Lawyer for Physicians, Medical
Corporations and Group Medical Practices
How a non-licensed person can work with a medical practice,
including the use of an administrative / management services
company.
In this suite of articles, I explain the basic
corporate, business and contract law issues for medical
corporations and group medical practices in California.
I explain things from both sides, that is, the perspectives
of both the individual physician and the group practice.
The articles in this suite are:
In this article I discuss how a
non-licensed person can work with a medical practice,
including the use of an administrative / management service
company. Here is my conclusion up-front: A non-licensed
person can work with a medical practice so long as there is
NO ownership in the practice, where ownership includes not
only stock in a medical corporation but also a share in
revenues.
Scenario
Over the years I’ve received more than a
few phone calls from non-physicians who want to financially
participate in a medical practice, whether by investment or
the sharing of profits. Usually these people are related to
the physicians or work closely with them. Sometimes they
are the accountants for the medical practice. The fit seems
natural and beneficial for all concerned because the
physicians only want to focus on patient care (not admin or
marketing) while the non-physicians only want to work on the
business side of the practice.
The Law
Only physicians who are licensed in
California may own shares in a medical corporation or be a
partner in a medical practice (with certain minor
exceptions).
The policy behind the law is to prevent
unlicensed persons from interfering with the physician’s
professional judgment. The physician must have sole control
over all health care decisions. This includes obvious
decisions such as the need for referrals outside the
practice, and it also includes less obvious decisions such
as: (1) how many patients the physician must see in an hour;
(2) how many hours a day the physician must work; (3) hiring
and firing of physician associates, technicians and
assistants (at least as concerns their clinical competency);
(4) setting the parameters for insurance contracts; (5)
coding and billing procedures for patients; (6) selecting
medical equipment and supplies; (7) content of advertising
for the practice.
The physician may not delegate any of
these decisions to an unlicensed person, including to a
management service company. The physician may consult with
unlicensed persons in making these business decisions, but
the physician must have ultimate responsibility for the
decisions.
Many people question whether this law
still makes sense in today’s world, but irrespective of all
that, it’s the law and you must comply. If you violate the
law, you put your license at risk.
Working with the
Medical Practice without Breaking the Law
With these concepts in mind, let’s turn to
how a non-licensed person (usually an administrative /
management service company) can participate in a medical
practice. The key is to provide goods and services to the
medical practice without tripping any of the prohibitions
above. For example, the non-licensed person can lease
office space and certain equipment to the medical practice,
or provide back-office administrative services including
accounts payable and billing services, or help with
traditional marketing, or provide staffing of non-licensed
personnel. None of these functions, in themselves, involve
ownership or profit-sharing in the medical practice.
No Profit-Shares
It is extremely important that the
non-licensed person (and the administrative / management
service company) receive compensation that is directly
related to the goods and services provided, for example,
flat lease rentals or hourly billing amounts. The medical
practice may not pay any percentage or portion of its gross
or net profits to a non-licensed person, as this would
constitute a form of ownership in the medical practice. A
share in revenues constitutes a partnership share, and
that’s ownership.
NOTE: Have an attorney run all forms
of compensation through a CA and federal Stark and Kickback
analysis. It is very easy to violate these laws when
paying outsiders for services related to the practice.
Corporate Structures
The management service company is a common
structure that non-licensed persons use to participate in a
medical practice. Here non-licensed persons perform the
administrative and back-office functions permitted by law
(see above), thereby freeing the physicians to spend more
time on patient care. Usually the physicians provide
patient care through a professional medical corporation that
they wholly own, while the non-licensed persons provide
their services through an ordinary corporation or an LLC
that anyone can own. The two sides use contracts to link
the management service company with the medical corporation
and to provide the terms of service and compensation.
I hope this article has been useful to
you.
Call me to schedule a
legal consultation: 510-796-9144
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