In today’s video, we discuss healthcare legal compliance challenges that an online health and wellness company might face.

I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group. We’ve advised over a thousand healthcare industry clients on healthcare and FDA legal issues.  These clients included healthcare startups that do integrative medicine, functional medicine, or telemedicine, and/or have a management services organization or MSO service as the management and marketing arm, whether in a brick-and-mortar setting or via digital or mobile health.

Today, I’m going to explain some of the legal challenges when that business arm has too much control over what happens with the patient or customer of the whole health and wellness enterprise.  I’ll also talk about some of the risk management tools we use in actual law firm practice.

Recently, we advised a multidisciplinary healthcare clinic that wanted to pioneer a new kind of mental healthcare.  The clinical team would include psychiatrists, psychologists, a psychiatric nurse, a chiropractor and non-licensed practitioners of various sorts, such as, a health coach, a yoga instructor, and people teaching mindfulness and meditation.

The clinic would be run by an MSO and the MSO would be co-owned by two psychiatrists and a psychologist, who also co-owned the professional medical corporation.

Immediately we have a couple of legal complexities to flag.

First, who can own the professional corporation?  Can the psychiatrists and psychologists all be shareholders in the same professional corporation?

Second, who is going to be in charge, and related to that, what kind of PC, or professional corporation, will this be—will it be a professional medical corporation, or a professional psychology corporation?

We’ve helped clients set up both.  In part, it’s going to depend on who it is that’s driving the clinical model.

One thing to note is that in states like California, there is a strong prohibition against the corporate practice of medicine.  So, even if the state does not allow the psychologists, or even a chiropractor, to have their own professional corporation (or it does allow them), and give the MD or DO shares in that chiropractic corporation, this suggests that the chiropractor, the non-MD or non-DO has control.  And that could raise a corporate practice of medicine violation.

And, in California, if this is going to be a professional medical corporation, then the physicians (or psychiatrists) altogether have to own 51% or more of the shares of that corporation.  That rule is laid out by the Moscone-Knox Professional Corporations Act.

Now, the Moscone-Knox Professional Corporations Act doesn’t mention the corporate practice of medicine doctrine, and it does allows things that the corporate practice of medicine doctrine might prohibit.  But you need to know that the corporate practice of medicine is always there, lurking in the shadows.

Yes, kind of like a vampire.

Anyway, you can see that pretty quickly, we get deep into the weeds of legal strategy and structure.  There just isn’t a yes/no, one-size-fits-all answer.  Rather, we need to know who is driving the business model, what the law allows or prohibits, and what the regulatory risks are as well as what other options might be available to accomplish the founders’ goals.

Let’s assume we have come up with a structure that satisfies both the Moscone-Knox Professional Corporations Act, and, the corporate practice of medicine doctrine.  Well this would be a good time for a hallelujah or kumbayah.  But wait, as they say in binge-worthy shows, there’s still more!

Some of these clinical professionals apparently want to have shares in the MSO also.

There are a couple of issues here.  First, whenever you have shareholders, you have fiduciary duties to those shareholders.  Which means you can be sued for breach of those duties if you get into a big, nasty dispute with them.  We call that a “business divorce.”  

Second, you can’t get rid of shareholders all that easily.  It’s not like firing an employee.  Typically, you have to buy them out.

If you’re smart, you’ll have what’s called, a “buy/sell agreement” ahead of time, specifying exactly what happens in case of a dispute and how one side can buy out the other.  This includes specifying how to value the shares at the time of the proposed separation.

All this has to be planned, thought through, and preferably negotiated at the outset of the venture.

Working down the line, we run into other legal and regulatory issues, such as: Can the business arm, the MSO, offer and advertise discount packages that combine clinical services?  That presupposes that the customer or patient will first see this clinician and then go down that clinical path?

Does that constitute too much interference by the MSO into the practice of medicine, and thus potentially run afoul of the corporate practice of medicine.  How deep are the risks?

How will the clinic, and the MSO, and all their subcontractors, handle HIPAA, and maintain the privacy and security of the customers’ healthcare information. Is it PHI? Is it protected healthcare information?

What are the lurking kickback and fee-splitting issues?

Is it a problem that the psychiatrist gets paid, in essence, by the MSO, when the psychiatrist sends the patient across the hall to the psychologist, who then uses the MSO for billing services, and also happens to profit from those same services?

These are all serious issues worthy of being addressed, at first blush in a Legal Strategy Session and then more deeply as we move into the retainer phase.  If you have questions about our Legal Strategy Session, please go to our website and click on the Legal Strategy link.

Before taking on a client, even for a Legal Strategy Session, we always send an intake form, which asks the client: “what will it cost you in terms of time, money, or reputation if you don’t solve this puzzle?”

We get a lot of interesting answers. Clients often respond by talking about how much opportunity they will lose if they don’t solve the puzzle right away.

We bless the success of your healthcare venture, we look forward to speaking with you soon.