Corporate Structure Can Endanger Your License

So, you have a high powered “Medical Lawyer” law firm prepare you corporate agreement which involves a business manager, practice manager and promotional group. They have separate corporate structures and share in revenues based upon a complex structure. Terms like “MSO” pepper the paperwork and the documents specifically forbid these non-physicians from practicing medicine. They do control scheduling, equipment purchases and establish protocols in the office that may affect how patients are treated. Sounds like Kaiser so what could be wrong ? Read on and beware.

The Medical Board Can File Charges for a Defective Corporate Structure

Doctors pay the price when lawyers get too fancy and create corporate structures that trigger a Medical Board inquiry. The fact that your lawyer created the structure may be mitigating but it will not (in most cases) absolve you of responsibility. Consider the Steinsmith case from 2000 where the structure led to charges that the doctor allowed non-physicians to practice medicine. They didn’t examine patients but their corporate influence went over a (vaguely) drawn line. Medical corporation problems regularly arise when the structure is viewed from a distance. The day to day function of the office is the focus of the medical investigators. The theoretical function as set forth in the corporate documents is informative but it is the day to day reality that drives the investigation. Consider what happened to Dr. William Steinsmith.

Steinsmith v. Medical Board of California (85 Cal. App. 4th 460)

In the California case, Steinsmith v. Medical Board of California 85 Cal. App. 4th 460 (2000) the court focused on the conduct of William Steinsmith who was a Board-licensed physician. His primary practice was performing disability evaluations of persons referred by the California Department of Social Services. He worked at the Bay View Medical Clinic in San Francisco as an independent contractor of the Clinic. He was the sole physician working there.


The Medical Board cited him for aiding the unlicensed practice of medicine in violation of Business and Professions Code section 2264. The basis for the citation was that he worked at the Clinic when he knew that it was partially owned by two individuals, Constancio Yu and Mary Downes, who did administrative work for the Clinic and were not licensed physicians.
The basic law is well known. The prohibition against practicing medicine without a license extends to any person “who advertises or holds himself or herself out as practicing” medicine, which is defined broadly to include among other things the diagnosis of ailments, diseases, injuries, or the “physical or mental condition of any person.” (§ 2052.) Medicine may be practiced in a partnership or group of physicians (§ 2416), but “[c]orporations and other artificial legal entities … have no professional rights, privileges, or powers” (§ 2400), and a “fictitious-name” permit to operate a facility called a ” ‘medical clinic’ ” can be issued only if the clinic is wholly owned by licensed physicians (§ 2415, subd. (b)).
The doctor argued that his corporate structure separated the business side from the medical practice.

The Court of Appeal disagreed stating (at page 465-466):


“Steinsmith contends that Yu and Downes did not practice medicine because they merely owned the Clinic and administered its business affairs. A similar argument was rejected long ago in Painless Parker v. Board of Dental Exam. (1932) 216 Cal. 285 [14 P.2d 67]. In that case, a licensed dentist was found to have aided and abetted the unlicensed practice of dentistry by a corporation he formed to own and operate dental offices. (Id. at pp. 289, 298.) The dentist argued, as Steinsmith does here, that the licensing requirements for the provision of professional services did not apply to “the purely business side of the practice.” (Id. at p. 295.) Our Supreme Court rejected that argument, holding: “The law does not assume to divide the practice of dentistry into such departments. Either one may extend into the domain of the other in respects that would make such a division impractical if not impossible. The subject is treated as a whole. If the contention of [the dentist] be sound, then the proprietor of the business may be guilty of gross misconduct in its management and violate all standards which a licensed dentist would be required to respect and stand immune from any regulatory supervision whatsoever. His employee, the licensed dentist, would also be immune from discipline upon the ground that he was but a mere employee and was not responsible for his employer’s misconduct, whether the employer be a corporation or a natural person.” (Id. at p. 296.) The opinion also referred to the basic rationale of the corporate practice prohibition: the potential for “a secondary and divided loyalty to the patient.” (Id. at p. 297.)”

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