Medical Board of California confirms ban on the corporate practice of medicine

E-mail to Medical Board of California:

I have a question about non-profits. My understanding, is that, in California, it is illegal for a non-physician to hire physicians.

I wrote a piece for O’Shaughnessy’s last year reporting on the MBC decision to be published in the upcoming Winter 2008 issue of O’Shaughnessy’s Journal of Cannabis in Clinical Practice; Board Makes Mikuriya Ruling “Precedential”

In this article, I made the statement that, in California, it is illegal for a non-physician to hire physicians and got the below response from a lay-owner of a chain of clinics.

So what is the rule, and under what circumstances can this lay-ownership ban be ignored?
I am not out to get anyone in trouble, but want a level playing field.

Thanks!
Frank H. Lucido MD

State of California
DCA
Department of Consumer Affairs

RE: Corporate Practice of Medicine Inquiry

Dear Dr. Lucido:

I write on behalf of the Medical Board of California (Board) and in response to your electronic mail message to the Board regarding the corporate practice of medicine. Specifically, you inquired as to whether California’s ban on the prohibition of the corporate practice of medicine (“the prohibition”) extends to nonprofit corporations and clinics that may be operated by a nonprofit corporation.

As I am sure you are aware, section 2400 of the Business and Professions Code establishes California’s prohibition against the corporate practice of medicine. Section 2401 of the Code sets forth certain exceptions from the prohibition. I have enclosed that section for your review.

We also note that the courts have held that a corporation is not exempt from the prohibition simply because it is organized under the nonprofit corporation law. (See California Physicians Service v. Aoki Diabetes Research Institute [ADRI] (2008) 78 Cal.Rptr,3d 646,653; See also 83 Ops.Cal.Atty.Gen. 170, fn 2 (2000).) The ADRI court noted that previous courts have recognized the danger of lay control, a danger that attends all types of corporations. (Ibid.)

Please be advised that your inquiry does not provide the Board with sufficient facts to offer additional guidance on a specific set of circumstances. Please contact me if you have any questions.

Sincerely,

DOROTHEA JOHNSON
Deputy Director, Legal Affairs

By KURT HEPPLER
Senior Staff Counsel

Enclosure

California Business and Professions Code Section 2400

Corporations and other artificial legal entities shall have no professional rights, privileges, or powers. However, the Divisionof Licensing may in its discretion, after such investigation and review of such documentary evidence as it may require, and under
regulations adopted by it, grant approval of the employment of licensees on a salary basis by licensed charitable institutions, foundations, or clinics, if no charge for professional services rendered patients is made by any such institution, foundation, or clinic.

California Business and Professions Code Section 2401

(a) Notwithstanding Section 2400, a clinic operated primarily for the purpose of medical education by a public or private
nonprofit university medical school, which is approved by the Division of Licensing or the Osteopathic Medical Board of California, may charge for professional services rendered to teaching patients by licensees who hold academic appointments on the faculty of the university, if the charges are approved by the physician and surgeon in whose name the charges are made.

(b) Notwithstanding Section 2400, a clinic operated under  subdivision (p) of Section 1206 of the Health and Safety Code may
employ licensees and charge for professional services rendered by those licensees. However, the clinic shall not interfere with, control, or otherwise direct the professional judgment of a physician and surgeon in a manner prohibited by Section 2400 or any other provision of law.

(c) Notwithstanding Section 2400, a narcotic treatment program operated under Section 11876 of the Health and Safety Code and regulated by the State Department of Alcohol and Drug Programs, may employ licensees and charge for professional services rendered by those licensees. However, the narcotic treatment program shall not interfere with, control, or otherwise direct the professional judgment of a physician and surgeon in a manner prohibited by Section 2400 or any other provision of law.

(d) Notwithstanding Section 2400, a hospital owned and operated by a health care district pursuant to Division 23 (commencing with Section 32000) of the Health and Safety Code may employ a licensee pursuant to Section 2401.1, and may may charge for professional services rendered by the licensee, if the physician and surgeon in whose name the charges are made approves the charges. However, the hospital shall not interfere with, control, or otherwise direct the physician and surgeon’s professional judgment in a manner prohibited by Section 2400 or any other provision of law.


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Comments
  • Frank H. Lucido M.D.

    Below is the email message I sent on 9/11/09 which prompted the response above.
    FL

    Medical Board of California:
    I have a question about non-profits.
    My understanding, is that, in California, it is illegal for a non-physician to hire physicians.

    I wrote a piece for O’Shaughnessy’s last year reporting on the MBC decision:
    (To be published in the upcoming Winter 2008 issue of O’Shaughnessy’s; Prior issues online at:http://www.ccrmg.org/journal.html)
    Board Makes Mikuriya Ruling “Precedential”

    Entire article linked at end of this email.
    In this article, I made the statement that, in California, it is illegal for a non-physician to hire physicians.
    and got the following response (also below) from a lay-owner of a chain of clinics.

    So what is the rule, and under what circumstances can this lay-ownership ban be ignored?
    I am not out to get anyone in trouble, but want a level playing field.

    Thanks!
    Frank Lucido

    Frank H. Lucido MD
    Family Practice since 1979
    Medical Cannabis Consultation
    Expert Witness
    2300 Durant Avenue
    Berkeley Ca 94704
    510.848.0958 (by appointment only)
    http://www.DrFrankLucido.com
    (formerly MedicalBoardWatch.com)
    http://www.AIMLegal.org
    http://www.DrFrankLucido.blogspot.com

    On Jan 31, 2008, at 5:03 PM, xxxxxx wrote:
    Dr. Lucido,

    First, I would like to thank you for your work and deedication to patient care. I have read your articles in O’Shaunassey’s and found them useful and informative.

    I run xxxxxxx with offices in xxxxxxxx. We do not work with any dispensaries in any state. We do not refer patients to dispensaries, nor do we dispense cannabis ourselves at all. Our website is xxxxxxx for more info.

    We do not schedule patients without documentation from another MD or DO of an existing qualifying condition. We have an extensive questionaire, based on the one developed in CA by CCRMG physicians. We have an 8 stage process we follow when patients come to our clinic.
    …….
    …….

    I do not consider our clinics to be “mills” and we strive to provide quality care. We are a nonprofit organization.

    Upon consulation with the California Medical Board last year, as we were preparing to open our first clinic in California, the Board told me that nonprofit corporations are excempt from the physician ownership requirement. Nonprofits can own a medical facility and employ physicians legally in the state of California. FYI…

    Thanks again for your work.

    Best regards,
    xxxxxx

    —– Original Message —-
    From: Frank Lucido MD
    To: “Frank Lucido, MD”
    Sent: Wednesday, January 30, 2008 9:56:54 PM
    Subject: MedBoardWatch: Medical Board Makes Mikuriya Ruling “Precedential”

    Board Makes Mikuriya Ruling “Precedential”

    By Frank Lucido
    http://www.drfranklucido.com/pages/newsletter-jan-feb-2008.php

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