As chiropractors, you have had many occasions when the patient you were treating required medical treatment; so you referred that patient to a medical doctor. In some instances the patient returned to you, in other instances the patient was lost for good. In all instances the patient was inconvenienced for having to make an additional appointment at yet another location for treatment. You and the medical doctor lost valuable time and energy playing telephone tag and the patient lost days waiting for the new appointment when he or she could have been recovering. To avoid the delays incurred when a patient needs to go to various locations to see an array of doctors, many physicians are forming multi-discipline practices.
A multi-discipline practice (the “practice”) is simply a health care practice which offers the health care consumer “one stop shopping.” In all instances there is a medical director who is a licensed medical or osteopathic physician and makes all medical decisions. This medical director is employed by a medical professional corporation in those states where the “Corporate Practice of Medicine Doctrine” (the “doctrine”) is in effect, or, in some states where the doctrine is not in effect, by a general business corporation. Additionally, the practice may employ chiropractors, physical therapists, acupuncturists, phlebotomists, nurse practitioners, physician assistants, and various other types of health care providers.
The doctrine is simply a law which prohibits those persons who are not medical physicians from owning a medical practice. Over the years this doctrine has been eroded in many states and in some states done away with altogether.
In those states where the doctrine has been eliminated, anyone may own a corporation which renders medical care; however, the corporation must employ a medical physician who is responsible for making all health-care-related decisions. The owner of the corporation, unless a medical doctor or an osteopathic physician (hereinafter, “MD”) him or herself, may have no input with respect to any medical decision concerning any patient.
Establishing a multi-discipline practice owned by a chiropractor in these states is quite simple. A single corporation is established that is owned by the chiropractor and the corporation enters into employment agreements with its employees such as an MD, nurse practitioner, physician assistant, etc.
Care must be taken that each of these health care practitioners renders services in accordance within the scope of his or her practice in the particular state.
The states listed in Item One currently do not have a corporate practice of medicine doctrine and would permit you to own shares in a health care company providing medical services. There is confusion on the status of the Corporate Practice of Medicine Doctrine in the following states and so I would err on the side of caution and consider them a state that upholds the doctrine:
Arkansas has typical licensing and professional corporation acts, but no court has held there to be a prohibition against the corporate practice of medicine; on the other hand, no court has given the corporate practice of medicine its blessing either.
Connecticut is uncertain. Connecticut has never articulated a statute which specifically addresses the question. Two assistant attorneys general have privately stated that they have no intention of enforcing the concept, but in the 1960’s Connecticut’s then attorney general stated “a corporation cannot practice law.” However, Connecticut is an extremely conservative state, so I would be very leery of starting a health care corporation that is not a professional corporation there.
Georgia’s corporate practice of medicine doctrine is presently unclear. The statute which prohibited a physician from being employed by a corporation other than a professional corporation or a hospital was repealed in 1982. However, during that same year, in a case entitled Shearer v. Hale, 248 Ga. 793, 285 S.E.2d 714, 717 (1982) the Georgia Supreme Court created a common law prohibition against the practice of any “learned profession” by a “business corporation” and this case has not as yet been overturned.
Kentucky’s long-standing statutory and common law prohibition against the corporate practice of medicine is currently under review by the Kentucky Supreme Court.
North Dakota has no case law or statute specifically addressing the corporate practice of medicine; however, provisions of its Century Code specifically authorizing employment of physicians by hospitals and HMOs raise the possibility that the doctrine may exist in some form.
Ohio’s corporate purpose statute was recently amended to specifically permit “carrying on the practice of any profession;” however, its physician licensure and fee-splitting acts, which both had previously been interpreted by its Attorney General as prohibiting the corporate practice employment of physicians, were not thereafter amended.
There are additional sub-categories in those states that recognize the doctrine. Some states permit a chiropractor to hold shares in a medical professional corporation so long as there is a MD who is also a shareholder; some states require that in such a case the MD hold the majority of shares because the MD holds a plenary license whereas a chiropractor holds a limited license. Other states require that the name of the corporation does not contain the word “medical” or “medicine” when a non-MD owns shares in the corporation, whereas some states consider the use of the word “medicine” or “medical” mandatory. Still other states require that only a MD may own shares in a corporation that renders medical services.
It is very important to ascertain what the status of the law is in your state with respect to the doctrine. Failure to comply with the doctrine could result in contracts being declared void, loss of professional licensing, injunction against the practice’s business operation and a myriad number of other sanctions. To comply with the law of those states which uphold the doctrine, certain contracts must be entered into by various corporations.
I recommend three corporations be formed; a management company, a professional corporation and a funding company. The following is an explanationin a nutshellof the interaction among the medical corporation owned either solely by a MD or by both a MD and chiropractor (the “professional corporation”); a management company which is owned solely by the chiropractor (the “management company”); and a funding company which is also owned solely by the chiropractor (the “funding company”).
The Funding Company
The funding company is funded by you personally. The funding company then funds the professional corporation for any and all working capital requirements that the professional corporation may have; e.g., the purchase of equipment, salaries, lease payments, management fees, taxes, etc.
To secure its loan, the funding company receives a note and a lien on all accounts receivables and other assets from the professional corporation.
The Management Company
The management company charges a fee for every act and/or service that it performs on the professional corporation’s behalf (e.g., all clerical duties, marketing, equipment rental, lease rental, etc.), pursuant to the terms of the management agreement in which it enters with the professional corporation. The charges must be at a fair market value rate (value added, if applicable) which is a set fee (under no circumstances should it be a percentage, as many states consider the payment of a percentage to the management company by the professional corporation to be fee splitting ); and payable regardless of whether the professional corporation is actually paid for its services. Your accountant can help you determine the fair market value applicable to your area.
The Medical Professional Corporation
The shares of the medical professional corporation (or professional association as is required by some states), (“professional corporation”) are owned by a MD (and where permitted, also by the chiropractor). The chiropractor is named as secretary of the professional corporation for purposes of administrative convenience only. Under no circumstances may the chiropractor exercise control over any medical issues, which are left strictly in the purview of the MD who is hired to be the medical director of the professional corporation.
The professional corporation may employ various licensed health care professionals such as physicians, physical therapists, chiropractors, etc., to render services to the professional corporation’s patients. Each such health care professional enters into a written employment agreement for a term of no less than one year with the professional corporation. Payment to each such health care professional is at a fair market value rate. Fair market value is determined by the going rate for such health care professionals in your community.
You should take the following initial steps before you begin to integrate your practice:
- Review your lease for prohibitions against sub-letting. Many leases contain clauses that prevent an existing tenant from sub-letting its space to another entity. In such a case an addendum to your existing lease will have to be negotiated with your landlord. Your landlord may require additional security, a personal guaranty or a lump sum payment to permit you to sublet the premises to the management company (which will then further sublet to the professional corporation). Make certain you obtain the landlord’s permission for successive sub-lets in writing. You will also need to get written permission from your landlord to make the appropriate structural changes if necessary.
- In the event that you maintain a home office, you need to determine whether you are permitted to sublet to a third party.
- You may wish to sell your patient list to the P.C. and your equipment to the management company. In that event you will need to obtain a fair market value appraisal of both your patient list and equipment.
The various corporations need to have a series of agreements which describe the duties and obligations of each corporation to the other. The basic documents I prepare for an integrated practice are listed in Item Two below.
2. Additional documents that may be applicable in your situation:
- Shareholder’s Agreement: Such an agreement may be required when there is more than one shareholder of the management company and/or funding company.
- Purchase and Sale Agreement, plus appropriate additional documentation in the event that you and/or the MD decide to sell your equipment and/or patient list to the professional corporation.
After the corporations have been formed and the legal documentation is signed, you are required to maintain the corporate existence of all three companies. Limited personal liability and the tax benefits of doing business in the corporate form are available only when you comply with the numerous requirements of corporate law.
The benefits of corporate operation flow from the legal recognition of the corporation as an entity separate from its individual shareholders, directors and officers. To enjoy these benefits, you must operate the corporation as a separate entity and in accordance with certain formal requirements.
It is essential that corporate and personal affairs be kept separate. Never mix corporate and personal funds, assets, or accounts. Do not use corporate funds or assets for personal or other corporate purposes. Business should be done in the corporate name. Avoid any indication that you are dealing in a personal capacity. The corporate name should be used on the telephone, advertisements, letterheads, cards, signs, etc. When signing documents, it should always be made clear that you are acting on behalf of the corporation.
In keeping with the recognition of the corporation as a separate legal entity, the formalities of corporate operation provide the mechanism by which the corporation governs itself, makes decisions, and takes action. Properly held meetings of shareholders and directors are the key to formal operation. The courts consider observance of the formalities as important evidence in deciding whether or not the corporation has been operated as a separate entity. The formalities are often the source of authority for those who act on behalf of the corporation. Officers, directors and employees who act without authority (that is, without the proper approval of the shareholders or the directors, properly made and recorded in the corporate minutes) may be personally liable for their acts.
If you have questions regarding the formation of a multi-disciplinary practice or any other legal heath care issues, please fax your questions to the Law Office of Deborah A. Green, 16 Caren Court, Mt. Kisco, NY 10549, fax 914-666-9266; phone 914-666-9264 or e-mail: firstname.lastname@example.org.
Deborah A. Green has been a practicing attorney for the past twenty years. She is admitted to the practice of law in the State of New York and Florida and is a member of the National Health Lawyers Association, the New York State Bar Association Health Care System Design Committee, the New York State Bar Association Health Care Providers Committee, the American Bar Association Health Law Section and the Florida Bar Health Law Section. She has formed numerous integrated practices throughout the country and has acted and currently acts as counsel to a number of multi-discipline practice consulting firms.
Ms. Green will be writing a new column for Chiropractic Economics called the “Legal Forum” where she will be answering questions sent in by readers concerning their health care legal questions. Please send your questions directly to Ms. Green at her address above.
The following states currently do not have a corporate practice of medicine doctrine and would permit you to own shares in a health care company providing medical services.
- District of Columbia
- New Hampshire
- New Mexico
- Rhode Island
- South Dakota
The various corporations need to have a series of agreements which describe the duties and obligations of each corporation to the other. The basic documents I prepare for an integrated practice are as follows:
- Physician-Shareholder Employment Agreement.
- Tri-Party Transfer Agreement.
- Resignation of Sole Director and Officer.
- Transfer of Capital Stock Agreement
- Corporate document book (management
- Corporate document book (professional
- Corporate document book (funding corporation).
- Corporate Resolution.
- Revolving Loan and Security Agreement.
- Promissory Note.
- UCC-1 and Rider.
- Management Agreement.
- Equipment Lease.
- Medical Office Lease.
- Such other state specific documents as
may be required.