Corporate practice of medicine laws exist in most states to keep corporations and other non-physician entities from directing how doctors treat patients.
But at a private equity investment roundtable hosted by George Washington University Law School’s Health Law and Policy Program, one panel, moderated by Jonathan Henderson, health care mergers and acquisitions co-chair at Polsinelli, examined how the Corporate Practice of Medicine doctrine, known as CPOM, and related fee-splitting prohibitions have shaped private equity’s approach to acquiring physician practices.
The May 12 event convened economists, investors, physicians, attorneys and policymakers across five panels to examine private equity’s growing presence in physician practices.
Here are five takeaways from the discussion:
1. CPOM bans were built to keep control in physicians’ hands. Mr. Henderson was joined on the panel by Bill Hoffman, health care alignment and organization co-chair at Polsinelli, and Jamie Ostroff, chief legal officer and general counsel at the California Medical Association. The panelists walked through the historical background of CPOM, which generally prohibits non-physicians from owning medical practices or exercising control over clinical decisions.
2. MSOs are the mechanism that makes private equity ownership work around CPOM. Private equity firms have used management services organizations to acquire the non-clinical assets and administrative functions of a practice while a physician remains the nominal owner of the clinical entity. The MSO manages billing, staffing, real estate and other operations under a services agreement, while the physician-owned practice retains the license and, on paper, clinical authority.
3. Fee-splitting rules have long accommodated this arrangement. The panelists said the MSO model is not a workaround improperly avoiding CPOM restrictions so much as a structure the laws themselves have long accommodated. Fee-splitting prohibitions, which bar dividing medical fees between physicians and non-physicians, have historically been read alongside CPOM to permit management fee arrangements as long as a physician retains formal ownership and clinical decision-making authority within the practice entity.
4. Investors describe the model as aligned with, not opposed to, patient care. That framework was echoed later in the day by investors describing their rationale for pursuing physician practice deals. Panelists on a separate discussion, including Richard Dutton, chief quality officer at US Anesthesia Partners, and Tae Kim, CEO at AllerVie Health, said they look for fragmented markets, room for growth and physician alignment when evaluating a potential acquisition, arguing that sound investment and sound patient care are not in conflict.
5. States are testing tighter CPOM enforcement, but the tradeoffs are contested. Some states have moved to tighten CPOM enforcement in response to consolidation concerns. Critics of that approach argue it can disadvantage independent physicians relative to hospitals and health systems, which face fewer CPOM restrictions to begin with. The roundtable’s closing panel, moderated by Barak Richman, JD, the Alexander Hamilton professor of business law and co-director of GW Law’s Health Law and Policy Program, called for more impartial research comparing outcomes at private equity-owned, hospital-owned and independently owned practices before drawing conclusions about which ownership structures are harmful.
GW Law’s Health Law and Policy Program said it plans to continue convening research and expertise on the issue as state legislatures, federal agencies and courts continue to weigh in on private equity’s role in physician practices.
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