Managing Corporate Practice of Medicine Compliance for Healthcare Entities

The laws governing the corporate practice of medicine are designed to prevent non-physicians from controlling medical decisions or profiting from the provision of medical services. Ensuring compliance is vital for healthcare entities that wish to avoid attracting regulatory scrutiny. This guide identifies the key parts of the laws that a healthcare entity must adhere to in order to be CPOM-compliant. We cover topics like ownership structures, management services organizations, and what best practices look like in the real world.

Navigating CPOM Restrictions Across Different States

Corporate practice of medicine laws vary enormously from state to state, with some states enforcing strict prohibitions against non-physician ownership of medical practices. California, Texas, and New York have laws that are particularly unfriendly to the notion of corporate practice of medicine. In these states and others with similarly rigid laws, it is prohibited for a corporation to own a medical practice. However, these laws do not uniformly apply across the country. Some states have more lenient laws, with a handful allowing a corporation to own a medical practice under certain limited conditions.

Typically, only physicians can own a medical practice and call the shots in decisions related to patient care. For the most part, it is against the law for non-physicians to operate a majority-owned medical practice and to directly make profits in a way that would affect the calling of medicine. State laws requiring “physician-only” ownership exist to ensure that medical professionals make the critical decisions that affect patient health.

An example from the real world featured a healthcare entity that found itself in hot water because its corporate ownership structure raised too many questions about who was really making medical decisions. The company restructured and brought itself into alignment with the relevant state regulations—without, it appears, any imposition of penalties. If your organization is wrestling with similar CPOM compliance concerns, further information can be accessed at the above-linked site.

Leveraging MSOs to Ensure CPOM Compliance

Healthcare businesses can attract non-physician investors if they abide by CPOM laws. One way to do this is to have an MSO handle the business part of the operation—everything except patient care and the medical decisions that must be made for patients. In that way, CPOM is not violated, and non-physician investors can legally invest.

MSO agreements must be crafted with care, ensuring that all clinical decision-making remains where it belongs: in the hands of licensed medical professionals. A well-crafted MSO agreement should do three things: outline the services that are provided, make clear who is responsible for clinical decision-making, and ensure that clinical decision-making is not compromised by financial interests.

Also, the fee structures of MSOs must comply with CPOM laws. The fees should be based on fair market value — not service revenue or patient volume — to shoo away any concerns about sharing profits with physicians. A good example of this in action is a medical spa that uses an MSO to provide non-clinical services but ensures that any medical decisions stay under the control of a licensed physician.

Structuring Ownership and Investment While Staying Compliant

For CPOM compliance, healthcare entities must structure their ownership and investment models with care. In states where CPOM has its most stringent application, such as California and Texas, CPOM prohibits any non-physician from owning or controlling a medical practice.

Under specific conditions, some states allow non-physician ownership that’s limited. For example, healthcare professionals—who are licensed—can own part of a practice. That’s often the case when we’re talking about nurse practitioners. Complying with the various laws that apply to these ownership structures requires some serious management skill. That’s because the structures must comply with laws that govern both the corporation and the individuals within them.

An MSO arrangement offers non-physician investors a way to participate without running afoul of CPOM restrictions. Yet, despite that seeming opportunity, all clinical decision-making and ownership of the practice must remain solely with licensed physicians. A multispecialty clinic that successfully adhered to CPOM regulations limited ownership to physicians while using an MSO to manage the non-clinical side of the practice.

Maintaining Compliance Through Audits and Training

Preventing inadvertent CPOM violations involves two crucial components: regular audits and ongoing compliance training. These components reduce the chances of a significant error occurring that could put the organization at risk, and they aid in preserving the separation required by law between the business and clinical sides of the health system.

Training is required for employees in CPOM laws and the limitations of MSOs to prevent unintentional violations. The staff must understand that no one in a business capacity can in any way direct the medical judgment of a licensed healthcare professional.

Because laws and the regulatory framework around the CPOM keep changing, agreements and business structures must be kept current and up to date to reflect the recent changes. One healthcare group that I know of sidestepped a number of legal challenges by conducting audits that tipped them off to the need for some essential service contract revisions.

Understanding Legal Risks and Potential Penalties

Not complying with CPOM can lead to serious repercussions, such as large monetary penalties, being barred from practicing, and, importantly, damage to one’s reputation. Below are some frequent infractions and what they can lead to:

• Ownership or control by persons who are not physicians – This can result in fines, mandatory divestiture, and possible loss of license.
• Incorrect arrangements of MSO fees—May attract regulatory scrutiny and harm a healthcare entity’s reputation.
• Breach of contract – May result in lawsuits and monetary damages.
• Insufficient employee training concerning CPOM regulations – Elevates the danger of unintentional legal breaches.

Healthcare lawyers and judges do not agree on what is meant by the “corporate practice of medicine” (CPM). They do, however, seem to agree that CPM is a bad thing. When you see the phrase “bad thing,” you wonder if CPM is an illegal practice (which, of course, it is if it’s a bad thing) or just a practice that many people wish would go away.

The American Medical Association’s guide to management services organizations provides key information needed to understand the different aspects of MSOs.

Management services organizations provide functions that are essential to running a medical practice. Functions may include human resources, billing, or even making sure the practice is in compliance with state and federal laws.

MSOs can take some of the load off of practicing physicians. But, like any business entity, an MSO has to be looked at with a critical eye. After all, “What’s in it for them?” is always a good question to ask when dealing with an MSO. And what is an MSO anyway? Functions of MSOs may include:

• Business development
• Administrative support
• Financial management
• Human resources
• Information technology

It is essential for healthcare entities to comply with laws concerning the corporate practice of medicine if they’re to avoid regulatory risks and operate within the law. This means setting up your ownership structure correctly, using MSOs where they’re applicable, and making sure that you audit yourself and your operations regularly. If you need expert legal guidance, the healthcare and FDA lawyers at Cohen Healthcare Law Group are available to assist with CPOM compliance and structuring.