Of (allegedly) Bad Docs and (definitely) Good Dogs: Update on Choice of Entity for Healthcare Professionals

• Publication year: 2002
• Pages: 109

31 Colo.Law. 109 Colorado Lawyer 2002.

2002, October, Pg. 109. Of (Allegedly) Bad Docs and (Definitely) Good Dogs: Update on Choice of Entity For Healthcare Professionals

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Vol. 31, No. 10, Pg. 109

The Colorado Lawyer
October 2002
Vol. 31, No. 10 [Page 109]

Specialty Law Columns
Health Law Forum
Of (Allegedly) Bad Docs and (Definitely) Good Dogs: Update on Choice of Entity For Healthcare Professionals
by Allen Sparkman

This column is sponsored by
the Health Law Section of the
Colorado Bar Association

Column Editor

Kathleen M. Shea, a Denver attorney practicing in the field of healthcare law - (303) 378-6588

About TheAuthor

This month's article was written by Allen Sparkman, a partner in the Denver/Boulder firm of Sparkman Shaffer Perlick LLP - (303) 449-6543, sparkman@sspattorneys.com.

This article updates and expands on an article about entity choices for healthcare professionals previously published in this journal. This update covers a recent Colorado Supreme Court case, as well as choice of entity provisions

of the Veterinary Practice Act.

The September 2000 issue of The Colorado Lawyer contained an article entitled, "Choice of Entity for Healthcare Professionals."1 This article updates and expands on that article in two principal respects. First, it discusses the recent Colorado Supreme Court decision in Pediatric Neurosurgery, P.C. v. Russell.2 Second, it discusses the choice of entity provisions of the Veterinary Practice Act,3 which were not covered in the original article.

Background: The

Corporate Practice of Medicine Doctrine

Before the 1960s, physicians and other professional service providers could practice only as sole proprietors or as partners in general partnerships in which all partners were licensed to practice the particular professional specialty.4 Prior to 1963, the "corporate practice of medicine doctrine" barred physicians in Colorado from practicing medicine through corporations.5

In 1963, the Colorado Legislature enacted the original version of CRS § 12-36-134 ("Statute"), which is part of the Colorado Medical Practice Act. The Statute now permits the formation of professional service corporations, limited liability companies ("LLCs"), and limited liability partnerships ("LLPs")6 for the practice of medicine. For each of these entities, all equity owners must be licensed physicians and must meet certain other requirements. If specified insurance requirements are met, the owners do not have joint and several liability for acts of the entity or its employees.7

In 2002, the Colorado Supreme Court explained that the corporate practice of medicine doctrine developed because "it is impossible for a fictional entity, a corporation, to perform medical actions or be licensed to practice medicine."8 It goes without saying that no corporation can perform any action; corporations and other entities act only through agents, such as employees. However, the author believes that the corporate practice of medicine doctrine, and similar doctrines restricting corporate practice by other professionals, developed at least in part because of a belief that it was "unseemly" for professionals to practice in the corporate form. Additionally, such doctrines appear to have come into existence partly out of a desire to avoid control of physicians and other professionals by hospitals, insurance companies, or other large corporations.9

The Medical Practice Act echoes these attitudes by requiring that, with limited exceptions, all shareholders of a professional service corporation must be: (1) licensed physicians who own their shares in their own right; and (2) "actively engaged in the practice of medicine in the offices of the corporation."10 Accordingly, for example, the Statute does not permit physicians to practice medicine through the corporate form, regardless of whether all shares in the corporation are owned by licensed physicians if even one of those physicians does not practice for the corporation.

Choice of Entity and

The Russell Case

In the Russell case, two physicians who were shareholder-employees of Pediatric Neurosurgery, P.C. ("PC") treated a minor, Michael Russell Neil ("Neil"), for spina bifida. The plaintiffs initially filed suit only against the physicians individually, alleging that they were negligent in their treatment of Neil. Later, the plaintiffs amended their complaint to add an allegation that the PC was vicariously liable for the negligent acts of its physician employees, under the theory of respondeat superior.11

The issue before the Colorado Supreme Court was whether the entity - in that case, a professional...