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RELATED STORY | IRS.gov | Guidelines for analyzing professional service corporation cases involving the Corporate Practice of Medicine (CPOM).
IRS.GOV | Entities Engaged in the Corporate Practice of Medicine
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AMA | 2018 State Legislative and Regulatory Prospectus – Click Here …
RELATED EDUCATION | CORPORATE PRACTICE OF MEDICINE
by Charles F. Kaiser III and Marvin Friedlander
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Will Corporate Practice of Medicine Kill Your Healthcare Venture?
Many lawyers say that corporate practice of medicine is dead – that this is a new age of healthcare and we no longer need to worry about these old 20th century, or maybe 19th century healthcare rules.
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And the prohibition against corporate practice often isn’t written into statutes; the statutes prohibit unlicensed practice of medicine—referencing to individuals. Then there is often a second set of statutes that talk about the fact that corporations cannot engage in professional practices. Then usually a third set of statutes that deal with who can organize and own a professional corporation.
The Corporate Practice of Medicine Doctrine (CPOM) refers to the public policy limiting the practice of medicine to licensed physicians by specifically prohibiting businesses or corporations from practicing medicine or employing physicians to practice medicine.
Structuring Clinical Practices to Prevent Pitfalls – Deeply Rooted Corporate Practice Doctrine Remains Strong
With growing patient demands, advanced technology and payer restraints, healthcare providers are increasingly exploring management agreements with experienced companies to handle the daily operations of their clinical practice. However, healthcare professionals need to be aware of the potential pitfalls in doing so, especially given the deeply rooted corporate practice of medicine doctrine in many states, which provides that practitioners, not corporations, should retain control of the business decisions that affect the practice of medicine. (READ FULL ARTICLE …)
Many states prohibit what is commonly referred to as “corporate practice of medicine” (“CPOM”). In general, CPOM prohibitions don’t allow business corporations to practice medicine or employ physicians to provide professional medical services. That being said, there are exceptions that depend on the state with many legal “workarounds” having been developed. Typically, CPOM laws allow hospitals to employ physicians since their specific purpose is to treat patients and provide healthcare services through some form of professional corporation or entity – so long as each shareholder is a licensed physician. The breakdown by state below is the simplest way of gaining a general sense of these laws. These laws have been summarized below from the Corporate Practice of Medicine Doctrine 50 State Survey Summary, written by Mary H. Michal, Meg S.L. Pekarske, and Matthew K. McManus. (Source:Eric J. Yetter on Aug 25, 2017 3:10:35 PM) 
3 Steps to Navigate Through the Corporate Practice of Medicine
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By Health Law Resources
Many states prohibit what is commonly known as the “corporate practice of medicine” (CPM). The CPM doctrine generally prohibits a business corporation from practicing medicine or employing a physician to provide professional medical services. Some states, including New York, New Jersey, Colorado, and Illinois, have carved out certain corporate employers as exceptions to the CPM prohibition, such as hospitals, health maintenance organizations, and of course, professional corporations.
The CPM prohibition manifests itself in a variety of state laws, regulations, and court opinions addressing ownership or control of healthcare providers by individuals or corporations that cannot directly provide healthcare services. Some states merely prohibit the practice of medicine without a license or the sharing of fees between licensed and unlicensed individuals, while other states flatly prohibit the ownership of medical practices or employment of professionals by nonprofessionals.
The rationale behind the CPM is rooted largely in considerations of public policy. Corporate employment of a licensed professional has been prohibited on the grounds that such a relationship “tends to the commercialization and debasement of those professions” (Barton v. Codington Country, 2 N.W. 2d 337, 343 (S.D. 1942)); undermines the physician-patient relationship and the physician’s exercise of independent medical judgment in the sole interest of the patient (See Garcia v. Texas State Bd. of Med. Exam’rs, 348 F. Supp. 435, 437 (W.D. Tex. 1974) and causes the general intrusion into the practice of medicine by corporate entities that are not licensed and therefore not subject to the same professional standards or regulatory control as licensed entities. See, e.g., State v. Boren, 219 P.2d 566, 568-69 (Wash. 1950); Funk Jewelry Co. v. State ex rel. La Prade, 50 P.2d 945, 945-47 (Ariz. 1935).
Nevertheless, even in the most restrictive of CPM states, there are a number of exceptions to the rule. For example, in New York, where the CPM doctrine is of long standing, a medical school may hire physicians and treat patients as part of its mission to promote medical science and instruction. Albany Med. Coll. v. McShane, 104 A.D.2d 119 (N.Y. App. Div. 1984); aff’d 489 N.E.2d 1278 (N.Y. 1985). School health programs constitute another exception to the CPM bar. N.Y. Educ. Law §§ 901 et seq. In addition, physicians may practice medicine through partnerships, professional corporations, professional service limited liability companies and registered limited liability partnerships comprised exclusively of physicians and certain other licensed professionals, and share fees and profits among themselves. N.Y. Educ. Law § 6531.
This “exception,” however, which exists in all CPM states, actually functions as more of a complement to, rather than a departure from the CPM doctrine, because it also is concerned with (and therefore prohibits) lay ownership of healthcare entities. Finally, hospitals (and other licensed medical facilities) in New York may employ physicians to render medical services to the hospital’s patients without violating the CPM prohibition. People v. John H. Woodbury Dermatological Instit., 192 N.Y. 454 (N.Y. 1908).
While it may seem like common sense for hospitals to be able to employ physicians (and many CPM states have in fact carved out such an exception (See, e.g., Berlin v. Sarah Bush Lincoln Health Ctr., 688 N.E.2d 106, 114 (Ill. 1997) (finding that a “duly-licensed hospital possesses legislative authority to practice medicine by means of its staff of licensed physicians and is excepted from the operation of the corporate practice of medicine doctrine”); St. Francis Reg’l Med. Ctr. v. Weiss, 869 P.2d 606, 618 (Kan. 1994) (holding that physicians may be employed by hospitals because such employment does not violate the public health, safety or welfare); MI Op. Att’y Gen. No. 6770 (Sept. 17, 1993) (stating that nonprofit corporations, including hospitals, may employ physicians to provide medical services)), a few states, such as California, Iowa, and Texas, have declined to create such an exception. (Among these states there also are exceptions: Iowa hospitals may employ pathologists and radiologists, and Texas public hospitals and California teaching hospitals may employ physicians).
Excerpt from Nili Yolin, The Corporate Practice of Medicine Prohibition and the Hospital-Captive PC Relationship—Can They Coexist? (American Health Lawyers Association Business Law and Governance Practice Group Executive Summary Sept. 2010).
SOURCE: https://www.healthlawyers.org/hlresources/Health%20Law%20Wiki/Corporate%20Practice%20of%20Medicine.aspx or https://www.healthlawyers.org/SearchCenter/Pages/results.aspx?k=corporate%20practice%20of%20medicine
What is the Corporate Practice of Medicine Prohibition?
Many states in the U.S. have some type of law prohibiting the “corporate practice of medicine,” which may bar corporations, entities, and non-licensed individuals from practicing medicine, or from employing physicians to provide professional medical services.The CPOM prohibition is rooted in public policy, and aimed at protecting everyday citizens from any control corporations may have in influencing medical decisions about their health care. Governments want to preserve the foundational bedrock of trust and ethics between patients and physicians, which is why many states have taken legislative steps to ensure a physician’s medical judgment is not clouded or inhibited by a non-licensed entity or individual.
Additional Cited Sources
- The Corporate Practice of Medicine Doctrine EMRA; http://www.emra.org/books/advocacy-handbook/chapter-18-corporate-practice/