Washington Supreme Court Adheres to Corporate Practice of Medicine Doctrine and Clarifies the Scope of Anti-Rebate Statute
Yesterday in a unanimous decision, the Washington Supreme Court affirmed the viability of the corporate practice of medicine doctrine and clarified the interpretation of Washington’s anti-rebate statute, RCW ch. 19.68. Columbia Physical Therapy, Inc., P.S. v. Benton Franklin Orthopedic Assocs., PLLC, No. 81734-1 (March 18, 2010), available here. This decision is of interest to any business entity that employs any licensed health care providers. Such entities should confirm whether or not such employment falls within a statutory exception to the doctrine.
The Corporate Practice of Medicine Doctrine
Citing a Washington Supreme Court decision from 1956 (which in turn relied on a South Carolina Supreme Court decision from 1938), the Columbia Physical Therapy court observed “the commercialization of professions would destroy professional standards and the duties of professionals to their clients are incompatible with the commercial interests of business entities.” Noting the corporate practice of medicine doctrine is intended to overcome these concerns, the court stated, “we . . . adhere to the traditional understanding that the corporate practice of medicine doctrine forbids employment of health care professionals by business entities or nonprofessionals absent legislative authorization.” In the case before it, the court then found the legislature had authorized a physician-owned professional service corporation to employ physical therapists, and therefore the defendant professional service corporation had not violated the corporate practice of medicine doctrine.
Much of the Columbia Physical Therapy court’s decision analyzes the legislative authorization for professional service corporations to practice medicine under Washington’s Professional Service Corporation Act, RCW ch. 18.100 (PSCA). Significantly, the PSCA does not expressly authorize professional service corporations to practice medicine. Instead, the PSCA authorizes the formation of professional service corporations “for the purpose of rendering professional service.” Thus, the court noted, a professional service corporation is authorized to provide the services for which its shareholders or members are authorized, in this case medicine. The court then concluded that “[p]hysical therapy is one aspect of the practice of medicine” and therefore physical therapy services are part of the same professional services as the practice of medicine. As a result, the court held that the defendant physician professional service corporation, whose members are licensed to practice medicine, is entitled to employ other persons licensed to practice medicine, in this case physical therapists.
Columbia Physical Therapy would seem to suggest that if an entity is organized as a hospital under RCW ch. 70.41, which is authorized to furnish medical and surgical services, that entity should be permitted to employ licensed health care professionals, including physicians, to deliver such services without running afoul of the corporate practice of medicine doctrine. The decision did not discuss statutory authorization beyond professional service corporations, however, so the full reach of this decision remains to be seen.
Washington’s Anti-Rebate Statute, RCW ch. 19.68.
At issue in Columbia Physical Therapy is whether profits from physical therapy services received by the physician-owners of the professional entity employing the physical therapists who rendered such services were “unearned profits” in violation of the anti-rebate statute (RCW ch. 19.68). Although acknowledging the anti-rebate statute is “not a model of clarity by any means,” the court reiterated its interpretation that the statute prohibits both paying and receiving anything of value, including unearned profits, in return for a referral of patients but noted the statute does not apply to profits earned by an employee of a firm and flowing to the firm’s owners, provided the owners practice in the firm.
The court stated that harmonizing the anti-rebate statute (enacted in 1949) with the PSCA (enacted 20 years later) makes clear that the legislature did not intend to prohibit licensees who practice together through a lawful business arrangement from receiving compensation for the professional services rendered by other members of the same firm. Thus, the court found that because the profits in question in Columbia Physical Therapy were from physical therapy services furnished by employees of the same firm as the referring physicians, such profits were not “unearned” and therefore not barred by the anti-rebate statute. Had the physical therapists been practicing in a separate entity owned by the referring physicians but through which the referring physicians did not themselves practice, the Columbia Physical Therapy court stated that any profits earned by the referring physicians from their referrals to the physical therapists would violate the anti-rebate statute. Licensed professionals who own multiple business entities and who may refer to such entities are wise to re-evaluate those relationships in light of Columbia Physical Therapy.