Corporate practice challenges medical management (MSO) organizations in New York AG action
This article was originally published at Cohen Healthcare Law Group
Corporate practice challenges medical management (MSO) organizations, especially in New York AG, as shown by recent enforcement action.
Corporate practice of medicine challenges medical management (MSO) organizations – the Big Why
The corporate practice of medicine rule forbids medical management organizations (MSOs) from getting too deeply enmeshed in the affairs of a medical practice.
In many states, the same prohibition applies to other licensed healthcare professions such as psychology and dentistry – so we have unlicensed and corporate practice of dentistry, unlicensed and corporate practice of psychology, and unlicensed and corporate practice of other licensed professions such as nutrition.
Why is corporate practice of medicine such a big deal?
Because doctors practice “medicine,” and laypersons can’t. Pure and simple.
This was an easy enough distinction when the medical licensing laws were first created, back when doctors came on horseback to visit patients in log cabins, some decades after the doctors of the day bled George Washington with leeches.
Since then, a few things have changed … for example, we are moving into the era of self-driving power (now that’s “horsepower!”).
And when we put logs in the fire in the home of the future, they’ll be “smart” (“hey, isn’t this cozy?”)
And leeches are people who suck your energy. You don’t put them on your body for medicinal purposes. When they come at you with “vacuum cleaner eyes” (as my energy healing teacher, Barbara Brennan, used to say) … you put on energy armor.
These days, if you want to offer a healthcare service or product, you usually end up interfacing with medical doctors.
Unless you’re purely in the complementary medicine domain, such as offering services as a chiropractor, acupuncturist, massage therapist, or Reiki practitioner. But even solo CAM (complementary and alternative medicine) practitioners are teaming up with medical doctors in integrative medicine clinics and practices.
So you’ll be reviewing corporate practice of medicine issues when you develop:
- a telemedicine project (that connects patients to online medical consults)
- a mobile medical app (that does telemedicine via the app, or has an algorithm providing medical capability)
- a medical spa (with brick-and-mortar operations integrating injectables and medical aesthetics and cosmetics)
- a medical device that includes medical personnel as well as medical technology
We’ve written extensively on corporate practice of medicine and psychology challenges in some of these settings.
Corporate practice of medicine concerns are particularly strong in California, and New York. (See New York’s Strong Corporate Practice of Medicine Requires a Professional Corporation for Professional Services).
Thor’s hammer swoops in New York corporate practice of medicine enforcement action
New York’s Attorney General initiated an enforcement action against a dental management company for corporate practice of dentistry. The principles apply to medical management companies as well.
The AG announced:
Agreement Requires Aspen Dental Management To Pay $450,000 In Civil Penalties After AG Investigation Found The Dental Management Company Was Engaged In The Unauthorized Practice of Dentistry and Dental Hygiene
Agreement Stops Illegal Fee Splitting between Aspen Dental and Dental Practices; Requires Aspen Dental Management To Be Clear It Is Not A Provider Of Dental Care
The AG commented:
“Medical and dental decisions should be made by licensed providers using their best clinical judgment, and should not be influenced by management companies’ shared interest in potential profits,” said Attorney General Schneiderman. “By enforcing New York’s laws banning the corporate practice of medicine and fee-splitting between medical practitioners and non-licensed individuals and entities, today’s agreement ensures that New Yorkers receive quality dental care.”
We had warned in our earlier post that New York’s Office of Professional Medical Conduct emphasized that blurring of the lines with MSOs could lead to enforcement:
Services of a managed care company blur the distinction between professional judgment and utilization review.
What were some of the enforcement triggers in the Aspen investigation?
- Extensive Consumer Complaints: There were over 300 consumer complaints to the AG about consumer experiences, including: “quality of care, billing practices, misleading advertising, upselling of medical services and products the consumers felt were unnecessary, and unclear or incomplete terms for the financing of dental care.”
- Extensive MSO Control: The MSO “did not merely provide arms-length, back-end business and administrative support to independent dental practices,” but rather “developed what amounts to a chain of dental practices technically owned by individual dentists but which, in violation of New York law, were subject to extensive control by” the MSO.
- Profit-Sharing; A Shared Trade Name: The control “included sharing individual clinic profits with the management company and the marketing by the management company under” a shared trade name.
- Control over Care via Banking Arrangements: The MSO “exercised undue control over the clinic’s finances by controlling substantially all of the dental practices’ bank accounts through a single consolidated account to which the clinic owners themselves did not have access.”
- MSO Revenue Based on Percentage Gross Profit: The MSO took a percentage of each dental office’s monthly gross profit — “an arrangement prohibited under New York law.”
- Over-broad non-compete and non-solicitation: The MSO “also subjected the dental practices to non-competition and non-solicitation agreements that effectively prevent the practices from competing with any other dental practice affiliated with” the MSO, regardless of location.
As a result, the AG forbade these practices going forward, fined the MSO $450,0000, and instituted a n independent monitor to oversee implementation.
Lessons Learned
The Aspen case reflects on some of the variables that can land a medical management company in hot regulatory waters, whether in New York, California, or other strong corporate practice of medicine states.
The practices above created a perfect storm for regulatory enforcement.
Prominent these were the volume of consumer complaints, and a compensation arrangement for the MSO that may be legal under some circumstances in California, but is illegal in New York–the MSO taking a percentage of gross profits of the medical or dental practice.
The AG also found excessive MSO control in the banking arrangements. This is an issue where many companies exercise business judgment as there are a variety of ways to structure flow of payments, some more conservative and others more aggressive; the point is that in an investigation, the more aggressive practices can be flagged along with a kitchen sink list of other violations. Significantly, here the arrangements provided that the “clinic owners themselves did not have access.”
And, the non-compete and non-solicitation apparently lacked geographic reasonableness – a factor which ordinarily might cause a judge to question the validity of these clauses in a civil lawsuit, but here in the context of an investigation, contributed to the AG’s conclusion that the MSO had gone too far in terms of control.
In our experience, healthcare ventures make business judgments, informed by legal counsel, that balance entrepreneurial practices with a knowledge of how to navigate the regulatory waters. When a healthcare company is too conservative, it fails on the revenue side; where too aggressive, it can incur regulatory ire.
Business judgment, like legal counsel, involves balance as well as savvy. It’s a kind of yoga — hot yoga — deep stretching and rapid movement, sweating guaranteed, and moments of true exhilaration.