Sunday, September 20, 2009

California Law Against Corporate Practice Of Medicine: Bill Pending In Legislature to Allow Certain Hospitals To Hire Physicians

California has one of the strictest laws against the Corporate Practice of Medicine (CPM). Presently, there is a bill pending in the Legislature, SB 726 (Ashburn), that would allow certain hospitals to hire physicians.

Under current law, hospitals are generally barred from hiring physicians as employees. The CPM Act prohibits corporations and other artificial legal entities from having professional rights, privileges, or powers in relation to the practice of medicine. Further, under the CPM doctrine, the state prohibits hospitals and other entities from employing physicians to provide professional services. This law was created to prevent corporations, other entities or non-professionals from unduly influencing the professional judgment and practice of medicine by licensed physicians.

There is a large and heated debate about this bill. The bill is sponsored by the California Hospital Association and is supported by AFSCME, a labor union interested in unionizing doctors. The California Medical Association (CMA) is vigorously opposing this bill.

The argument in favor of this bill is that California's rural areas face a critical shortage of doctors. People are having difficulty seeing physicians, especially since the inland regions of the state have far fewer doctors than other areas. In addition, there is problem with access to doctors in the inner cities. Why is this? Because many in these areas are uninsured and doctors are reluctant to move to communities where they cannot make a living. Republican Senator Ashburn, who introduced this legislation, believes that one of the reasons is that California is one of the last few remaining states that do not allow hospitals to directly hire physicians.

The CMA opposes this bill on 5 grounds:

(1) The ban on corporations practicing medicine is an important protection for patients in California hospitals. This protection ensures that those who make decisions that affect the provision of medical services (a) understand the quality of care implications of that medical service; (b) have a professional ethical obligation to place the patient’s interest first; and (c) are subject to the Medical Board of California.

(2) The CMA contends that SB 726 will erode the quality of care in California hospitals. It will grant control over treatment decisions to hospital CEOs and administrative staff who have different motivations and mandates than physicians. This will create conflicted loyalties in an institution that must remain true to the patient’s interests, and will erode the quality of care patients receive in California hospitals.

(3) CMA believes that placing doctors under the oversight of hospital administrators and CEOs who are under enormous pressures to cut costs or increase revenue will threaten the independent medical judgment necessary to ensure patients are protected.

(4) CMA also posits that hospitals are already interfering with medical staffs’ ability to ensure quality care through independent self-governance. For example, some hospitals have adopted medical management protocols which have resulted in inappropriate hospital tests, procedures, and stays, jeopardizing patients and increasing costs.

(5) Finally, CMA argues that allowing a hospital to directly employ a physician will NOT increase access to physician services. The hospital will push patients to their preferred provider thereby controlling the competitive market. Other non-employed physicians will not be able to compete and likely be forced out of town resulting in no increased access.

Attorney Commentary: We can expect to see shifts in the corporate practice of medicine doctrine in California over the next 10 years. There are exceptions for HMOs and the laws in other states are significantly different in allowing non-professionals to own medical practices and/or hire physicians. Regardless of whether this bill is passed or not, the debate about loosening the rules against the corporate practice of medicine in California will continue as there are proposals for significant changes to our health care system.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed health care providers. Their website is:


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