the arrangement is more or less compliant, more or less aggressive from a corporate practice of medicine and anti-kickback and fee-splitting or other regulatory perspective.

If you’re interested in an early read like we gave the client we spoke about in confidential broad terms, you would probably benefit from having a Legal Strategy Session with a member of our Legal Team.

Thanks for watching. If you still have questions, click on the link below, cohenhealthcarelaw.com/contact, to send us a message or book an appointment. Here’s to the success of your healthcare venture, we look forward to speaking with you soon.