Can Non-Doctors Own a Medical Practice in Texas? Texas Corporate Practice of Medicine Field Guide – Part 3 of 5
This article is co-authored by partners Michael Byrd and Brad Adatto.
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 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 Three – Is the Corporate Practice of Medicine Doctrine Actually Enforced in Texas?
Yes, generally speaking the corporate practice of medicine (“CPOM”) doctrine is enforced by civil courts and the Texas Medical Board (“TMB”). To understand CPOM risk in Texas, it is wise to first consider how Texas courts have viewed private lawsuits alleging a CPOM violation. This helps shape the law the TMB will rely upon in an enforcement action. Case law also shapes risk for potential private litigation of an arrangement. Next we turn our attention to the TMB and look at its published decisions dealing with the CPOM.
Civil Court Enforcement
The CPOM cases in Texas tend to be private party lawsuits involving the management service organization or “MSO” model, or similar arrangements where non-physicians are not the owners of the actual business entity practicing medicine. The cases are instructive, as it becomes clear that the court can find violations of the CPOM doctrine even beyond the simple fact that a non-doctor owns the business that practices medicine. While each of the cases discussed below found that the CPOM doctrine was not violated, pearls of wisdom can be pulled from each to see where boundaries exist to cross-over to a CPOM violation.
Several Texas courts have evaluated the relationship between corporate entities owned by non-professionals and professional entities. Courts have particularly noted that when the non-professional entity exercises too much control, there is likely a violation of the corporate practice of medicine. In McCoy v. FemPartners, Inc., 484 S.W.3d 201 (Tex. App. – Houston [14th Dist.] 2015), the court held that FemPartners, a MSO, did not exercise a sufficient amount of control over the professional association to violate CPOM. The court examined the management service agreement between the two parties and the level of interaction between their respective duties. The first boundary in the agreement that helped avoid a CPOM violation was a specific provision providing the professional entity would exercise all control over medical services. The provision was even more robust and included language about the practice being able to maintain absolute and independent control over the diagnosis and treatment of patients and all other medical and ethical affairs. The second boundary helping avoid a CPOM violation was language in the agreement that the practice was responsible for recruitment and hiring of physicians. The agreement further included a “Corporate Practice of Medicine” provision that reiterated nothing in the agreement was to constitute the practice of medicine, the use of the physician’s medical license, or to create any other arrangement that violated the Texas Medical Practice Act. Id. at 209. The court went on to inspect the day-to-day relationship of the parties and concluded that the arrangement was for the MSO to provide “business-type functions,” and even though they were entitled to 20% of the clinic distribution of funds, it “constituted payment for the business arrangement and administrative services.” Id. at 213. Pearl of Wisdom 1 – all clinical decision-making must be made by physicians.
Similarly, in Gupta v. Eastern Idaho Tumor Institute, Inc, 140 S.W.3d 747 (Tex. App. – Houston [14th Dist.] 2004), the court concluded that there was no violation of the Texas Medical Practice Act within a joint venture agreement that divided the shares equally among the two parties because of the level of control. Under the agreement, the corporation was not permitted to trade or commercialize on the physician’s license, and the physician retained the ability to hire and fire his employees as he saw fit. Id. at 756. In fact, the corporation testified to their frustrations with how the physician chose to run his practice which further demonstrated the physician’s level of control. The court stated that the physician “was completely independent of [the corporation] as to diagnosis, treatment, and operation of the clinic…” Id. Pearl of Wisdom 2 – the ability to fire and hire employees must be maintained by physicians.
Along the same lines, in Woodson v. Scott & White Hospital, 186 S.W.2d 720 (Tex. Civ. App. – Austin 1945), the court established there was no violation of the Texas Medical Practice Act between a specialized physician and a hospital corporation, which shared the physician’s building, referred patients to the physician, and received 25% of profits. The court rationalized that because splitting the gross revenues was merely payment for rent and compensation for the corporation’s referral services, the doctor’s relationship with the corporate entity “was more in nature of an independent contractor and not an agent or employee.” Id. at 725. The court came to this conclusion because the doctors were entirely independent to diagnose, treat patients, and were in control of the operations to be performed. Id. Because the doctors “fixed and collected their own fees from their patients, kept their own books, accepted full responsibility to their patients for the nature and character of their services to them…it was clear [the doctors] did not act as agents or employees of the corporation; that their acts were not the acts of the corporation; and that the corporation as such was not engaged, in so far as said contract concerned, in practicing medicine through [the doctors] as agents.” Id. Pearl of Wisdom 3 – revenues for medical services must be paid to the professional entity.
In cases involving CPOM, the courts emphasize the element of control. When a court finds there has been a CPOM violation, it ultimately compares the relationship to an employer/employee relationship instead of an independent contractor. Courts reason that when an entity owned by non-doctors dominate or exert so much control over the professional entity, the physician is in effect allowing the corporation to use their license to practice medicine, and that is a violation of the Texas Medical Practice Act. See Texas. Occupations Code § 164.052(a)(17).
For example, in Flynn Bros., Inc. v. First Medical Associates, 715 S.W.2d 782 (Tex. App. – Dallas 1986), although the parties were considered partners by contract, the court found that the amount of control exerted by the corporation over the physician’s practice made the relationship more similar to an employer/employee relationship. Id. at 785. In arriving at that conclusion, the court determined that the arrangement allowed the corporation to use the physician’s license to get contracts to provide , and, in exchange, the corporation received the majority of profits made through the doctor’s practice of medicine. Id. Other situations when the court has found a CPOM violation included a physician working for a clinic owned by non-doctors and receiving a set salary for his services. Watt v. Texas State Bd. of Medical Examiners, 303 S.W.2d 884 (Tex. Civ. App. – Dallas 1957); Rockett v. Texas State Bd. of Medical Examiners, 287 S.W. 2d 190 (Tex. Civ. App. – San Antonio 1956). The courts also pointed to the non-professional entity collecting all the fees on behalf of the physicians, and the non-professional entity retaining the power to make important decisions as it saw fit regarding the practice such as hiring and firing doctors. Watt, 303 S.W.2d at 887; Rockett, 287 S.W.2d at 191.
With all that said, once again the greatest consideration of the courts is whether the physician or the corporation is controlling the medical decisions. Essentially, “courts consider the amount of control the [non-physician] entity exercises over the doctor’s practice and whether that control is such that it renders the relationship more an employer/employee relationship.” Xenon Health LLC v. Baig, CIV.A. H-13-1828, 2015 WL 3823623, at *4 (S.D. Tex. June 19, 2015), citing Gupta v. E. Idaho Tumor Inst., Inc., 140 S.W.3d 747, 753 (Tex.App.—Houston [14th Dist.] 2004, pet. denied.
When analyzing whether a CPOM violation occurs, it can be reasoned that the courts will look to the relationship between the entities, the level of control, and the collection and distribution of fees.
Texas Medical Board Enforcement
Court cases, such as the ones discussed above, only address contractual enforcement concerns. For licensed medical providers, the concern is more about how the TMB enforces the CPOM. According to the TMB, it receives and reviews over 7,000 complaints a year. As we dive deeper into the TMB enforcement examples, it is important to remember those made publicly available only represent what the TMB has agreed to publish. Therefore, if you are drawing conclusions solely based on the number of published violations, you have a low risk. However, to provide more insight into the real risk, we have noted some matters that have impacted our clients.
As stated in a June 2019 TMB Press Release, the TMB entered into an Agreed Cease and Desist Order prohibiting a medical spa owner from practicing medicine in the state of Texas without a license issued by the TMB. (http://www.tmb.state.tx.us/dl/69ADE103-6340-56A8-BE51-B6A178E1A2BE, last visited 2/27/2021). The TMB found that the owner and operator of Med Spa Solutions was advertising nonsurgical cosmetic procedures that can only be performed by Texas-licensed physicians, or their delegates, since the procedure involved the injection of medication or substances for cosmetic purposes and/or use of prescription devices for cosmetic purposes. Additionally, in the same 2019 TMB Press Release, the TMB found Dr. White aided and abetted the unlicensed practice of medicine. Specifically, he helped an individual obtain non-FDA approved Botox and Juvederm from Canada, as well as providing his medical license for use by a spa. Dr. White entered into an Agreed Order on Formal Filing publicly reprimanding Dr. White and prohibiting him from performing all non-surgical medical cosmetic procedures for five years, and prohibiting him from supervising a surgical assistant or a medical assistant for all non-surgical medical cosmetic procedures for five years.
More recently in October of 2020, the TMB published other Agreed Cease and Desist Orders against non-physicians, including a dentist, Dr. Madden, who was advertising on her website that she offered services, including Botox, dermal filers, and other skin treatments and treated a patient with Dysport injections. (http://www.tmb.state.tx.us/dl/2B7F9D37-D01F-BB3B-F4B9-8254242CF293, last visited 2/27/2021). The TMB entered into an Agreed Cease and Desist Order prohibiting Dr. Madden from practicing medicine in the state of Texas without a license issued by the TMB and prohibiting her from holding herself out to be a licensed physician in the state of Texas.
TMB enforcement goes beyond the last two years. The TMB reprimanded two individuals in 2017 as well as one individual in 2018 involving CPOM. In September 2017, the TMB entered into two different Agreed Cease and Desist Orders with individuals who were unlicensed to practice medicine but owned and operated “wellness centers” rendering medical services.( https://www.tmb.state.tx.us/dl/243009A0-DEBB-7DE6-4675-A0216D627F49, last visited 2/27/2021). In March 2018, the TMB entered into an Agreed Cease and Desist Order with an owner of a medical spa who was arrested in Houston for performing Botox without a medical license constituting the unlicensed practice of medicine. (https://www.tmb.state.tx.us/dl/74A3E3D2-A713-1544-384D-E9FEFC974379, last visited 2/27/2021).
As far as TMB complaints our clients have faced over the last year, they include:
(1) The TMB alleged that a physician was in violation of Board Rules 193.7(d), by aiding and/or abetting the unlicensed practice of medicine in Texas by 10+ nurse practitioners and physician assistants because they were full time owners of their own individual businesses (including wellness clinics and/or MedSpas) and listed all day hours on their various websites. This resulted in a complaint that included: (i) Aiding/Abetting in Unlicensed Practice of Medicine; (ii) Failure to Supervise Delegates; and (iii) Rule 193 Commits a Rule Violation – Delegation.
(2) The TMB alleged that a non-physician was practicing medicine in Texas without a Texas medical license at a beauty facility after posting various cosmetic medical procedures performed at the spa on social media, including providing microblading, permanent cosmetic and body contouring “lipo,” and skin tightening. This resulted in a complaint for the Unlicensed Practice of Medicine.
(3) The TMB alleged that a non-physician was practicing medicine in Texas without a Texas medical license based on a patient complaint after a complication of a coolsculpting procedure. This resulted in a complaint for the Unlicensed Practice of Medicine.
(4) The TMB alleged that a non-physician was practicing medicine in Texas without a Texas medical license by providing laser treatments to patients. This resulted in a complaint for the Unlicensed Practice of Medicine.
(5) The TMB alleged that a physician acting as a Medical Director of a MedSpa, violated Board Rule 193 and 193.17, because the staff were doing vaginal rejuvenation and hormone replacement (alleging placing pellets is surgery) without an onsite physician and were not licensed to perform these procedures/services/surgery. In addition, it was alleged the physician was aiding and/or abetting the unlicensed practice of medicine at the MedSpa. This resulted in a complaint that included: (i) Rule 193 Commits a Rule Violation – Delegation; (ii) Aiding/Abetting in Unlicensed Practice of Medicine; and (iii) Unprofessional Conduct.
In looking at the published and unpublished TMB activity, a common theme appears where the medical board is not happy about something happening to a patient or not happy about a provider doing something they do not believe the person should be doing. The medical board seems to start by looking at whether providers are staying within their scope of practice and whether patient care is safe. The CPOM allegations appear almost as an add-on to these primary concerns and show up in the unlicensed practice of medicine and unprofessional conduct allegations. We have not observed the medical board actually targeting investigations based on ownership of the practice; rather, they include ownership allegations (CPOM) as add on to these other clinically related allegations.
In Part Four of this series we will address the question, “Are There Exceptions to the Corporate Practice of Medicine Doctrine in Texas?” If you have any questions or would like to learn more about the Corporate Practice of Medicine, email us at email@example.com.