The Physician as the Hospital's Employee: S.b. 95-212

• Jurisdiction: Colorado,United States
• Citation: Vol. 24 No. 10 Pg. 2345
• Pages: 2345
• Publication year: 1995

24 Colo.Law. 2345 Colorado Lawyer 1995.

1995, October, Pg. 2345. The Physician as the Hospital's Employee: S.B. 95-212

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Vol. 24, No. 10, Pg. 2345

The Physician as the Hospital's Employee: S.B. 95--212

by G. Lane Earnest and Sarah E. Meshak

Senate Bill ("S.B.") 95--212 (codified as CRS § 25-3-103.7), which went into effect July 1, 1995, permits licensed hospitals in Colorado to employ physicians. Passage of this legislation significantly erodes the doctrine known as the "corporate practice of medicine" and places Colorado in line with numerous other states that have abolished or substantially limited the doctrine

However, the legislature did not relinquish all control over the employment of physicians by hospitals, nor did it completely abolish the prohibition against the corporate practice of medicine. This article reviews the history of the corporate practice of medicine doctrine in Colorado, examines the implications of S.B. 95--212 ("statute") for hospitals and physicians, highlights key issues under the statute and reviews what remains of the corporate practice of medicine prohibition.

Corporate Practice of Medicine Doctrine

The corporate practice of medicine doctrine establishes the principle that corporations should not practice medicine. The doctrine has existed for many years in numerous states and has been relied on to prohibit corporations, including hospitals, from employing physicians.(fn1)

The primary rationale for the prohibition is the concern that employment of physicians by corporations would create a conflict of loyalty for the physician and would impair the physician's ability to exercise independent medical judgment in the best interests of the patient.(fn2) However, criticism that the corporate practice of medicine prohibition is arcane and impractical in the modern healthcare arena has increased over the years. Commentators argue that employment of physicians by hospitals is a common practice and one that allows for increased efficiencies and cost savings in the delivery of health care.(fn3) In response to such criticism, many states have abolished or significantly limited the doctrine by statute or by neglecting its enforcement.(fn4)

Colorado, like most states, codified the corporate practice of medicine in its Medical Practice Act ("Act"),(fn5) which governs medical licensure and discipline. The Act prohibits physicians from practicing medicine as the partner, agent or employee of, or in joint venture with, any person who is not licensed to practice medicine in the state or any entity other than a professional service corporation for the practice of medicine.(fn6) All shareholders of a professional service corporation must be persons licensed to practice medicine in Colorado, and all other corporations are expressly prohibited from practicing medicine.(fn7) Violation of the statute by a corporation is a class 2 misdemeanor on the first offense and a class 6 felony on the second and subsequent offenses.(fn8) Physicians who violate the statute also may be subject to disciplinary action by the State Board of Medical Examiners.(fn9)

Although the statutory prohibition against the corporate practice of medicine has existed for more than sixty years, it has not been regularly enforced and has received little judicial attention in the last twenty years.(fn10) In 1993, the legislature yielded, to a limited extent, to public pressure for repeal of the corporate practice of medicine doctrine(fn11) and enacted legislation that became the precursor to S.B. 95--212. The 1993 legislation permits hospitals in counties with populations of less than 100,000 to employ physicians.(fn12) In 1994, the legislature further paved the way for enactment of S.B. 95--212 by authorizing the formation of provider networks and providing that participation in such networks does not violate the corporate practice prohibition.(fn13)

Implications of the Statute

It is against this backdrop that the legislature enacted S.B. 95--212. The bill expands the 1993 legislation by permitting any hospital licensed in Colorado to employ medical doctors, dentists and podiatrists (referred to in the statute and in this article's discussion of the statute as "physicians").(fn14) The cornerstone of the statute is its emphasis on the preservation of physicians' independent medical judgment.(fn15)

Hospitals that employ physicians may not limit or otherwise exercise control over the physician's independent professional judgment concerning the practice of medicine in the diagnosis or treatment

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of patients. A hospital may not require an employed physician to refer exclusively to the hospital or require physicians to refer exclusively to the hospital's employed physicians A hospital that knowingly or recklessly controls or limits the independent professional judgment of a physician violates hospital standards of operation and may be held liable to the patient, physician or both for damages caused by such violation.(fn16)

Hospitals also are restricted in the manner in which they may compensate employed physicians. Hospitals may not offer an employed physician a percentage of fees charged to patients or any other financial incentive that would artificially increase the services provided to patients. The statute's prohibition applies not only to employed physicians but to all healthcare professionals...