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CORPORATE
MEDICINE

care for their patients vs owners who are accountable to share- physician and an unlicensed person or business can enter into agree-
holders and trying to control health delivery in the interests of ments impacting a doctor’s practice (i.e. management and collection
profits rather than health. services are classic examples).
Critics claim these are antiquated laws not well suited to part- Here’s the bottom line or litmus test by which to judge the ever
nering physicians with health care delivery systems in a digital age. evolving and complicated business arrangements to which doctors
That’s why we see so many “inventive” or “creative” arrangements may become a party. Any agreement or arrangement by which an
intended to circumvent these laws. but, the fact remains that the unlicensed person or entity restricts or somehow limits the physi-
doctrine remains very much alive and well today. believe it or not, cian’s ability to truly exercise independent professional judgment in
most states have laws prohibiting this although, as usual, the devil patient care is on very thin legal ice. You can try to disguise it, hide
is in the details (the details being all the exceptions to the doctrine). it or rename it, but a rose by any other name is still a rose. lay peo-
It’s a common misconception that Texas is one of the last hold- ple and lay companies cannot control, direct or tell you how to care
outs against the so-called corporate practice of medicine. virtually for your patients. Period.
every state has legal prohibitions against controlling a physician’s
exercise of professional judgment. Sounds simple and straight-forward... but then there are
Most lay persons have too limited an understanding of these the exceptions to the rule.
laws. The most common viewpoint is that they stop corporations
owned/controlled by lay persons from hiring physicians as em- One of the biggest exceptions is the “independent contractor”
ployees. That’s true in the sense that the laws don’t allow a layman rule. In this scenario, the physician isn’t technically an employee,
owned company to hire a doctor and direct how the doctor can doesn’t get a W-2 form at year’s end, and doesn’t have the same ben-
provide care. The company may tell a secretary how to answer efits and legal rights that attach to a bona fide employer-employee
phones, type letters or whatever, but they can’t tell the doctor not relationship
to remove a ruptured appendix because the patient must first try like when you hire a CPA or attorney to do some work for you.
and fail conservative interventions. Simply put, these laws are They’re not your employee. You can control them to some extent
crafted to stop an unlicensed lay person (whether it be a supervisor (don’t spend more than X on this project, or I want you to draft my
or corporate board) from telling the doctor how to diagnose and Will to give these people these things, etc.). but, at day’s end, you don’t
treat patients. dictate how they do their job. Just as your patient may say he wants
but the doctrine goes well beyond that. It also looks to more you to fix his broken finger but that doesn’t mean he can tell you how
subtle, more nuanced ways that can manipulate how a doctor ex- to do it. lots of organizations hire doctors and identify all sorts of
ercises professional judgment. For example, suppose a company terms and conditions of employment but, to be legal, there has to be
agreed to provide a doctor some office space, some medical staff, an overriding provision that gives the doctor the final say so on patient
some equipment, etc. in exchange for a monthly fee. That’s okay. care. That’s how hospitals can legally hire a physician, pay a minimum
but suppose the company started to impose restrictions like man- guaranteed amount, collect fees, etc. but, rest assured those contracts
dating what hospital the doctor must send patients to, what med- have a provision guaranteeing the doctor’s independence when it
ications could be used to treat various conditions, what conditions comes to decisions on what care to provide a patient.
must be met before various interventions could be provided, etc. That said, calling a doctor an “independent contractor” doesn’t
Or suppose the company’s influence was financially driven such necessarily mean that’s true. The Court’s will look at form over sub-
as taking a percentage of the doctor’s fees and requiring the doctor stance to determine just how much liberty the doctor really has
to generate so much money each month, refuse certain care to un- when it comes to matters of patient care (as distinguished from
funded patients, etc. other matters like administrative, managerial and other functions
In Texas, none of this is allowed. There are a series of statutes in unrelated to caring for a patient). The courts will look at the collec-
the Texas Occupations Code that, collectively, accomplish three pri- tive impact of all the limitations or controls an entity may exercise
mary objectives. First, they stop any company or person without a over a doctor. The litmus test remains whether the doctor can still
license to practice medicine from directly employing doctors for the exercise independent judgment, as to when that line has been
purpose of delivering health care. Second, these laws make unlawful crossed is decided on a case by case basis. It can be tricky and the
any agreement or arrangement by which fees for a doctor’s services line blurry. For example, in the landmark and oft cited case of Flynn
are somehow controlled or directly received by an unlicensed person brothers v. First Medical Associates, the corporate entity claiming
or business. Finally, there are limitations on the extent to which a the doctors were “independent contractors” was found to have too
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