BILL ANALYSIS                                                                                                                                                                                                    







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        |Hearing Date:July 13, 2009         |Bill No:AB                         |
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                     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,  





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             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  





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          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:






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        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  





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             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  





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             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  





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          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  





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          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