Litigation Update: Corporate Practice Of Medicine

In recent years, the healthcare industry has witnessed a boom of practice mergers, consolidations, and acquisitions of medical practices and healthcare organizations. In doing so, many of these transactions involve a management services organization ("MSO"), which is an entity that provides administrative services to medical practices and healthcare organizations.

Many states generally require that medical care may only be provided by a duly-licensed healthcare provider or facility, and prohibits unlicensed corporations from treating patients and/or directing patient care. This is commonly known as the prohibition of the corporate practice of medicine or "CPOM," and each state varies in its application of CPOM, assuming it has such a prohibition. Parties involved in healthcare transactions must consider CPOM issues when creating an MSO.

There are only a few published cases addressing CPOM, and even less since In the Matter of Aspen Dental Management, Inc., No. 15-103, which was brought by the New York Attorney General.

Recently, however, a matter has been filed and is currently pending before the United States District Court for the Northern District of California, titled American Academy of Emergency Medicine Physician Group, Inc. v. Envision Healthcare Corporation and Envision Physician Services LLC, Docket No. 3:22-cv-00421-CRB, that raises CPOM issues. In this matter, the plaintiff, American Academy of Emergency Medicine Physician Group, Inc. ("AAEMPG"), alleges CPOM issues with Envision Healthcare Corporation and Envision Physician Services LLC (collectively "Envision").

The matter involves a legal dispute between two MSOs providing services to competing emergency medicine physician groups. The case stems from a California hospital's decision to award its emergency department contract to an emergency medicine physician group associated with Envision. AAEMPG, the MSO to the outgoing group, challenged the decision by filing a lawsuit in the Superior Court of the State of California alleging Envision's arrangement with the incoming group, Glass Beach Medical Services ("Glass Beach"), violates California's unfair competition laws.

AAEMPG's unfair competition claims principally allege that Envision's arrangement with Glass Beach violates California's prohibition on CPOM. Specifically, AAEMPG alleges in the Complaint that Envision effectively controls the provision of medical care by, among other things, controlling hiring and terminations, setting compensation, establishing terms of employment, setting staffing levels and patient encounter quotas, handling the billing and coding, and establishment of physician best practices and quality metrics.

The Complaint, however, lacks any allegation that Envision actually directed medical services or otherwise abrogated the independent clinical judgment of Glass Beach's physicians. Envision removed the matter from the Superior Court of California to the United States District Court for the Northern District of California on the basis of diversity of citizenship.

AAEMPG's allegations are just that, allegations, and no determinations regarding the matter have been rendered. This litigation, however, is one to monitor.

The Complaint filed by AAEMPG can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Khaled Klele
Riker Danzig LLP
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