In the healthcare industry, telehealth companies and other entities that provide virtual medical care often structure their organization using a friendly PC business model. This common type of business structure helps these entities clear a variety of regulatory hurdles and adhere to various state laws regarding the Corporate Practice of Medicine.
What is the Corporate Practice of Medicine?
The Corporate Practice of Medicine doctrine (CPOM) is a legal principle adopted uniquely on a state-by-state basis. Most states have at least some form of a CPOM, also commonly referred to as a “medical practice act”.
Generally speaking, these state laws are designed to prevent non-clinicians from interfering with or influencing the physician’s professional judgment in providing care to patients. CPOM statutes act as a safety mechanism for the general public to ensure the care they receive is uninfluenced by corporate interests (which are typically shareholders instead of patients).
What does this all mean?
In many states, what this means is that corporations cannot directly employ physicians to practice medicine, though the law is applied differently in every state. Some states, like Florida, don’t have the same prohibitions against the practice of medicine by physicians who are employees of a Florida corporation or partnership. Other states like Hawaii and Ohio don’t have any prohibitions at all.
Meanwhile, some states have much more stringent applications regarding the corporate practice of medicine. California, for example, completely prohibits the corporate practice of medicine and requires “that business or management decisions and activities resulting in control over a physician’s practice of medicine, be made by a licensed California physician and not by an unlicensed person or entity.”
To avoid violating any state prohibitions on the corporate practice of medicine, healthcare companies that provide medical care often leverage a friendly professional corporation model, referred to as the “friendly PC” model.
What is a Friendly PC Model?
The friendly PC model is a very common way to structure an organization that provides medical care, particularly in healthcare and telehealth. Here’s how it basically works:
- A legal entity/company is established as a PC, PLLC, etc. and the entity’s owners/shareholders are licensed physicians, exclusively.
- The entity contracts with a management service organization (MSO) to provide management and administrative services to the PC.
- The MSO and the PC are usually aligned and remain friendly to each other through a stock transfer restriction agreement which prevents the physician shareholders from transferring their company shares without consent from the MSO. The MSO maintains indirect control over who the shares can and cannot be transferred to.
- Also, the MSO (now often acting as the employer) typically employs the physician owner, regardless of whether they’re actually providing care to patients or not.
This type of structure provides the MSO with business management and administrative control over the company without infringing on the professional judgment of the physician owners within the practice.
As noted before, various states will enact, interpret, and enforce the law quite differently. Therefore, legal dispute resolutions are often inconsistent, sometimes even within the same state, which creates some unpredictable outcomes and resolution expectations when disputes arise between the MSO and the entity.
The friendly PC model also limits the liability of the MSO in cases of malpractice. In any malpractice lawsuits, the practicing physician is liable, though the PC is also named in the suit, while the MSO can remain somewhat on the outskirts of the legal processes involved.
In some more extreme cases, criminal charges can be filed if the entity or any of its non-physicians have engaged in the unauthorized practice of medicine, and the MSO is more likely to be involved in this type of litigation, especially if they are the employer.
It’s essential to retain experienced legal counsel that is familiar with your state’s specific application of the corporate practice of medicine doctrine.
Telehealth Company Implications
For telehealth organizations starting out, this all just adds an additional layer of complexity since medical care within these organizational structures typically crosses several state lines. Luckily, the friendly PC model is true to its name, providing a structurally-friendly business model for both the MSO and the physician shareholders, whether they’re a startup or an established organization.
While prohibitions against the corporate practice of medicine are present in every state, multi-state telemedicine organizations should certainly consider complying with the most stringent version of this doctrine possible to satisfy the requirements of states across a spectrum of statutes.
If you are still in the earlier stages of forming your telehealth company, then you likely have a few structural considerations to work through. Thankfully, there are some very basic questions you can ask yourself to determine whether or not your staffing needs have been met, such as:
- In which states do you need doctors?
- Are you in need of a physician to function in an ownership position?
- What type of employment model do you plan to leverage and who will be doing the actual hiring and employee management?
Medlink is happy to discuss your business plans, and we can help not only assess your current staffing needs, but also connect you with legal resources needed to help ensure your employment efforts adhere to the relevant CPOM statutes.
Contact us today to ensure your practice and physicians are protected!