In today’s video, we return to the Corporate Practice of Medicine prohibition and talk about whether CPM concerns ever really go away.

Hi everyone, I’m Michael H. Cohen, founding attorney of Cohen Healthcare Law Group. We help healthcare industry clients just like you, navigate healthcare and FDA legal issues so you can grow, launch, scale your healthcare business.

On our healthcare and FDA law blog, we’ve talked extensively about Corporate Practice of Medicine and how the MSO model helps healthcare ventures navigate the twin concerns of CPM and anti-kickback law.  Simply put, the MSO, the management and marketing company takes fair market value from the practice or clinicians under its branding umbrella in exchange for its services.

Some States, like California, New York and Texas, have very strict prohibitions against Corporate Practice of Medicine and some are looser.  What more is there to see?  What more is there to say? Everyone would like to see the strict form of CPM go away, some healthcare companies pretend it doesn’t exist, everyone knows it’s there and wants to comply without paying a heavy cost of compliance.

What we normally do with our clients is deploy a model that will work in the strictest States, yet, not crush the business with red tape and regulation.  The MSO model can work to give healthcare venture profits without making it too dependent on the physicians and clinical care providers.

For today, let’s focus on how quirky States can be in their enforcement of the CPM prohibition.  Let’s take this unusual judicial opinion for example.  The Court examines a profit-sharing arrangement – yeah, there’s always profit sharing, but they call it a profit sharing arrangement between an MSO and a professional corporation and the court finds that the MSO has violated the Corporate Practice of Medicine.  What happened here?

The Court first goes through State law and finds that the State’s “common law generally prohibits the corporate practice of medical professions.” But “professional corporations composed entirely of professionals may be organized for the purpose of rendering professional services…. Only licensed persons may own shares in a professional corporation.”

So far, nothing new here. The prohibition applies whether we’re talking about medicine, psychology, optometry, dentistry, or another healthcare profession.  Next the Court goes through and analyzes the business arrangement: so, here’s the formula: patient revenues less MSO expenses. Not that uncommon. But the Court finds that this was a “partnership,” because, the Court said, the MSO had the right to “control” the practice and engage in “joint … business decisions.”

Okay, like what? Well, the MSO controlled the bank accounts, the practice’s finances, payroll, bookkeeping, insurance. Okay, not that big of a deal. Hiring and firing clinicians, not good. That’s a black mark, the other ones are most likely administrative and management task that should have been unobjectionable.  But, one thing is that the MSO also restricted the ability of the main provider to practice outside for two years after the termination of the MSO agreement. The noncompete arrangement demonstrates that (the MSO) wanted to protect its economic interest in the joint enterprise and prevent competition from eating into its profits.

Moral of the story: the MSO model has eroded a lot of the old, strict rules about Corporate Practice of Medicine.  It’s a pretty good model, but MSOs can go too far—as in this case, with the noncompete—and when they do, Courts can find a CPM violation.

In general, navigating between the letter of the law, how its gets interpreted and how it gets enforced, and what industry actually does to remain competitive—this requires legal strategy.  Don’t be impressed by a starched white collar, a stiff gray suit, a firm handshake, a mahogany-tabled, glass-enclosed conference room, don’t be seduced by promises of freebies either.  You need a lawyer that can do high-powered dose of strategic thinking to help you navigate.

Thanks for watching. Please contact us with your questions, as always. We have helped so many healthcare industry clients just like you titrate between law and compliance and what they actually want to do. And we’d love to work with you on your journey to success!