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Corporate Practice of Medicine

Compliance Monitor Q&A , September 7, 2007

Q: My group is looking to sell our radiology practice to businessmen from out of state. We are being told that it is illegal for business people to invest, own, and/or run a medical practice, such as a diagnostic radiology center.

Are radiology practices owned by businessmen legal? What if they are structured as an independent diagnostic testing facility (IDTF), for purposes of billing Medicare?

A: Many states have statutes or regulations that bar business corporations from practicing medicine or from employing physicians. These statutes or regulations are generally known as corporate practice of medicine doctrines or learned profession doctrines. States such as California, Texas, and Michigan have such legislation. In Michigan, the Limited Liability Company Act states, "Every member and manager of a professional limited liability company must be a licensed person in one or more of the professional services rendered by the company." The Act also states a company providing services in a learned profession must be formed as a professional limited liability company. Physicians providing medical care fall into the learned profession category.

Other states have corporate practice of medicine doctrines that stem from case law or from opinions issued by the state Attorney Generals. For example, the Attorney General in Florida issued an opinion that appears to prohibit corporations from employing physicians to provide medical services. The opinion specified that a corporation could not practice medicine directly or indirectly by hiring licensed members of a profession to do professional work.

Some states with corporate practice of medicine or learned profession doctrines make exceptions for hospitals to employ physicians. These exceptions are often complicated. The physician would typically engage an attorney familiar with the exceptions on a local level to provide guidance when selling his or her practice to a hospital.

At this time, there are no federal corporate practice of medicine statutes, regulations, case law, or other guidelines that prohibit corporate practice of medicine.

The fact the practice is set up as an IDTF for Medicare billing would have no relationship to the state corporate practice of medicine doctrines.

Editor's note: Lisa Dobbins, MHA, RHIA, of MedAssets Net Revenue Systems of Mandeville, LA, answered this question. This is not legal advice. Consult your attorney for legal matters.

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