Nelson Mullins Riley & Scarborough LLP

Doctrine of the practice of medicine in business: an increased application on the horizon? | JD Supra

One of the primary considerations of medical practice owners and stakeholders in developing and implementing a compliant business ownership structure is what is known as the doctrine of the “practice of medicine”. in business” (“CPOM”). While there are state-level variations as to its scope and extent, in its most basic form, the CPOM prohibits or otherwise restricts the ownership of adjacent medical or medical practices or businesses. by unlicensed health professionals. CPOM regulations were developed primarily at the state level to prevent corporate ownership of medical practices and to promote the doctor-patient relationship.

Currently, 33 states have CPOM regulations that are enforced to varying degrees. Some states, such as California, Texas, New York, and North Carolina, have strong CPOM enforcement regimes, while other states’ CPOM enforcement activities may be inactive.

However, given recent developments such as those described below, stakeholders involved in healthcare should consider the impact of CPOM regulations on their corporate structures and transactions and should take appropriate action. to ensure their compliance with this complex and nuanced doctrine.

Recent CPOM Enforcement Activity

Consolidation of medical practices and private investment in the provision of professional health care services have flourished in recent years. As a result, various investment and corporate structures have been put in place to allow medical practices to grow from traditional, stand-alone offices to multi-state organizations that operate nationwide and are able to maintain compliance. CPOM regulations of various states.

When a corporate entity seeks to invest in a medical practice, a common technique to ensure compliance with CPOM regulations is to have a “doctor friendly” remain the owner of the medical practice while a separate management entity owned by the investor provides operational and administrative services. , billing and other non-medical practice support pursuant to a management services agreement. Thus, the licensed medical professional remains the owner and practice of medicine, while the corporate management group provides administrative and back-office services in exchange for compensation.

One of the most typical iterations of these management service arrangements in the hospital setting involves “staffing groups”, in which professional organizations of hospital workers, emergency physicians, anaesthesiologists, radiologists and others personal hospital services. Given their size, large groups of personnel are able to service nationwide facilities.

Recently, the “staffing group” model has been questioned in the State of California. The American Academy of Emergency Medicine Physician Group sued Envision Healthcare (owned by private equity firm KKR & Co.), a medical group of 25,000 clinicians, in the United States District Court for the Northern District of California, alleging that “fictitious business structures” are used by Envision to circumvent CPOM regulations that improperly allow it to retain effective control of emergency services staffing groups.[1] Specifically, the suit asks the court to declare these structures illegal under California law. The lawsuit is backed by the California Medical Association and is currently in its early stages.

This case has generated interest across the country, and we believe it could serve as a harbinger of renewed interest in CPOM enforcement at the state level. AAEMP V. Envision is particularly notable in that it represents a private legal action to enforce a state’s CPOM regulations, where typical CPOM enforcement efforts come from state agencies or medical boards.

Focus on CPOM compliance in corporate structures

Those who practice, invest or otherwise operate in or near the healthcare space should be aware of CPOM considerations, especially those involved in corporate restructuring, mergers and acquisitions or multi-state operations.

While any CPOM analysis is situation-specific due to the nuances between different state laws, generally applicable questions that should be asked include:

  • Does the state in which the firm operates have active CPOM regulations?
  • Does the State in which the practice exists have active or dormant CPOM enforcement regimes?
  • Does the operating entity (or medical group) operate in multiple states?
  • Is the activity being performed considered “practice of medicine” (or other covered medical activity) as defined by applicable state law or regulation?
  • Is there an overall management or service agreement structure or entity within the operating entity’s ownership structure that is not owned by a licensed healthcare professional?

[1] AAEMP c. Envision Healthcare Corporation, et al., (complaint)

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