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Dynamic Chiropractic – October 6, 1997, Vol. 15, Issue 21

Legal and Business Observations

By Robert P. Borsody
The purpose of this paper is to answer some questions, clear up some misinformation and establish some baseline reference points on a topic and subject area that is increasingly talked about in both medical and chiropractic circles. This topic is the multidisciplinary practice. A multidisciplinary practice is a practice that can offer, through contracts of employment or consultant relationships, all the health care and healing professions and disciplines in one legal entity. It combines medical doctors (the term as used here also includes doctors of osteopathy) and other members of the healing professions, sometimes referred to as "alternative" medical providers, including chiropractors, podiatrists, physical therapists, etc.

This presentation will not be a "how to" manual to do the MD/DC. Many consultants are available to advise on this. This will be, rather, a discussion of a number of the issues that have arisen in the last several years which are increasingly becoming sources of concern for those persons working in this area, and for the purpose of shedding some legal light and business insight on these issues.

A multidisciplinary practice is not a device simply to change an existing chiropractic practice into a medical practice with a few legal documents. Nor is it a scam or a fraud to get medical doctors to sign chiropractor's bills, and thereby to bill chiropractic services at a higher medical rate. Nor is it a trick to get medical insurance coverage (and payment) for chiropractic treatment not otherwise covered by insurance.

A multidisciplinary practice is, and should be, a real, functioning medical practice, but with an important difference: it has more than just an MD or even specialty MDs as members. It has other alternative healing practitioners: chiropractors; physical therapists; massage therapists; podiatrists; acupuncturists; nutritionists; naturopaths, and other healers.


A few words about how the practice should be structured are in order, although again, a detailed examination of the legal structure is best left for another presentation.1 The practice is usually an MD owned professional corporation, because an MD professional corporation (an MD/PC) can employ all other professions, given the broad scope by law in each state of the MD's license.2 In some states (e.g., Florida) a business corporation can employ all professionals (except dentists). A business corporation can be owned by anyone, including DCs. The multidisciplinary practice is usually set up, and in most cases financed by chiropractors or businessmen, or a combination thereof. It is either owned directly by them in such states where that is possible (Florida); in those states where the legal form of the practice must be an MD owned PC, there are contractual relations between that PC and a management company. Those contractual relations must comply with all applicable laws, not the least of which are the particular state's professional practice act. These acts usually dictate, by statute, regulation or case law interpretation, the nature of the permissible relations between a medical entity, in this case a medical PC, and any nonmedical entity, such as a landlord, lessor or vendor of any supplies or services.3 All state professional practice acts have common themes.

Fee Splitting

For example, most states prohibit any percentage compensation contracts between a PC and a nonmedical entity.4 Some states, such as California, permit such percentage compensation contracts, so long as the amount paid to the nonmedical entity is set at fair market value.5 Most states will not permit this, however. The few courts that have examined the relationship between management companies and professional corporations have looked at an aggregate of elements of the relationship, and sometimes even look behind the documents and outside the four corners of the contract page. Two examples of the judicial interpretation of this subject come from opposite ends of the country and arrive at opposite results.

Two Leading Cases

The first case is a New Jersey case, Women's Medical Center at Howell v. Finley.6 In that case, the court found the terms of the management contract permissible between the management company and the medical PC. In the second case, Flynn Brothers, Inc. v. First Medical Associates,7 a Texas court found that the management company had overstepped the bounds of the state professional practice act, and was exerting excessive control over the medical PC, hence engaging in the illegal practice of medicine.

Both these cases should be studied closely by those who seek enlightenment in this area to determine the permissible parameters of management contracts specifically and, more broadly, to get a sense of the attitude of the courts towards this aspect of the "corporatization of medicine."

Relationship with the Medical PCs

Important also is the predilection of the state professional regulatory bodies to attempt to preserve the professional autonomy and integrity of medical PCs. The rationale here is to preserve the doctor-patient relationship, a long-standing public policy objective. Ownership, or at least control, of the medical PC by other than licensed MDs is viewed as antithetical to this rationale.

Control by Ownership

Most states require a medical PC to be 100 percent owned by a medically licensed doctor(s). There are a few variations. In California, for example, up to 49 percent of the stock of a medical PC may be owned by certain licensed professionals, including chiropractors. In some states, by regulation, chiropractors have been allowed to participate in equity ownership of a medical PC (e.g., New Jersey, in 1992,8 and Pennsylvania in 1994.9 At the time that these changes were put into effect, it was unclear what percentage, of ownership was permissible by chiropractors. Shortly thereafter, however, that issue was clarified by interpretive rulings that required that the majority of equity in the medical PC must be in the hands of MDs.10 The reasoning of these rulings is that control by other than MDs over medical practices would risk interference with clinical decisions of MDs employed in those practices.

This issue of influence over MD clinical decisions is dealt with differently in some states that allow non-MD ownership of medical entities. Guidelines are put in place, and other precautionary provisions exist to attempt to deal satisfactorily with the perceived problem of interference with doctor/patient relationships. For example, in Louisiana where a business corporation can employ an MD,11 legal interpretations state that there can be no interference with the clinical judgment of employed MDs by lay owners of business corporations that employ such MDs, as a condition of allowing such ownership.12

In all states, by statute, health maintenance organizations are permitted to employ MDs. Most states, by statute or case law interpretation, allow hospitals -- or, more generally, not-for-profit hospitals -- to do the same thing. Both hospitals and HMOs are usually owned by non-MDs. The rationale here, however, is that the state licensing of these entities and the continuing regulatory oversight of these licensed entities provides the requisite patient safeguards to prevent interference with employed MD clinical decisions.

Regarding the contractual relationship with PCs, a read of the Finley and the Flynn cases cited above will give a good summary of the permissible contours of contractual relationships between a management company and a medical PC. Generally, however, regulators and courts smile upon contracts which make clearly nonprofessional services available on an arms-length basis, for prices fixed in advance, at levels that are fair and reasonable by current market standards. Frowned upon are contracts that show excessive control over the corporate activities of the PC (e.g., the right to replace the shareholder); that show control over hiring, firing and disciplining of employed MDs; and that have excessive control over financial affairs of the PC (i.e., controlling all receipts and disbursements of the PC).

Most MDs rent their offices from someone else; many also rent equipment and buy diverse services from numerous vendors: billing services, collection, marketing, advertising, and clerical services. These relationships can never be illegal or even suspect, per se. Concentration of all these functions into one entity or document, however, and inclusion of frowned upon contractual provisions such as those described above is, for reasons that must be clear by now, fraught with peril.

Changes in Law and Policy

Those same state professional practice acts that now compel careful compliance in this area are in great flux, moving (with glacial swiftness in some states) under pressure of the increased "corporatization of medicine."13 The changes are not just "straws in the wind." There are forests of precedent and practice being laid low and carried away by forceful winds of change in this area. For example, Congressman Fortney "Pete" Stark of Los Angeles has sponsored a bill that would override any state law that prevented employment of MDs by business corporations that were federally certified to perform certain functions. There are examples of differential enforcement of these professional practice acts everywhere. These acts were the end product of years of lobbying and public relations by the medical establishment, which was at that time widely loved, respected, or feared. Times have changed.

The laws no longer have teeth; the teeth have varying degrees of sharpness depending upon whom they bite.

While national hospital chains or regional managed care powerhouses have the political clout to move with relative impunity among these laws, most don't.14 This is especially so if the subject of the enforcement or investigatory effort is a chiropractor, or is in some way associated with a chiropractor.

The popularity of the MD/DC concept among chiropractors has many causes, and this writer can only speculate on them. However, the groundswell of interest and numerous inquiries have been witnessed personally at many seminars and conferences. Although the concept of joining professionals (usually medical professionals) and nonmedical forces (usually businessmen or corporations) is certainly not new, it is new to chiropractors, and is especially relevant and useful to them.

Although there are a number of reasons why this is so, two are worth mentioning. First, a practicing chiropractor already has a flow of patients, some likely to need medical treatment. The opportunity exists to offer a comprehensive scope of services to the chiropractor's patients through the multidisciplinary practice in the medical PC, which could operate in or near the chiropractor's office. If the medical PC is functioning in the chiropractor's office on a space sharing basis, this is similar to an increasingly common form of practice for health care professionals who are under pressure to reduce overhead in the face of falling income.

Secondly, chiropractors often have an entrepreneurial and business- oriented personality which well adapts them to handle the many and complex issues involved in managing a multidisciplinary practice. These characteristics are often rare in other health care professionals.

Attitude of the Industry toward the MD/DC

As the concept of the multidisciplinary practice becomes more widely discussed and implemented, positions on the concept are taken with varying degrees of intensity by the elements of the health care industry.

Chiropractic associations generally do not favor the whole idea of chiropractic involvement with multidisciplinary practices, seeing it as a sort of perversion of the profession, a draining out of the "best and brightest" or, at least, a trap for the unwary.

Medical associations have shown concern for dilution of medical professional control over the multidisciplinary practice. They have taken the position that no matter how many or what kind of health care professionals work in the practice, if an MD is part of the team, there cannot be non-MD control over that practice. The rulings referred to above, requiring majority control by MDs over any medical professional corporation in New Jersey and Pennsylvania, are examples of this.

Regulatory agencies are generally puzzled by the new type of entity and are slow to take action, except at the request of medical or chiropractic associations. This is consistent with government's bemusement and inertia generally in the face of a rapidly changing health care delivery system. The bewildering proliferation of managed care entities (HMOs, PPOs, MSOs, PHOs, PSOs, PPMs, IPAs, TPAs, etc.), and the apparent resultant downward effect on health care costs, has made government reluctant to regulate what it does not quite understand, and when such regulation could have an undesired effect.

As for the payors, reimbursement sources are becoming more aware of the multidisciplinary practice and the reception has been mixed. A few notably managed care payors (HMOs and PPOs) have seized on the opportunity to contract for "one stop shopping," and to take advantage of the availability of lower cost professionals to perform services that would otherwise be performed by a higher cost MD. This is still rare, but could be the wave of the future with the increasing prevalence of this type of payor.

Conventional payors, particularly indemnity insurers, have shown caution, sometimes in circumstances where the facts seems to warrant it. For example, when a chiropractor assumes management of a medical PC; when that PC is located in the chiropractor's office; the PC is staffed by an MD who is seldom in physical attendance at the office; the only worker for the PC is the chiropractor who is performing services quite similar to those he performed on his chiropractic patients; and if most of the patients of the medical PC are former patients of that same chiropractor, an insurance company could, understandably, have reason to inquire as to the bona fides of that practice. If the insurance company also should see facts showing that all the patients referred from the chiropractor's practice had no chiropractic insurance, or had recently exhausted their chiropractic coverage (an example of the well known "walletectomy" procedure), then the suspicions of the insurance carrier can be expected to increase.

On the other hand, given the well-known propensity of some insurers to find the smallest reason to deny, delay or decrease payment for services rendered, even if all or most of the factors mentioned above are absent, the appearance of anything out of the ordinary can cause searching and prolonged inquiry and, of course, delay in payment while the inquiry continues. In Alabama, for instance, it is legal for an ordinary business corporation to employ an MD and practice medicine. Obviously anyone, including a chiropractor, can own an ordinary business corporation. It seems, however, that bills submitted by such new providers in that state are held up by the "Blues" while inquiry is made whether a chiropractor is part of the ownership of the new provider submitting the bill. This is just not fair, but it is a fact. Again, it appears to be simply another example of the differential application of laws and life to the chiropractic profession.

Another trend observed in those parts of the country where the MD/DC concept has been more widely applied is a more than conventional audit request: a deeper, more detailed inquiry beyond the usual insurance company request for SOAP notes. The request often asks for corporate documents, such as the certificate of incorporation, the bylaws, and even contracts between the medical PC and any management company. What doctor's office gets these requests? Yet there is a thread of logic in the course of questions from insurance companies when, through any source, the company has reasons to suspect the proper setup and operation of the medical PC (e.g., if some number of the factors described above are detected).

It is this writer's experience and information that third-party reimbursement issues predominate among the problems that arise out of the operation of MD/DC practices. Indeed, it is not too much to state that virtually all of the calls received by this writer, and the few others that do a great deal of this type of work, concern billing and reimbursement practices and procedures of the major types of payors. All the cases, investigations and prosecutions that this author has handled and heard about arise out of reimbursement issues. Sometimes the billing is done incorrectly through ignorance; sometimes it is "pushing the envelope" until it tears. The temptations are great because the apparent rewards are great. Large amounts may be paid by reimbursers at first, a multiple of what a similar patient volume DC practice would see, however, this alone could be cause for audits by payors. These audits must be expected for any professional practice of any type over a certain size and volume. There is nothing to fear from an audit if everything has been done properly. A clinically correct professional practice should never have reimbursement problems if the billing accurately reflects the clinically correct practices. While many readers may know of significant exceptions from this rule, they are not common, just well publicized. Close adherence to conservative and accepted billing practices along with proper legal structure of the multidisciplinary practice, leaves nothing to fear from any audit or inquiry from any regulator or payor.

In conclusion, it must be observed that the reasons and rewards are many for the participating professionals in a properly structured and conducted multidisciplinary practice. All such participants are better positioned to respond to changing consumer/patient needs and tastes, and payor requirements, especially managed care payors.


  1. For a survey of this topic, albeit a nontechnical one, see Borsody, Legal considerations when forming a multidisciplinary practice. Am. J. Pain Mgt. 28, Jan. 1995.
  2. A subtle distinction must be noted here that has given rise to questions and concerns from chiropractic groups and their advisors. There is little question that an MD can employ a DC and, indeed, all other of the so-called limited licensed professionals. However, an MD may only practice the profession that he is licensed in -- medicine. So, similarly, a medical PC is only licensed in most states to practice one profession -- medicine. Accordingly, the DC employed by an MD is employed only to practice under that MD (acting within the scope of the DC's license, training and experience), performing elements of the MD's practice which are delegated by that MD to the DC.
  3. An extensive analysis of these issues is beyond the scope of this article. If the writer included such detailed legal analysis, the chiropractor readers would probably nod off. If there was anything less than an extensive analysis, lawyers would bombard the writer with letters citing cases omitted.
  4. Contracts for billing and collection are not an exception. However, since it is the uniform practice for compensation in such contracts to be a small percentage of billing, it is widely winked at by regulators.
  5. ? 650 of the California Business and Professions Code.
  6. 192 NJ Super 44, 469 A2d 65 (Sup. Ct. App. Div. 1983).
  7. 715 S.W. 2d 782, TX Ct. of App., 5th Dist. 1986.
  8. NJAC ?13:35-6.16 generally and specifically NJAC ?13:35-6.16(f)(2). See, also, Kern, SBME overhauls health care delivery structure, J. Med. Soc. of NJ. Vol 89 #6, p. 469, June 1992.
  9. 49 PA Code ?16.21.
  10. For New Jersey, see opinion letter dated November 16, 1995 from Kevin B. Earle, Executive Director, State of New Jersey, Department of Law and Public Safety, Division of Consumer Affairs, Board of Medical Examiners.
  11. La. State Bd. Med. Exam. Statement of Position, Sept. 24, 1992.
  12. Letter dated June 9, 1993 from Robert J. Conrad, Jr. of Adams and Reese, counsel to the Louisiana State Board of Medical Examiners. See, also, Declaratory Ruling of the Alabama Medical Licensure Commission dated October 21, 1992.
  13. The new medical industrial complex, NEJM 1990, p. 1936.
  14. Increasingly, hospitals are using this device to manage "acquired" physician practices and numerous chains of physician "practice management" companies using similar devices are springing up everywhere like mushrooms after a spring rain.

About the author:

Robert P. Borsody, PC, does seminars for major national consultants in this area, and legal work for major chains now acquiring and combining with chiropractic practices to add the medical practice component. Mr. Borsody has represented hundreds of chiropractors, assisting them in this area. Having founded a health law firm in the country 20 years ago, and having represented all types of health care providers, he withdrew from that firm 10 years ago to add to his legal practice, entrepreneurial efforts in health care businesses. There he learned the pains and pleasures of owning companies and paying legal fees to lawyers for a change. Mr. Borsody is still in practice after 43 years, and still learns something every day.
Robert P. Borsody, PC
New York, New York

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