Mid-Atlantic Health Law TOPICS

A version of this article was published in The Daily Record on September 8, 2015.

In Maryland, the corporate practice of medicine doctrine prohibits a corporation from operating a physician practice, unless the corporation is owned exclusively by physicians or related licensed professionals, or the corporation is itself licensed or statutorily permitted to practice medicine, as is the case with hospitals and HMOs, respectively, for example.

However, Maryland courts have never explicitly embraced the corporate practice of medicine doctrine. Rather, the doctrine emerges opaquely in various Maryland statutes and cases, its essential idea being that an ordinary corporation may not operate a medical practice on its own behalf through employed physicians, because this would interfere with the medical judgment of a physician.

The Maryland Limited Liability Company Act put the viability of the doctrine in question by permitting LLCs to render professional services. However, that law expressly reserves the authority of professional licensing bodies to regulate the practice of various professions and occupations, and both the Maryland Board of Physicians and the Attorney General of Maryland have intimated that LLCs may not practice medicine if the LLC is owned by non-licensed professionals.

The result of the foregoing is first of all confusing. Further, that confusion has led health care entities and physicians routinely to attempt to avoid the doctrine through complex corporate affiliations and management agreements.

A. Outliving Purpose

Accordingly, the question arises as to whether the doctrine has outlived its usefulness. Today, medical professionals such as physicians are routinely employed by health care businesses owned by nominee-physicians or by non-physicians, such as hospitals, LLCs affiliated with health care systems, outpatient mental health clinics, ambulatory surgery centers, and a number of other for-profit and/or non-profit licensed health care entities. Do these entities interfere with medical judgment any less than non-physician owners would?

In addition, third party payors, Maryland hospitals with capped revenue budgets, and new corporate care coordination organizations, such as accountable care organizations and clinically integrated practice groups, are all influencing the activities of physicians through policies and procedures designed to control costs and to improve quality, including the use of clinical guidelines.

Also, bodies such as the Maryland Board of Physicians can police incompetent or greedy physicians through existing prohibitions against the financial exploitation of patients, regardless of who owns the physician's employer.

B. Other Costs

The doctrine also imposes a number of other costs on Maryland health care businesses and physicians. It increases the cost of capital for new physician practices by limiting physician access to venture capital. This, in turn, arguably decreases innovation and entrepreneurship, and prevents consolidation of physician practices, and accompanying economies of scale.

Further, as noted above, it is common for management companies to retain a share of revenue generated by medical practices. Even then, however, physicians, management companies, and their attorneys must guess at what counts as "too close" a relationship between a management company and a practice, "too much" responsibility allocated to the management company, or "too high" a management fee to trigger the conclusion that the management company has taken control of the health care practice, and thereby violated the doctrine.

C. Conclusion

The entire premise of the corporate practice of medicine doctrine can be questioned. The fear that profit motive will infect the profession is based on the questionable, and perhaps dated assumption that a profit motive is not at work in medical practices owned exclusively by doctors.

In light of the foregoing, it may be time for Maryland to consider eliminating the corporate practice of medicine doctrine entirely, something that Georgia, Hawaii, Nebraska and Missouri have already done.