Late last year, the Michigan State Medical Society (MSMS) published a letter to the Michigan Attorney General (AG) voicing concerns about the influence of private equity on the practice of medicine and what MSMS referred to as widespread violations on Michigan’s prohibition on the corporate practice of medicine (CPOM). MSMS asked the AG to promptly investigate its concerns.
CPOM refers to the practice of medicine by a corporate entity, rather than an individual practitioner. That is, a corporate entity employs physicians and maintains the control that comes with employment. Many states prohibit the corporate practice of medicine or otherwise regulate what types of entities may employ physicians. The rationale is often a desire that medical decision-making remain with the physician and should not be influenced by a non-physician employer or by profit-driven investors. These regulations are the reasons that physician “employment” is often organized into physician groups or profession corporations.
In Michigan, with a few specific exceptions, entities that provide medical services generally must be organized as professional corporations (PCs) or professional limited liability companies (PLLCs) and must be owned by licensed professionals. A common business model is for a PC or PLLC to contract with an outside management services organization (MSO), which is not physician-owned, but may have financial resources or management expertise that the licensed owners of the PC do not have.
MSMS expressed concern that a rising number of MSOs are owned or controlled by private equity investors who are not licensed to practice medicine, but that are exercising a degree of control over medical decision-making and patient care such that the associated professional entity is owned by a licensed physician “in name only” while actually being controlled by the profit-driven, non-physician entity. MSMS noted several specific concerns shared by its member physicians who have been employed pursuant to such arrangements, including where reduced staffing levels have had detrimental effects on patient care.
Where a physician or practice contracts with private equity or other non-physician management companies and their investors, there are several important issues to consider, including exercise of medical judgement, corporate control, allocation of revenues, costs, and profits, the structure and nature of any management fee, control over personnel decisions, fee-splitting concerns, patient care, relationships with insurance companies and other payors, as well as compliance with federal and state laws and regulations. Physician practices should be mindful of the complexities of entering such an arrangement. In light of the MSMS and potential enforcement action by the Michigan AG, practices in such contractual arrangements may want to revisit and examine the compliance of their arrangements.
For over 35 years, Wachler & Associates has represented healthcare providers and suppliers nationwide in a variety of health law matters, and our attorneys can assist providers and suppliers in understanding new developments in healthcare law and regulation. If you or your healthcare entity has any questions pertaining to the corporate practice of medicine or healthcare compliance, please contact an experienced healthcare attorney at 248-544-0888 or wapc@wachler.com.