Corporate Practice
The long-standing bar on the corporate practice of medicine in California is being skirted in the struggle to control the structuring of health care.

By David Gibson, MD

The California Medical Association has petitioned the state Superior Court to consider whether the University of California, Los Angeles violated the state bar on the corporate practice of medicine. In CMA et al. v. Regents of University of California, the CMA alleges that after acquiring Santa Monica Hospital, UCLA implemented a business plan that coerced private-practice anesthesiologists to become UC employees, thus violating the bar. UCLA claims it is exempt because all activities in its facilities are "teaching activities" – which should have a familiar ring for physicians here in Sacramento. The CMA supports the teaching mission but argues that any protection UCLA has under the law is restricted to those teaching activities as a commercial purveyor of medical care.

What is the "Corporate Practice of Medicine" and why is it important? The policy in Business and Professions Code Section 2400 is intended to prevent unlicensed persons from interfering with or influencing the physician's professional judgment; thereby, protecting patients from commercial exploitation.

The following represents the Medical Board of California's perspective on the corporate practice of medicine1 and some behaviors and subtle controls the doctrine is intended to prevent. These health care decisions should be made by a physician licensed in California and would constitute the unlicensed practice of medicine if performed by an unlicensed person:

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

These decisions and activities cannot be delegated to any unlicensed person, including (for example) management service organizations. Unlicensed persons may be consulted on such decisions, but the physician must retain the ultimate responsibility for, or approval of, them.

There is a "looking glass" quality to the principals above. Sacramento physicians are experiencing progressive encroachment of their professional autonomy. Hospital systems such as Sutter and Catholic Healthcare West routinely acquire the assets of physicians and skirt the corporate practice issue by segregating the physicians into professional corporations (which may not hold up to scrutiny). UC Davis pioneered the corporate strategy now being implemented by UCLA. Finally, HMOs have routinely crossed the line into clinical decision-making.

The clinical decision-making activities of the HMOs are precipitating a groundswell of litigation in state courts. The Kaiser Family Foundation recently documented that doctors overwhelmingly experience HMOs denying coverage for treatments that they and their patients felt were necessary, and that these denials often resulted in a decline in patient health.2

 Society has a significant stake in this issue. In a recent provocative book,3 James Robinson, Professor of Health Economics at the UC Berkeley, School of Public Health, contends that how physicians are organized is central to determining the structure of the health care system. Physician organizations -- multispecialty medical groups, Independent Practice Associations, physician practice management firms and physician-hospital organizations -- have adopted the larger corporate sector’s forms of ownership, governance, finance, compensation and marketing.

Robinson argues that health care corporatization is irreversible parallels trends in the world economy. He highlights similarities of competition and consolidation in medicine with other sectors of the economy.4

Arguments for eliminating the Corporate Practice of Medicine generally are based on economics. They include hidden costs in fee-for-service medicine -- overtreatment, rampant inflation, and uncritical professional dominance of treatment decisions. Not everyone shares Robinson's views of health care, but he challenges any return to the inefficient and inequitable era of medicine from which we've just emerged.

The struggle to control the structuring of health care and defining of the physician’s role in the system is now joined. The central role of physician entrepreneurship is a critical component in California’s evolving health care future. Physicians should not be passive observers as this issue evolves in the courts and in the public policy arena in California.

David J. Gibson, MD

1 January 1999 issue of the Medical Board of California's Action Report.
2 Kaiser Family Foundation survey; 1999.
3 The Corporate Practice of Medicine - Competition and Innovation in Health Care by James C.  
   Robinson; (California/Milbank Series on Health and the Public, 1); The University of California
   Press, November 1999.
4 Review:

David J. Gibson, MD 2001