Navigating the California Corporate Practice of Medicine “CPM” Prohibition

CPM is a variation of the statutory prohibition against unlicensed practice of medicine. CPM states enforce the prohibition against corporations practicing medicine by requiring a separation between medical/clinical decisions made by physicians and business decisions made by corporations.  This generally means that physicians cannot be employed by non-medical professional corporations or LLCs absent an exception [these are usually very limited and do usually apply to a for-profit corporation].

In this regard, The California Medical Board (CMB) states that the following clinical decisions should only be made by a California-licensed physician and would constitute the unlicensed practice of medicine if performed by an unlicensed person:

• Determining what diagnostic tests are appropriate for a particular condition.
• Determining the need for referrals to, or consultation with, another physician/specialist.
• Determining how many patients a physician must see in a given period of time or how many hours a physician must work.
• Responsibility for the ultimate overall care of the patient, including treatment options available to the patient.

In addition, the following “business” or “management” decisions and activities, resulting in control over the physician’s practice of medicine, should be made by a licensed California physician and not by an unlicensed person or entity:

• Ownership is an indicator of control of a patient’s medical records, including determining the contents thereof, and should be retained by a California-licensed physician.
• Selection, hiring/firing (as it relates to clinical competency or proficiency) of physicians, allied health staff and medical assistants.
• Setting the parameters under which the physician will enter into contractual relationships with third-party payers.
• Decisions regarding coding and billing procedures for patient care services.
• Approving of the selection of medical equipment and medical supplies for the medical practice.

The types of decisions and activities described above cannot be delegated to an unlicensed person, including (for example) management service organizations (MSO). While a physician may consult with unlicensed persons in making the “business” or “management” decisions described above, the physician must retain the ultimate responsibility for, or approval of, those decisions.

The following types of medical practice ownership and operating structures also are prohibited:

• Non-physicians owning or operating a business that offers patient evaluation, diagnosis, care and/or treatment.  (This includes a joint venture or being a shareholder in the physician’s PC, even if a minority shareholder).
• Physician(s) operating a medical practice as a limited liability company, a limited liability partnership, or a general corporation.
• Management service organizations arranging for, advertising, or providing medical services rather than only providing administrative staff and services for a physician’s medical practice (non-physician exercising controls over a physician’s medical practice, even where physicians own and operate the business).
• A physician acting as “medical director” when the physician does not own the practice.  For example, a business offering spa treatments that include medical procedures such as Botox injections, laser hair removal, and medical microdermabrasion, that contracts with or hires a physician as its “medical director.”

California Law also requires that advertising for an entity such as a medical spa must include the physician’s name or the name for which the physician has a fictitious name permit, and notes that California law prohibits many advertising practices currently being used. The CMB cautions that the patients are the physician’s patients, and must be treated as such – not as those of the non-physician entity.

Finally, a recent development is that in January 2017, California exempted certain rural hospitals from the CPM ban. As health care moves toward a value-based system, it is likely that there will need to be more exemptions to the CPM ban.