Michael Byrd and Brad Adatto

Can Non-Doctors Own a Medical Practice in Texas? Texas Corporate Practice of Medicine Field Guide – Part 2 of 5

Co-Author | 2.15.21

This article is co-authored by partners Brad Adatto and Michael Byrd

 

When talking about health care in Texas (particularly elective, non-invasive procedures), an almost visceral reaction is triggered by the question: can non-doctors own a medical practice in Texas?  The law is not only confusing but emotion, opinion and rhetoric further cloud the issue.  The vision for this field guide is get to the root of the problem to help answer this question.  Taking it a step further, it examines the risk of non-doctors owning a medical practice.

 

This field guide is a five part series and will address the following questions:

Part One – What is the Corporate Practice of Medicine?

Part Two – Does the Corporate Practice of Medicine Exist in Texas?

Part Three – Is the Corporate Practice of Medicine Doctrine Actually Enforced in Texas?

Part Four – Are There Exceptions to the Corporate Practice of Medicine Doctrine in Texas?

Part Five – Can a Non-physician Hire a Texas Medical Doctor via an Independent Contractor Agreement?

 

Part Two – Does the Corporate Practice of Medicine Exist in Texas?

The short answer is Texas does not allow non-physicians to own businesses that practice medicine or employ physicians to provide professional medical services.  This is known as the corporate practice of medicine (“CPOM”) doctrine.

 

Three statutory laws work together to form the CPOM doctrine. Case law (appellate court opinions) then further shapes these statutory laws.  The Houston Court of Appeals best articulated this mixture of laws that make up the CPOM doctrine in McCoy v. FemPartners, Inc., 484 S.W.3d 201 (Tex. App. – Houston [14th Dist.] 2015).  Specifically, the court said that the CPOM doctrine prohibited lay persons, or non-physicians, from engaging in the practice of medicine.  It also reiterated that, when a corporation comprised of lay persons employed licensed physicians to treat patients and the corporation received a fee, the corporation was unlawfully engaged in the practice of medicine. The public policy rationale behind the concept “is to preserve the vitally important doctor-patient relationship and prevent possible abuses resulting from lay control of corporations employing licensed physicians to practice medicine.”

 

To dig deeper, we look at the three statutes shaping the CPOM doctrine in Texas. First is the Texas Medical Practice Act (“Act”), where it defines the practice of medicine as “the diagnosis, treatment, or offer to treat a mental or physical disease or disorder or a physical deformity or injury by any system or method, or the attempt to effect cures of those conditions, by a person who: (A) publicly professes to be a physician or surgeon; or (B) directly or indirectly charges money or other compensation for those service.” Tex. Occ. Code § 151.002(13).  As discussed in Part One of this series, the starting point for understanding the CPOM doctrine is to understand what services are considered medical.  As you can see, the law is broad in Texas.

 

Second, the Act also declares “a physician or an applicant for a license to practice medicine commits a prohibited practice if that person: directly or indirectly aids or abets the practice of medicine by a person, partnership, associations, or corporation that is not licensed to practice medicine by the board.” Tex. Occ. Code § 164.052(a)(17).  Some attorneys and businesses have taken the position that, because limited liability companies (“LLCs”) are not specifically listed in this Texas Occupations Code section, a loophole then exists allowing non-doctor owned LLCs to practice medicine.  There is nothing in this law or the other laws and cases to indicate that the legislature intentionally omitted LLCs to allow for non-doctor owned LLCs to practice medicine.  As we will discuss in Part Three of this series, examples exist of enforcement against LLCs.  Technical holes created by virtue of oversight or timing of the laws are always a risky proposition.  From a practical perspective, a business taking this position should be prepared for a potentially long, expensive battle if they are going to fight enforcement relying on this technicality.

 

Third, the Texas Business Organizations Code (“TBOC”) regulates the formation of professional entities. Under the TBOC, these professional entities can provide “any type of service that requires, as a condition precedent to the rendering of the service, the obtaining of a license in this state, including the personal service rendered by an architect, attorney, certified public accountant, dentist, physician, public accountant, or veterinarian” Tex. Bus. Orgs. Code § 301.003(8).  In addition, other than some specified exceptions which will be discussed in Part Four of this series, the professional entity must be 100% owned by professional individuals who are licensed in the state to provide the same professional service provided by the entity or professional organizations. Tex. Bus. Orgs. Code §§ 301.004, 301.007(a).  Persons looking to provide medical services can form a professional association or a professional limited liability company. Tex. Bus. Orgs. Code §§ 301.003(2),(6). Read together, the TBOC closes the door on co-ownership of a professional entity between a physician and most non-doctors, but it does not close the door completely for joint ownership of physicians (M.D.s and D.O.s), podiatrists, chiropractors, and to a certain extent, physician assistants. Tex. Bus. Orgs. Code § 301.012. Texas allows these professionals to jointly own a professional association or professional limited liability company, but to only perform services that fall within each professionals’ scope of practice. Again, we will discuss specific exceptions in Part Four.

 

Collectively, the body of statutory laws and case law make up the strong CPOM doctrine in Texas prohibiting any lay person from owning an entity that renders medical services. As such, in Texas non-physicians cannot own a medical clinic, MedSpa, or other unlicensed medical facility with or without physician ownership.  However, non-physicians in Texas have other viable options to be involved with such businesses, like developing a management service organization.  To learn more about CPOM, listen to our podcast episode, A Preventable Death to Your Practice, at https://www.byrdadatto.com/banter/legal-123s-with-byrdadatto-a-preventable-death-to-your-practice/.

 

In Part Three of this series we will address the question, “Is the Corporate Practice of Medicine Doctrine Actually Enforced in Texas?”  If you have any questions or would like to learn more about the Corporate Practice of Medicine, email us at info@byrdadatto.com.

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