Beware of the Corporate Practice of Medicine Doctrine In Pennsylvania

by Glenn P. Prives

Like many states, Pennsylvania has an established a corporate practice of medicine (“CPOM”) doctrine.  Like many states, Pennsylvania has particular details in its prohibition that can be traps for the unwary.

Pennsylvania’s CPOM doctrine originally grew out of the Neill v. Gimbel Brothers, Inc. case.  In that case, a department store leased space to a partnership, which operated the store’s optical department.  The rent payable to the store included a portion of the optometry practice’s revenue, the store could terminate the practice’s employees, including the optometrists, and the store set and collected the practice’s fees.  The Pennsylvania Supreme Court determined that this effectively allowed the department store to practice the profession of optometry.

The theme of the CPOM doctrine in Pennsylvania is similar to that of other states:  namely, physicians cannot be employed by non-physicians, and an entity that practices medicine may only be owned by licensed physicians.  There are, of course, some exceptions.  One particular exception permits health care practitioners to practice medicine as an employee or independent contractor of a health care facility or an affiliate of a health care facility established to provide health care.  A similar exception exists in other states as well, but it is important to keep in mind what can be considered a “health care facility.”

The CPOM doctrine is still alive in Pennsylvania today as evidenced by some recent case law.  While the case law is in the dental field, it is logical to think that the same pronouncements by the court in recent case law would carry over to the medical field.

In Apollon v. OCA, the Eastern District of Louisiana, applying Pennsylvania law, determined that a business services agreement between a dental practice and a management company was illegal due to the sharing of its profits by the dental practice with the management company under the agreement.  The court reasoned that the sharing of profits was akin to establishing a partnership between the practice and the management company, which would be illegal since only licensed persons, under Pennsylvania law, could own shares in a professional corporation.

Business service agreements between professional practices and non-licensee owned management companies are quite common across the country.  Many states have laws (statutes, regulations, case law, opinions, advisory opinions or otherwise) that govern the contents of these types of agreements.  Pennsylvania is clearly no exception.  Thus, it is crucial that parties entering into arrangements in Pennsylvania that may implicate the CPOM doctrine pay careful attention to the details of their relationships.