BILL ANALYSIS ----------------------------------------------------------------------- |Hearing Date:July 13, 2009 |Bill No:AB | | |1152 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Gloria Negrete McLeod, Chair Bill No: AB 1152Author:Anderson As Amended:July 8, 2009 Fiscal: No SUBJECT: Professional corporations: licensed physical therapists. SUMMARY: Adds licensed physical therapists to the list of licensed health care professionals who under existing law could be shareholders, officers, directors, or professional employees of a medical corporation , podiatric medical corporation or chiropractic corporation , so long as the sum of all shares owned by the licensed persons does not exceed 49% of the total number of shares of the professional corporation, as specified. Existing law within the Corporations Code: 1)Establishes the Moscone-Knox Professional Corporation Act which regulates the formation and operation of professional corporations. Defines a professional corporation as a corporation organized under the General corporation law, as specified, or a corporation that is engaged in rendering professional services in a single profession. 2)Specifies in the Moscone-Knox Professional Corporation Act that specific licensed persons may be shareholders, officers, directors or professional employees of professional corporations so long as the sum of all shares owned by those licensed persons does not exceed 49% of the total number of shares of the professional corporation and so long as the number of those licensed persons owning shares in the professional corporation does not exceed the number of persons licensed by the governmental agency regulating the designated professional corporation. Provides that specified licensed professionals may be shareholders, officers, directors of professional employees under the following: a) Medical corporation : licensed doctors of podiatric medicine, AB 1152 Page 2 licensed psychologists, registered nurses, licensed optometrists, licensed marriage and family therapists, licensed clinical social workers, licensed physician assistants, licensed chiropractors, and licensed acupuncturists, and naturopathic doctors. b) Podiatric medical corporation : licensed physicians and surgeons, licensed psychologists, registered nurses, licensed psychologists, registered nurses, licensed optometrists, licensed chiropractors, licensed acupuncturists, and naturopathic doctors. c) Chiropractic corporation : licensed physicians and surgeons, licensed doctors of podiatric medicine, licensed psychologists, registered nurses, licensed optometrists, licensed marriage and family therapists, licensed clinical social workers, licensed acupuncturists, and naturopathic doctors. 3)Naturopathic doctor corporations : licensed physicians and surgeons, licensed psychologists, registered nurses, licensed physician assistants, licensed chiropractors, licensed acupuncturists, licensed physical therapists, licensed doctors of podiatric medicine, licensed marriage, family, and child counselors, licensed clinical social workers, and licensed optometrists. 4)States that no professional corporation may be formed so as to cause any violation of law, or any applicable rules and regulations, relating to fee splitting, kickbacks, or other similar practices by physicians and surgeons or psychologists, including, but not limited to, Section 650 of the Business and Professions Code. Provides that a violation of any such provision is grounds for the suspension or revocation of the certificate of registration of the professional corporation. Existing law within the Business and Professions Code: 1)States that corporations and other artificial legal entities have no professional rights, privileges or powers. Prohibits corporations and other artificial legal entities which are not owned by physicians from having any professional rights, privileges, or powers (known as the "prohibition against the corporate practice of medicine.") Exempts medical or podiatry professional corporations organized and practicing pursuant to the Moscone-Knox Professional Corporations Act and requires a majority of the owners or shareholders of the corporation to be licensed physicians and surgeons or podiatrists, respectively. 2)States that a medical or podiatry corporation is a corporation which is authorized to render professional services, as defined in the AB 1152 Page 3 Corporations Code, so long as that corporation and its shareholders, officers, directors and employees rendering professional services who are physicians, psychologists, registered nurses, optometrists, podiatrists or, in the case of a medical corporation only, physician assistants, are in compliance with the Moscone-Knox Professional Corporation Act, as specified. 3)Provides that the offer, delivery, receipt, or acceptance by any person licensed under the Healing Arts Division of the Business and Professions Code and the Chiropractic Initiative Act (including but not limited to physicians, podiatrists, osteopaths, psychologists, acupuncturists, optometrists, dentists, and chiropractors) of any rebate, refund, commission, preference, patronage, dividend, discount, or other consideration, whether monetary or otherwise, as a compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest or ownership in or with any person to whom these patients, clients, or customers are referred is unlawful. 1)States that a violation of item # 2), above, is a public offense and is punishable upon a first conviction by imprisonment in the county jail for not more than one year, or by imprisonment in the state prison, or by a fine not exceeding $50,000, or by both imprisonment and a fine. Specifies that a second or subsequent conviction is punishable by imprisonment in the state prison or by imprisonment in the state prison and a fine of $50,000. Existing law within the Health and Safety Code: 1)Prohibits a person, firm, partnership, association, corporation, agent or employee thereof, from, for profit, referring or recommending a person to a physician, hospital, health-related facility, or dispensary for any form of medical care or treatment of any ailment or physical condition. The imposition of a fee or charge for any such referral or recommendation creates a presumption that the referral or recommendation is for profit. 2)States that a violation of item # 1), above, shall constitute a misdemeanor and upon conviction thereof, may be punished by imprisonment in the county jail for no longer than one year, or a fine of not more than five thousand dollars ($5,000), or by both such fine and imprisonment. This bill: AB 1152 Page 4 1)Adds licensed physical therapists to the list of licensed health care professionals who under existing law could be shareholders, officers, directors, or professional employees of a medical corporation , podiatric medical corporation and chiropractic corporation so long as the sum of all shares owned by the licensed persons does not exceed 49% of the total number of shares of the professional corporation, as specified. 2)Conforms the definition of medical or podiatry corporation contained in the Business and Professions Code to the Corporations Code, and includes in the list of licensed professionals who could be a shareholder, officer, director or employee of a medical or podiatry corporation the following: chiropractors, acupuncturists, naturopathic doctors, physical therapists, and in the case of a medical corporation only, marriage and family therapists, or clinical social workers. 3)Specifies that the provisions of the Moscone-Knox Professional Corporation Act are declaratory of existing law. FISCAL EFFECT: Unknown. This bill is keyed "non-fiscal" by Legislative Counsel. COMMENTS: 1.Purpose. According to the Author, this bill is a clean-up bill that would add licensed physical therapists to the list of healing arts practitioners who may be shareholders, officers, directors, or professional employees of medical corporations or podiatric medical corporations. According to the California Podiatric Medical Association (CPMA), the Sponsor of this bill, counsel for the Department of Consumer Affairs informed some members of the CPMA that it is impermissible for a podiatric medical corporation or a medical corporation to employ a physical therapist. CPMA states that the rationale for this opinion is that in 2003, when the Naturopathic Practice Act was enacted, it specifically established the list of professionals that were naturopathic doctors were authorized to employ, including physical therapists. The list of professionals that a medical corporation or a podiatric corporation can employ never included physical therapists, despite the fact that both corporations have employed physical therapists for years. 2.Background. a) Professional Corporations. The Moscone-Knox Professional Corporations Act states that specified healthcare licensees may AB 1152 Page 5 be shareholders, officers, directors or professional employees of medical or podiatric medical corporations, so long as the sum of all shares owned by those licensed persons does not exceed 49% of the total number of shares of the professional corporation and so long as the number of those licensed persons owning shares in the professional corporation does not exceed the number of persons licensed by the governmental agency regulating the designated professional corporation. Currently, the list of licensed health care licensees that could be employed by medical or podiatric medical corporations excludes physical therapists. The main reasons for the formation of professional corporations are the tax and personal liability protections accorded by such formations. b) Business and Professions Code Section 650. Both Congress and California enacted legislation to protect against unnecessary or unreasonably costly referrals by physicians and other health professionals to facilities in which they had a financial interest and where the health care practitioner could profit based on the volume of referrals made . This legislation at the federal level and in California took the form of specific prohibitions against referrals where certain specified financial interests of the referring practitioner were involved. This longstanding policy relating to the prohibitions against receiving payments or some other form of compensation for referring patients for health care services has been embodied in Section 650 of the Business and Professions Code and Section 445 of the Health and Safety Code since the early 1990's. These provisions were enacted to protect consumers from unnecessary and excessive health care costs, referrals based on considerations other than the best interests of the patients, deceit and fraud, payment to a licensee where professional services have not been rendered, and to ensure medical professionals make judgments about rendering services uninfluenced by their own financial interests. ". . .the evil to be proscribed by Section 650 '. . .is not just the payment for the referral, but also any relationship where the referral may be induced by considerations other than the best interests of patients. . ." [63 Ops.Cal.Atty.Gen.89,92 (1980)] Under the federal physician self-referral prohibition (commonly known as the "Stark Law"), a physician is prohibited from AB 1152 Page 6 referring to an entity for certain "designated health services" if he or she has an ownership interest or a compensation arrangement with the entity. In addition, the referral recipient is prohibited from submitting a claim or receiving payment for services provided pursuant to a prohibited referral. Because a "compensation arrangement" is defined as one which involves any form of remuneration, direct and indirect, the federal law applies to every financial relationship between an entity and a physician, and likely to intermediaries and Internet based service providers who facilitate transactions between the physician and the provider of designated health services. "Designated health services" include outpatient prescriptions and radiology services. The federal law creates an absolute prohibition on referrals regardless of intent unless the financial relationship or the referral falls within a stated exception. Hence, failure to find an exception to the federal law's prohibition is generally fatal to a transaction. One of the exceptions provided under the federal law is for personal service arrangements where remuneration from an entity meets several specific requirements including that the remuneration not exceed their fair market value. It is unclear how these prohibitions may apply to this bill, or if the intent of Section 650 in prohibiting certain financial relatiohships and referrals between practitioners from occurring would be undermined by allowing physical therapists to become part of a medical or podiatric medical corporation. 3.DCA Oral Opinion. Prior to last year, medical and podiatric medical corporations employed physical therapists. However, late last year, a DCA attorney informed some members of the CPMA that the DCA believes that it is now impermissible for a podiatric medical corporation or a medical corporation to employ physical therapists. According to DCA, in 2003, when SB 907 (Burton, Chapter 485, Statutes of 2003) created the Naturopathic Doctors Act, the list of licensed professionals that naturopathic doctors were authorized to employ included physical therapists. DCA argues that since the list of professionals that medical and podiatric medical corporations can employ did not explicitly include physical therapists, the law prohibits both professional corporations from hiring physical therapists. This bill allows medical and podiatric medical corporations to employ physical therapists, and CPMA argues, prevents the termination of the employment of physical therapists by medical and podiatric AB 1152 Page 7 medical corporations. Since existing law allows medical corporations and podiatric medical corporations to employ other licensed health care professionals including psychologists, nurses, optometrists, chiropractors, acupuncturists, and naturopathic doctors, it appears such professional corporations should be permitted to employ physical therapists. 4.Prior Legislation. SB 907 (Burton, Chapter 485, Statutes of 2003) created the Naturopathic Doctors Act, and created the naturopathic corporations which allowed the employment by naturopathic doctors of licensed physicians and surgeons, psychologists, nurses, physician assistants, chiropractors, acupuncturists, physical therapists, doctors of podiatric medicine, marriage, family, and child counselors, clinical social workers, and optometrists. 5.Arguments in Support. According the California Medical Association , and the California Orthopaedic Association , this bill provides needed clarification to existing law. If the law is not clarified, both argue, medical or podiatric corporations would be forced to change into other business models in order to hire physical therapists, or fire all of their physical therapy employees. 6.Oppose Unless Amended. The California Chiropractic Association has taken an oppose unless amended position on this bill and claims that this bill is written narrowly and only benefits medical or podiatric corporations. It is requesting that this bill be amended so that chiropractic corporations are also allowed to employ physical therapists. This measure was recently amended to allow chiropractic corporations to employ physical therapists. This appears to address the concerns of the Association. 7.Oppose. The California Physical Therapy Association (CPTA) has taken an oppose position on this bill and argues that this bill allows medical corporations to control the point of access to physical therapy services and allows physicians to refer patients to themselves. CPTA argues that this practice poses an inherent conflict of interest, removes choice for the consumer and sets up an unfair competition with physical-therapist owned clinics and could cause many physical therapist-owned clinics to close their doors. CPTA provided the Committee with several background materials on the effect of increased utilization of physical therapy services. One of this background information is a memo from the Office of the Inspector General (OIG) of the Department of Health and Human Services which indicated that based on a simple random sample of 70 physical therapy line items billed by physicians and rendered in the first 6 months of 2002, the OIG found that 91% of physical therapy AB 1152 Page 8 billed by physicians and allowed by Medicare during the first six months of 2002 did not meet program requirements, resulting in $136 million in improper payments. SUPPORT AND OPPOSITION: Support: California Podiatric Medical Association (Sponsor) California Medical Association California Orthopaedic Association Opposition: California Physical Therapy Association Various Physical Therapists Oppose unless amended : California Chiropractic Association Consultant:Rosielyn Pulmano