BILL ANALYSIS �
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|Hearing Date:June 13, 2011 |Bill No:AB |
| |783 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 783Author:Hayashi
As Amended:April 7, 2011 Fiscal: No
SUBJECT: Professional corporations: licensed physical therapists and
occupational therapists.
SUMMARY: Adds licensed physical therapists and licensed occupational
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 (Moscone-Knox
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. (Corporations Code (CORP) � 13400 et seq.)
2)Specifies in the Moscone-Knox 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:
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a) Medical corporation : Licensed doctors of podiatric medicine,
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.
d) 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. (CORP � 13401.5)
3)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. (CORP � 13408.5)
Existing law within the Business and Professions Code:
1)Establishes the Physical Therapy Act (PT Act) which is enforced by
the Physical Therapy Board of California (PT Board) to regulate the
practice of physical therapy.
2)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
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medicine.") (Business & Professions Code (BPC) � 2400)
3)Exempts medical or podiatry professional corporations organized and
practicing pursuant to the Moscone-Knox Act and requires a majority
of the owners or shareholders of the corporation to be licensed
physicians and surgeons or podiatrists, respectively. (BPC � 2402)
4)Defines a medical or podiatry corporation as a corporation which is
authorized to render professional services, as defined in the
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 Act, as
specified. (BPC � 2406)
5)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. (BPC � 650)
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. (Id.)
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. (Health and Safety Code Section 445)
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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. (Id.)
This bill:
1) Adds licensed physical therapists and licensed occupational
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.
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) Makes other technical, non-substantive, and conforming changes.
FISCAL EFFECT: None. This bill has been keyed "nonfiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. This measure is co-sponsored by the California Medical
Association , the California Orthopaedic Association and the
California Podiatric Medical Association . They assert that this
bill is essential to correct an unintentional oversight in the law,
by merely adding physical therapists to the long list of other
providers such as podiatrists, optometrists, psychologists,
chiropractors and acupuncturists who may be employees of medical
corporations. They indicate that the employment of physical
therapists by medical corporations has existed for over 30 years,
and no one has questioned the legality of these arrangements until
recently when a Legislative Counsel Opinion stated that since
physical therapists were not specifically listed in statute, they
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could not be employees of medical corporations.
Additionally, the Author states, "Since 1990, the Physical Therapy
Board of California has allowed physical therapists to be employed
by both medical and podiatric corporations and general
corporations. The Board's resolution titled "Physical Therapy
Corporation Ownership by a Layperson" determined that the
Moscone-Knox Professional Corporation Act was intended to cover
medicine, dentistry, and law, and not physical therapy. This
resolution was rescinded on November 3, 2010. At the same time,
the Board reacted to a separate Legislative Counsel opinion which
stated that, as the law currently stands, a physical therapist may
be subject to discipline for providing physical therapy services as
an employee of a medical corporation, or any professional
corporation other than a naturopathic corporation. The Board then
drafted a letter, threatening those physical therapists employed by
medical and podiatric medical corporations with the choice of
losing their jobs or having the Board take action against their
license to practice physical therapy.
This bill will prevent the unnecessary loss of employment during this
economic recession by allowing medical and podiatric medical
corporations to continue to employ physical therapists, as they
have done for over 21 years. The rescission of this policy
threatens the livelihood of most licensed physical therapists,
those who are currently employed by physicians and other health
practitioners, hospitals, home health care services, and nursing
care facilities. It is essential that these physical therapists
continue to provide necessary care to their patients. There are
over 15,000 physical therapists in California today, with an
average growth of 440 jobs each year, according to the Employment
Development Department. About 80 percent work in offices of
physicians and other health practitioners, hospitals, home health
care services and nursing care facilities."
2. Background.
a) Professional Corporations. SB 53 (Moscone), Chapter 1375,
Statutes of 1968, among other provisions, established the
Moscone-Knox Professional Corporations Act codified in the
Corporations Code commencing with Section13400. SB 53 included
in the definition of a corporation any professional corporation
incorporated pursuant to Section 13400, which at that time was
limited to medical, law and dental corporations. Legislative
analysis and background information on SB 53 indicated that
"these professional corporations are being authorized so that
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they will meet the requirements set forth in the Internal Revenue
Code Regulations (citations omitted) relating to professional
corporations. These regulations require a professional
corporation to have: (1) associates, (2) an objective to carry on
business and divide the profits therefrom, (3) continuity of
life, (4) centralization of management, (5) liability for
corporate debts limited to corporate property, and (6) free
transferability of interests. If the professional corporation
has these characteristics, it can deduct contributions to profit
sharing or pension trusts, created for its shareholders which are
denied to the noncorporate doctor, dentist, or lawyer."
Additionally, background information points out that SB 53
permits professional persons licensed under the Business and
Professions Code to render their services through corporations
and thereby obtain certain benefits of the corporate form of
doing business. Both the licensed persons involved and the
corporations are made subject to the regulatory provisions
applicable to the particular profession, and share ownership and
the performance of the professional services is limited to
licensed persons.
Subsequent legislation expanded the list of health care
professional corporations. For example, in 1977, SB 629
(Presley) Chapter 1126, Statutes of 1977, authorized a licensed
psychologist to own shares and participate in a medical
corporation and authorized a physician to own shares and
participate in the operation of a psychology corporation.
AB 1112 (Moorhead, Chapter 472, Statutes of 1979) authorized a
registered nurse to own shares in a medical corporation and
entitles such corporation to practice medicine and nursing, as
specified. Background information for both bills indicates that
these measures allowed health care professionals to provide
comprehensive medical services for patients and offer tax and
personal liability protections accorded by such formations. In
1980,
AB 2885 (Chapter 1314, Statutes of 1980) was enacted and authorized
audiologists and speech pathologists to be shareholders,
officers, or directors in a speech pathology or audiology
corporation and practice their respective professions in the name
of such professional corporations. It was also in AB 2885, where
the present format of Corporations Code Section 13401.5 was
codified, including authorizing licensed psychologists and
registered nurses to be shareholders, officers, directors or
professional employees of medical corporations.
b) Corporate Practice of Medicine (CPM) Ban. The law regarding
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the corporate practice of medicine generally prohibits
corporations or other entities that are not controlled by
physicians from practicing medicine to ensure that lay persons
are not controlling or influencing the professional judgment and
practice of medicine by licensed physicians and surgeons.
California codifies this prohibition in BPC � 2400 et seq. A
study done by the California Research Bureau (CRB) in October of
2007, indicates, however, that although the CPM prohibition has
an historical and legal basis, most states today, including
California, allow a number of exemptions including those for
health maintenance organizations, professional medical
corporations, teaching hospitals and certain community clinics
and non-profit organizations. The CRB calls into question the
utility of the CPM doctrine and whether it makes sense in light
of the statutes and regulations that directly address concerns
raised by the doctrine regarding employment of physicians and
surgeons and because of today's changing health care landscape.
Section 2402 of the BPC exempts medical or podiatry corporations
practicing pursuant to the Moscone-Knox Professional Corporation
Act from the CPM ban when such corporations are in compliance
with specified statutes. Additionally, professional corporations
such as psychological, speech-language pathology, audiology,
nursing, marriage and family therapists, licensed clinical social
workers, optometric, chiropractic, acupuncture, naturopathic
doctors, and dental corporations are authorized to render
professional services if certain requirements are met.
c) 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,
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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
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
relationships and referrals between practitioners from occurring
would be undermined by allowing physical therapists to become
part of a medical or podiatric medical corporation.
3. Legal Opinions on Employment of Physical Therapists by Medical
Corporations. On September 29, 2010, Legislative Counsel issued a
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written opinion, requested by Assemblymember Nava, on whether a
physical therapist may be subject to discipline by the PT Board for
providing physical therapy services as an employee of a medical
corporation. In reaching an affirmative conclusion, the opinion
indicated that corporations only possess those powers that are
expressed in statute, and are generally prohibited from practicing
learned professions, such as medicine. The opinion pointed out
that this prohibition, also known as the ban on corporate practice
of medicine, was intended to protect the public from the corporate
control of the practice of medicine. However, there are codified
exemptions to this ban, including allowing medical and podiatry
corporations, practicing pursuant to, and in compliance with, the
Moscone-Knox Act. Additionally, Section 13401.5 of the
Moscone-Knox Act authorizes the formation and operation of
professional corporations engaged in rendering professional
services, including medical, podiatry, chiropractic, acupuncture,
and nursing corporations. For each of the enumerated professional
corporations, Section 13401.5 lists certain licensed persons who
may be shareholders, officers, directors, or professional employees
of that professional corporation. The opinion provided that since
Section 13401.5 enumerated a list of licensed professionals who
could be professional employees of medical corporations, and
physical therapists were not included in the list, physical
therapists are prohibited from providing physical therapy services
as employees of a medical corporation.
The opinion next discussed the basis for the PT Board taking action
against a physical therapist employed by a medical corporation.
The opinion indicated that since the PT Act provides that it is
unprofessional conduct to violate, attempt to violate, aid, abet,
or conspire to violate any provisions of the PT Act, the
Moscone-Knox Act, or any regulations, and since physical therapists
are prohibited from serving as employees of a medical corporation,
it concluded that physical therapists employed by medical
corporations could be subject to discipline by the PT Board. In
the same manner, since a medical corporation is not authorized to
employ physical therapist to provide physical therapy services, a
medical corporation that does so would be unlawfully engaging in
the practice of physical therapy and falls outside the exception on
the ban on the corporate practice of medicine.
On February 28, 2011, the Department of Consumer Affairs (DCA) issued
an opinion on the same issues, and reached the same conclusion as
Legislative Counsel. Additionally, DCA points out that since
naturopathic doctor corporations includes physical therapists in
the list of licensed professionals who could serve as shareholders,
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directors, officers or professional employees of a naturopathic
corporations, only naturopathic corporations are authorized to
employ physical therapists.
4. Related Legislation.
a) SB 924 (Walters) allows patients to initiate physical
therapy treatment directly from a licensed physical therapist,
provided the treatment is within the scope of practice of a
physical therapist. SB 924 was held in the Senate
Appropriations Committee and is a two-year bill.
b) AB 1152 (Anderson, Chapter 53, Statutes of 2010) was heard
by this Committee on July 6, 2009 and failed passage. At that
time, AB 1152 contained similar provision as this measure. AB
1152's subject matter was eventually amended to deal with
horseracing issues.
c) AB 721 (Nava) of 2009, is substantially similar to the
provisions of SB 924; providing direct access to care by
physical therapists. AB 721 failed passage in the Assembly
Business & Professions Committee.
d) AB 1444 (Emmerson) of 2008, would have revised the
definition of physical therapy and authorized a physical
therapist to initiate treatment of conditions within the scope
of physical therapist, as specified. AB 1444 was referred to
the Assembly Business & Professions Committee but the hearing
for the bill was cancelled by the Author.
e) 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. Proponents of this measure such as Kaiser
Permanente , the California Society of Anesthesiologists , California
Labor Federation , and the UFCW indicate that because of the recent
legal opinions that the employment and jobs of physical therapists
and occupational therapists with these medical corporations has
been called into question, and that they are now threatened with
action by the state, that this bill is necessary. They indicate
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that this bill will clarify existing law to allow physical
therapists to be employed by medical corporations and preserve the
employment relationships that currently exist.
The Occupational Therapy Association of California states that
occupational therapists are currently employees of a medical
practice or physician owned clinics and should have the choice of
being employed by medical corporations.
6. Arguments in Opposition. The California Physical Therapy
Association (CPTA) states the sole purpose of this measure is to
place physicians, podiatrists, and chiropractors in the position of
controlling the access point for consumers/patients to physical
therapy services, then allowing them control the service itself.
CPTA states that this situation poses an inherent conflict of
interest, removes choice for the consumer, and runs counter to
studies showing that self-referral by physicians to services in
which they have an ownership interest results in unnecessary and
inadequate care and higher costs for both consumers and payers.
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 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.
Additionally, CPTA indicates that this legislation sets up an unfair
competition with physical therapist-owned clinics, and if enacted
could cause many physical therapist-owned clinics to close their
doors and severely limit the ability of hospitals to staff
adequately and meet the needs of Californians.
7. Should the Committee Consider Allowing Direct Access to Physical
Therapy Services? One of the major concerns raised by CPTA is that
this measure would allow physicians and surgeons to control the
access points for physical therapy services. One of the bills that
passed out of this Committee on May 2, 2011, is SB 924 which would
have allowed some form of direct access to physical therapists by
allowing patients to initiate physical therapy treatment directly
from a licensed physical therapist without a referral from a
physician, provided the treatment is within the scope of practice
of a physical therapist. However,
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SB 924 was held in the Senate Appropriations Committee as a two-year
bill. The Committee may want to consider including some form of
direct access for physical therapy services if there are concerns
that access or referral to physical therapy services may be
seriously impacted or jeopardized by this measure.
SUPPORT AND OPPOSITION:
Support:
California Medical Association (Co-Sponsor)
California Orthopaedic Association (Co-Sponsor)
California Podiatric Medical Association (Co-Sponsor)
California Chiropractic Association
California Hospital Association
California Labor Federation
California Society of Anesthesiologists
California Society of Physical Medicine and Rehabilitation
California Teamsters Public Affairs Council
Kaiser Permanente
Occupational Therapy Association of California
Western States Council of the United Food & Commercial Workers (UFCW)
Individual Physical Therapists
Opposition:
California Physical Therapy Association
Individual Physical Therapists
Consultant: Rosielyn Pulmano