How to Structure a Management Company’s Relationship with a Medical Practice
By Matt Dickstein
Click on a heading for more articles ⇒
In this article, I explain how to structure the relationship between a management service company and a medical practice under California law.
Here’s the law: Unlicensed persons (“laypersons,” including a management service company) may not practice medicine or hold themselves out to the public as practicing medicine. By this prohibition, unlicensed persons may not:
* Hire physicians to practice medicine
* Have an ownership or profit share in a medical practice
* Receive any compensation that might look like a profit share
* Take any action or decision that might affect or influence the provision of medical services
* Advertise the availability of medical services, including websites, except on behalf of a physician.
The policy behind the law is to prevent unlicensed persons from controlling the provision of medical services or interfering with a physician’s professional judgment. The physician must have sole control over all decisions that might affect health care.
The Physician is the Boss
The basic concept is this– The physician must own, operate and control the medical practice. The physician may only hire the management company to perform specific administrative tasks. The roles may not be reversed. The physician must be the boss, and be irreplaceable, while the management company must be an administrative service provider who can be replaced.
The owner / physician must collect all income of the practice, and pay all expenses of the medical practice including the service fees of the management company. It’s OK for the management company to be an agent for the physician, and in that capacity, collect the income of the practice. The management company, however, must deliver to the physician all of the income received from patients, without deduction. The physician can later pay to the management company its service fees by separate invoice. In brief, the physician collects and controls the money, and the management company is just one more expense that the physician pays.
The owner / physician must staff the doctors and other health care providers who work at the office. The doctors and other health care providers on staff must be employees or contractors of the physician.
The management company should only provide receptionist and other administrative services to the physician, and perhaps rent office space to the physician. The physician should pay a fair market rent for the office and fair rates for the administrative services; the management company should not take a percentage of the gross income of the practice. Further, every single dollar and/or benefit that passes between the two parties should be tied to written contracts at fair market value.
Advertising can be problematic. California law does not clearly state the permissible boundaries when a management company runs advertising on behalf of physicians. I advise that you be ultra-conservative; do not push the envelope of the law.
Under CA law, you practice medicine when you advertise for medical services or hold yourself out as providing medical services. A website that offers medical services constitutes the practice of medicine, and therefore the website must be owned and controlled by a physician. Any advertising by the management company of the availability of medical services may lead to a finding that the management company is illegally holding itself out as a licensed professional or is engaging in the practice of medicine.
The physician should control the website and other advertising, and be featured in that website and advertising. Solely the physician may hold himself out as providing medical services, which means that solely the physician and the physician’s brand name, not the management company’s brand name, may appear in the website and advertising.
You must be very careful to use the management company solely in a background administrative capacity, such as acting as webmaster or arranging for the publication of advertising that the doctor has prepared. The physician should be responsible for the content of all advertising, the look-and-feel, plus all decisions about the where and when of the advertising. The management company should only carry out the decisions made by the doctor.
Well, I hope this article was as enjoyable for you as for me. Writing is easy when you just tell people what not to do.