CORPORATE PRACTICE OF MEDICINE

The corporate practice of medicine doctrine is based upon concerns that a corporation employing a physician would threaten the ability of the physician to freely exercise medical judgment, intrude on the physician/patient relationship, and share improperly in physician fees. Corporate practice of medicine issues may arise in the course of a physician compensation arrangement, depending on whether an entity will be employing a physician, and the type of entity employing the physician.

Relevant Statutes

Washington has no statute that expressly prohibits a hospital from employing a physician. Several statutes, however, are relevant to the issue.

Washington's Uniform Disciplinary Act prohibits unlicensed practice defined as: "Practicing a profession or operating a business identified in 18.130.040 without holding a valid . . . license to do so." RCW 18.130.020(6)(a).

Another statute provides that "no person may practice or represent him or herself as practicing medicine without first having a valid license to do so." RCW 18.71.021.

The Professional Service Corporation Act grants authority for the corporate practice of medicine, provided all the shareholders are licensed to practice medicine. RCW 18.100.020(2), .050.

The Medical Malpractice Prevention Act of 1986, RCW 70.41.230, contemplates the hiring of physicians by hospitals, stating that: "prior to ... hiring a physician, a hospital or facility approved pursuant to this chapter shall request from the physician ... the following information..."

Case Law

The case of Morelli v. Ehsan, 110 Wn.2d 555, 564 (1988) addressed the issue of corporate practice of medicine, holding that a physician and a non-physician accountant could not operate a medical clinic as partners. Authorities are divided on whether the case should be extended to prohibit hospitals from employing physicians or whether it is limited to prohibiting the unauthorized practice of medicine by a layperson in a partnership. Many states recognizing the corporate practice of medicine doctrine have provided exceptions for nonprofit and governmental institutions, whose boards are responsible to their communities; however, Washington has not.

Proposed Legislation

Legislation has been proposed to clarify the corporate practice of medicine doctrine in Washington. In the 1998 Legislative session, the Legislature passed a bill that abrogated the corporate practice of doctrine. However, Governor Locke vetoed that bill and the Legislature either did not have the votes or chose not to override the veto. The Governor's stated reason for vetoing the bill was that enforcement agencies such as the FBI asked to retain the doctrine because it provided a helpful tool in the fight against fraud and abuse. The issue is likely to reemerge in a future legislative session.

As with the state Anti-rebate statute, state enforcers have generally ignored this doctrine. However, private parties have used the doctrine to gain advantages in private relationships, as was the case in Morelli. More recently, a prominent automobile insurance company has started to use the doctrine to avoid payment for physician therapy services provided to its insureds, where the insurance company believes that the entity providing the physical therapy services are not organized in compliance with the doctrine. Other insurance companies are considering taking this same stance. Thus, compliance with the doctrine is something that should be considered in all physician compensation arrangements.

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