Thirty-three states plus the District of Columbia have rules on their books against the so-called corporate practice of medicine. But over the years, critics say, companies have successfully sidestepped bans on owning medical practices by buying or establishing local staffing groups that are nominally owned by doctors and restricting the physicians’ authority so they have no direct control.
These laws and regulations, which started appearing nearly a century ago, were meant to fight the commercialization of medicine, maintain the independence and authority of physicians, and prioritize the doctor-patient relationship over the interests of investors and shareholders.
Those campaigning for stiffer enforcement of the laws say that physician-staffing firms owned by private equity investors are the most egregious offenders. Private equity-backed staffing companies manage a quarter of the nation’s emergency departments, according to a Raleigh, N.C.–based doctor who runs a job site for ED physicians. The two largest are Nashville, Tenn.–based Envision Healthcare, owned by investment giant KKR & Co., and Knoxville, Tenn.–based TeamHealth, owned by Blackstone.
Court filings in multiple states, including California, Missouri, Texas, and Tennessee, have called out Envision and TeamHealth for allegedly using doctor groups as straw men to sidestep corporate practice laws. But those filings have typically been in financial cases involving wrongful termination, breach of contract, and overbilling.
Now, physicians and consumer advocates around the country are anticipating a California lawsuit against Envision, scheduled to start in January 2024 in federal court. The plaintiff in the case, Milwaukee-based American Academy of Emergency Medicine Physician Group, alleges that Envision uses shell business structures to retain de facto ownership of ED staffing groups, and it is asking the court to declare them illegal.
“We’re not asking them to pay money, and we will not accept being paid to drop the case,” said David Millstein, lead attorney for the plaintiff. “We are simply asking the court to ban this practice model.”
‘Possibility to reverberate throughout the country’
The physician group believes a victory would lead to a prohibition of the practice across California – and not just in ERs, but for other staff provided by Envision and TeamHealth, including in anesthesiology and hospital medicine. The California Medical Association supports the lawsuit, saying it “will shape the boundaries of California’s prohibition on the corporate practice of medicine.”
The plaintiff – along with many doctors, nurses, and consumer advocates, as well as some lawmakers – hopes that success in the case will spur regulators and prosecutors in other states to take corporate medicine prohibitions more seriously. “Any decision anywhere in the country that says the corporate ownership of a medical practice is illegal has the possibility to reverberate throughout the country, absolutely – and I hope that it would,” said Julie Mayfield, a state senator in North Carolina.
But the push to reinvigorate laws restricting the corporate practice of medicine has plenty of skeptics, who view it as an effort to return to a golden era in medicine that is long gone or may never have existed to begin with. The genie is out of the bottle, they say, noting that the profit motive has penetrated every corner of health care and that nearly 70% of physicians in the United States are now employed by corporations and hospitals.
The corporate practice of medicine doctrine has “a very interesting and not a very flattering history,” said Barak Richman, a law professor at Duke University. “The medical profession was trying to assert its professional dominance that accrued a lot of benefits to itself in ways that were not terribly beneficial to patients or to the market.”
The California case involves Placentia-Linda Hospital in Orange County, where the plaintiff physician group lost its ED management contract to Envision. The complaint alleges that Envision uses the same business model at numerous hospitals around the state.
“Envision exercises profound and pervasive direct and indirect control and/or influence over the medical practice, making decisions which bear directly and indirectly on the practice of medicine, rendering physicians as mere employees, and diminishing physician independence and freedom from commercial interests,” according to the complaint.
Envision said the company is compliant with state laws and that its operating structure is common in the health care industry. “Legal challenges to that structure have proved meritless,” Envision wrote in an email. It added that “care decisions have and always will be between clinicians and patients.”
TeamHealth, an indirect target in the case, said its “world-class operating team” provides management services that “allow clinicians to focus on the practice of medicine and patient care through a structure commonly utilized by hospitals, health systems, and other providers across the country.”