New York's Strong Corporate Practice of Medicine Requires a Professional Corporation for Professional Services

Corporate practice of medicine rules can be quite complex, and range from "strong" to "weak" doctrines.

Here is some legal research on the corporate practice of medicine doctrine in New York state:

 

All states require a license to practice “medicine” and make it a crime to violate this requirement. State licensing laws typically define medicine in terms of diagnosis, operation, prescription, and treatment for any illness, disease or injury. Corporations cannot practice medicine and hence medical licensing laws are also said to prohibit the “corporate practice of medicine.” 

State law prohibitions against the “corporate practice of medicine” vary. The ‘weak’ corporate practice of medicine prohibition precludes non-physicians from owning or controlling a professional medical service corporation (“PMC”). This is typically embodied in the state statute setting forth the requirements for a PMC.

However, in some states the corporate practice of medicine imposes an even stronger prohibition, namely, that groups of physicians can only practice medicine through a professional corporation, and cannot provide medical services through a regular corporation or LLC. This is a stronger, additional prohibition, than the ‘weak’ form of the doctrine.

NYS has a “strong” prohibition against the corporate practice of medicine. Education Law Section 6512 makes it a felony for an unlicensed person to practice medicine. Section 6513 makes the unauthorized practice of medicine a crime.

Section 6507 of Title VIII of New York State Education Law authorizes the NYS Education Department to issue Certificates of Authority to qualified professional service corporations being organized under Section 1503 of the Business Corporation Law. These Certificates certify that the individuals organizing the professional service corporation have met the requirement that they be licensed and currently registered to practice in their respective professions.

The OP sets forth the requirements for professional service corporations (including PMCs, known as PCs in NYS) on its website under Domestic Professional Services Corporations (PC).[1] However, it is the interpretation of the OP and the courts that creates a “strong” corporate practice of medicine doctrine in NYS.

            According to the New York Medical Society,[2] the Office of the Professions (OP) relies on a Report from the 1998 meeting of the New York State Board of Regents entitled The Corporate Practice of Medicine. The OP publishes this report on its website under Corporate Practice of the Professions.[3]  The OP states:

Professional services can be offered only by a licensed person or an organization otherwise authorized by law. The professional practice acts for each profession provide restrictions against unlicensed practice and the unauthorized use of a professional title. For example, Section 6731 of the Education Law defines the scope of practice of physical therapy and Section 6732 limits the practice of physical therapy and the use of that professional title to those persons who are licensed by the Department….[4]

Article 15 of the Business Corporation Law authorizes the formation of a professional service corporation, in which all shareholders must be licensees of one profession and whose members practice only that profession.[5]

            Unlicensed corporate practice includes unlicensed practice of professions beyond medicine. The OP gives as an example of a unlicensed corporate practice:

Again using physical therapy as an example, there is no exemption for a general business corporation to either use the title of physical therapist or practice physical therapy, even if all principals or shareholders are licensed physical therapists. Since a general business corporation acts through its employees, no employee of a general business corporation may offer physical therapy services to the public or represent him or herself as practicing physical therapy. Such unauthorized practice by the corporation would be a crime, which could be prosecuted by the Attorney General's office. Further, licensed physical therapists participating in such corporate practice could be guilty of professional misconduct for sharing the profits of their physical therapy practice with shareholders of a general business corporation.

            The OP offers the following guidance:

Many business corporations are endeavoring to offer professional services because of the profitable advantages inherent in the licensed professions' client base. There are many current examples of the Department dealing with these issues, such as:

·         A business corporation seeks to unlawfully provide veterinary medicine services.

·         Services of a managed care company blur the distinction between professional judgment and utilization review. (emphasis added)

·         A contractor delegates to a third party the redesign of a portion of an architectural or engineering project.

·         A general business corporation seeks to purchase the non-professional assets of a NYS State CPA firm.

The Department is committed to upholding the provisions of Education Law and Regents Rules, which guarantee that professional services are provided by licensed professionals without undue influence from unlicensed third parties who are not subject to the same professional responsibility requirements of such law and rules. As the nature of professional practice and business relations evolves, we will expect an increasing number of requests for interpretation and clarification. This discussion item briefly outlines the pertinent legal and regulatory framework for corporate practice along with current issues that highlight the complexities involved in the topic of corporate practice of the professions.

            The OP provides further guidance on its website with respect to Corporate Entities:[6]

·         Licensed professionals may set up a professional service corporation (PC), a professional service limited liability company (PLLC) or a registered limited liability partnership (LLP) if they want to be incorporated, organized as a limited liability company or registered as a limited liability partnership. Generally, licensed professionals may not set up a general business corporation (GBC) to provide professional services.[7]

·         Except where specifically authorized by law, a general business corporation may not:

        • provide professional services to the public;

        • exercise any judgment over the delivery of professional services;

        • have employees who offer professional services to the public;

        • hold itself out as offering professional services; or

        • share profits or split fees with licensed professionals. (emphasis added)

·         A GBC may employ licensed professionals to provide in-house on site services to its own employees. For example, General Motors may employ a company nurse to provide services to the employees of General Motors. However, General Motors may not set up a business to provide these services

to the public.

·         A GBC may provide services used by professionals. In these cases, there must be a clear distinction between who is providing professional services and who is providing the management services. Failing to do so may result in professional misconduct and/or unlicensed practice of the profession. For example, a GBC may:

        • find jobs for licensed professionals;

        • find licensed professionals for potential employers; and

        • manage the services of licensed professionals, including providing services to the professional for a fee, e.g., scheduling or billing.

·         A professional corporation may not serve as a management services corporation. A PC may only provide services in its field. For example, a hypothetical PC named "Occupational Therapists For Everyone, PC" may only provide occupational therapy services. It cannot offer physical therapy services, speech services or any other professional services. Also, because it is allowed only to provide professional services, it can only manage the services that it provides. That is, it cannot provide management services to other occupational therapists. (emphasis added)

·         A professional service limited liability company may provide professional services in more than one profession[8] provided that the company includes an "owner" (i.e., member, manager, shareholder, partner) licensed in each of the professions in which the company will offer services. For example, the hypothetical LLC, Health Professionals, has seven members: an acupuncturist, an audiologist, a nurse, an occupational therapist, a physical therapist, a psychologist, and a speech-language pathologist. This LLC may provide services in all of these professions. It may not, however, provide respiratory therapy or optometry services, because none of its "owners" are licensed in those two professions. Additionally, a special education teacher may not be a partner in a LLC because its owners must all be professionals licensed in the professions in which the company is authorized to provide services.  (emphasis added)

For an experienced attorney familiar with health law issues such as the corporate practice of medicine doctrine and unlicensed medical practices, contact Michael H. Cohen today.


[1] According to the OP:

Section 1503 of the Business Corporation Law states that a certificate or certificates issued by the licensing authority certifying that each of the proposed shareholders, directors, and officers is licensed and currently registered to practice the profession which the corporation is being organized to practice must be attached to the Certificate of Incorporation of every professional service corporation. If the corporation is one of those authorized to practice more than one profession (i.e., a corporation practicing the design professions), the Certificate must certify that at least one individual is licensed and registered to practice each profession the corporation will practice.

[2] Scott I. Einiger & Stacy Steinberg, Building A Medical Corporate Structure: Structural Defects Could Cost You Dearly Part II (2007).

[3] The Report states:

It is clear that business corporations cannot hire a licensee to provide professional services because the law neither authorizes such action nor provides an exemption. This [limitation] serves to protect the public from a business relationship that could place constraints upon professional judgment, unduly limit professional practice, invade the professional integrity of the professional, or permit the business to make professional decisions.

                The Society adds:

The Office of the Professions has also commented on this issue in a statement entitled “Corporate Entities for Professional Practice.” This document plainly states that, except where “specifically authorized by law,” a general business corporation may not “have employees who offer professional services to the public.” Further, the Board of Regents remarked that if a general business (not professional) corporation has hired professional staff and since a corporation acts through its employees, it can be guilty of “practicing medicine” through employment of professional staff. According to the Board of Regents, this unauthorized practice of medicine would be a crime and referred to the Attorney General’s office. The nurse or professional hired by the general corporation could also be guilty of professional misconduct for sharing in the profits of their practice with the corporation. Therefore, the severity of failure to comply is manifest. In sum, no licensed professional staff should be employed by a lay entity, and thus professional staff should be compensated through a professional entity in order to avoid violation of the corporate practice of medicine doctrine.

[4] Sometimes the law authorizes licensees in different professions to provide overlapping services. Some examples of this include the following. Section 8505(2) permits duly licensed health care providers to perform respiratory therapy modalities, if those modalities are within the other profession's scope of practice. Section 7805(1) authorizes physicians, nurses, physical therapists, chiropractors, and podiatrists to practice massage therapy. Section 7906(2) clarifies that the occupational therapy practice act does not prevent qualified members of other licensed professions from performing work incidental to the practice of those professions.

An individual practitioner, professional partnership, professional corporation, professional limited liability partnership, and a professional limited liability company are all authorized to offer professional services. The general authority of the New York Partnership Law permits the formation of professional partnerships. Thus, two or more licensees in the same profession may form a professional partnership to engage in business and share in the profits. In accordance with Article 8B of the Partnership Law, licensees may form a professional limited liability partnership by registering with the State Education Department and the Department of State. This organization is similar to a professional partnership, but may be formed by members of certain different professions to offer multi-disciplinary services.

[5]“The one exception is that the design professions of engineering, land surveying, architecture, and landscape architecture may incorporate to offer those design services in one professional service corporation. Similar to a professional corporation, licensees may form a professional service limited liability company to offer single or multi-disciplinary services. The attachment describes these entities. Additionally, Article 137 stipulates that all pharmacy stores, wholesalers, and manufacturers must be registered by the Education Department and operated under strict provisions of law and regulations before selling drugs and prescriptions.”

[6] The OP states that this interpretation is based on the following statutes: Education Law, Title 8, Article 130, Section 6507; Business Corporations Law, Articles 4, 15 and 15-A.

[7] The site adds: “There are a number of exceptions to the general rule prohibiting the practice of the professions by an entity that is not specifically established to provide professional services such as a professional services corporation. One such exception is a hospital that is authorized to provide health services pursuant to the public health law. Other exceptions include entities established to offer optometry, ophthalmic dispensing, massage therapy, pharmacy, speech-language pathology and audiology services.” (Emphasis added)

[8]Note that this does not apply in the professions of medicine, dentistry, veterinary medicine, licensed clinical social work, mental health counseling, psychoanalysis, creative arts therapy, or marriage and family therapy.”

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