How an unlicensed person can work with a medical practice, including the use of an administrative / management services company
By Matt Dickstein
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In this article I discuss how an unlicensed person can work with a medical practice, including the use of an administrative / management service company. Here is my conclusion up-front: An unlicensed 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.
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.
Only physicians who are licensed in California may own shares in a medical corporation or be a partner in a medical practice (with exceptions for certain other licensed health-care professionals).
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 an unlicensed 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 unlicensed 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 provide staffing of unlicensed personnel. None of these functions, in themselves, involve ownership or profit-sharing in the medical practice.
It is extremely important that the unlicensed 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 compensation must be at fair market value. The medical practice should not pay any percentage or portion of its gross or net profits to an unlicensed person, as this can constitute a form of ownership in the medical practice. A share in revenues constitutes a partnership share, and that’s ownership.
***CA Business & Professions Code 650(b) on its face might permit the payment of a percentage of gross revenues to to an unlicensed person, but the payment must be fair market value. Given this, it’s best to simply pay FMV in the manner I advise above.
***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.
The management service company is a common structure that unlicensed persons use to participate in a medical practice. Here unlicensed 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 unlicensed 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.