Corporate Practice of Medicine Laws

Welcome to MD Ranger’s Compliance 101 blog series, where we break down the basics of physician compensation compliance. This week, let’s discuss the legislature related to the corporate practice of medicine.

The Medical Practice Act, or the corporate practice of medicine doctrine, states that corporations cannot employ physicians to practice medicine. We know what you’re thinking: “Wait, what about hospitals?” Well, there are exceptions, aren’t there?

Why the Medical Practice Act?

The doctrine exists to restrict the commercialization of medicine as a practice. There are concerns about the differing obligations of a corporation and a physician. A corporation acts in the interest of its shareholders; a physician prioritizes his or her patients. Involving corporate interests in that physician’s practice could jeopardize the physician-patient relationship. A corporation might be tempted to involve itself in physicians’ medical decisions, which could endanger patients and the medical practice as a whole.

State Laws

Every state has its own laws and exceptions regarding the corporate practice of medicine. Most states prohibit corporate employment of physicians, but with important exceptions. These exceptions include employment by professional corporations (like medical groups) and certain types of healthcare organizations (like hospitals). In fact, every state allows professional corporations to employ physicians, but with certain restrictions. They often delineate how medical groups must be structured and demand that a majority of members (if not all) be physicians. This limits the number of stakeholders with external, corporate interests.

Many states have exceptions allowing hospitals to employ physicians, although how explicit these exceptions are depends on the state. Written into many of these exceptions are clauses prohibiting hospitals from interfering with a physician’s professional judgment when it comes to the practice of medicine.

You might ask, how are hospitals less likely to involve commercial interests than any other corporate entity? The reasoning behind this exception lies in the laws preserving physicians’ independence as medical professionals. As long as the hospital does not interfere with a physician’s decision-making, the practice of medicine should remain safe from potentially harmful corporate interests.

Federal regulations like Stark Law and the Anti-Kickback Statute come to mind here; both of these laws exist to further manage the potential for illegal activity (such as rewarding referrals) that can come of these corporate relationships.

At MD Ranger, we survey physician compensation arrangements for non-employed physicians, or physicians who are not directly employed, but bill and collect for services they provide to a hospital or health system under a contract.

Do you have questions about physician arrangements and compliance? Want to learn how MD Ranger could help your organization build a strong compliance program? Email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to talk to one of our experts.

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