Can a 501(c)(3) Medical Corporation Discipline Doctors?

In an exception to the no corporate practice of medicine law, California allows non-profit entities (501(c)(3)) corporations, that serve the public to directly hire doctors.  With strict rules and controls these entities can also discipline doctors even if the person in charge is not a physician.  However, there are strict controls under the law.

First, the entity must qualify as a medical entity qualified to review doctor performance.  Business and Professions Code § 805(a)(1)(B)(i) (B) defines a “Peer review body” as including:

(i) A medical or professional staff of any health care facility or clinic licensed under Division 2 (commencing with Section 1200) of the Health and Safety Code or of a facility certified to participate in the federal Medicare program as an ambulatory surgical center.

See our post on the Corporate Practice of Medicine which addresses related issues.  Remember that non-profits pay no taxes and by IRS and State of California rules are obligated to provide real benefits to the public.  However, the right of these entities to hire doctors and benefit the public runs into a conflict with the right of physicians to make independent medical judgments and to be disciplined by other doctors.  This CPOM issue arises with large hospitals as well.  We recently filed lawsuits against John Muir Health in Walnut Creek, California alleging that this "non-profit" was operating as if it were a for profit entity and that its executives earned more money per year than the CEO of Coca-Cola.

1. Division 2 Licensed

The first category includes health care facilities and clinics licensed under Division 2 of the Health and Safety Code, commencing with Section 1200. This covers a broad spectrum of facilities. Under Chapter 1 (Clinics), licensed facilities include primary care clinics and specialty clinics that provide organized outpatient health services including medical, surgical, dental, optometric, or podiatric care to patients who remain less than 24 hours. (H&S § 1200)

or

Under Chapter 2 (Health Facilities), licensed facilities include an extensive range of inpatient facilities that provide care for 24 hours or longer. H & S § 1250 These encompass general acute care hospitals (including rural hospitals), acute psychiatric hospitals, skilled nursing facilities, intermediate care facilities of various types, congregate living health facilities, special hospitals providing dental or maternity care, correctional treatment centers, hospice facilities, and nursing facilities certified for Medicare or Medicaid participation.

This means that most non-profit medical providers qualify.  The other method to gain the right to peer review doctors is Medicare qualification.  

2. Medicare Certified

The second category under § 805(a)(1)(B)(i) includes facilities certified to participate in the federal Medicare program as ambulatory surgical centers, regardless of whether they hold California state licenses. B&P § 805 This dual structure ensures that both state-licensed healthcare facilities and federally-certified ambulatory surgical centers can have medical staff that qualify as peer review bodies under California law.
 

But the complications do not end once the corporation qualifies to review physician performance.  The next question is "who".  Who gets to evaluate a doctor's performance or failure to perform?  Must doctors be involved?  At the very least must the person doing the evaluation be trained in medicine?

Who Sits on the MEC &/Or Peer Review Committee?

For formal peer review hearings under B&P § 809.2, the statute requires a panel of "unbiased individuals" but does not explicitly mandate that they be physicians.  So putting the cart before the horse, once a hearing is scheduled it is not clear whether a single doctor has to sit on the jury.

Paradoxically and perhaps so inconsistent that it implies physicians must sit on a peer review panel, the medical staff itself that conducts the initial peer review activities is restricted by § 2282(b) to "physicians and surgeons and other licensed practitioners competent in their respective fields and worthy in professional ethics."

Confusing the issue of whether the initial peer review committee must be 100% physicians is the holding in In Santa Rosa Memorial Hospital v. Superior Court, 174 Cal.App.3d 711 (1985), where the Court of Appeal held that § 2282(b)'s restriction on medical staff membership does not preclude the medical staff from organizing committees that include hospital personnel other than licensed practitioners, particularly when such inclusion serves legitimate hospital functions and complies with accreditation standards.

That being said, there need be at least one physician on the review committee.

Who Sits on the MEC &/Or Peer Review Committee?

For formal peer review hearings under B&P § 809.2, the statute requires a panel of "unbiased individuals" but does not explicitly mandate that they be physicians. Paradoxically and perhaps so inconsistent that it implies physicians must sit on a peer review panel, the medical staff itself that conducts the initial peer review activities is restricted by § 2282(b) to "physicians and surgeons and other licensed practitioners competent in their respective fields and worthy in professional ethics." Confusing the issue of whether the initial peer review committee must be 100% physicians is the holding in In Santa Rosa Memorial Hospital v. Superior Court, 174 Cal.App.3d 711 (1985), where the Court of Appeal held that § 2282(b)'s restriction on medical staff membership does not preclude the medical staff from organizing committees that include hospital personnel other than licensed practitioners, particularly when such inclusion serves legitimate hospital functions and complies with accreditation standards.

That being said, there need be at least one physician on the review committee without a direct bias. The holding in Santa Rosa Memorial Hospital indicates that there needs to be physicians who then organize a broader committee. [“"We do not interpret this provision as precluding a medical staff from organizing a committee, pursuant to its bylaws and in accordance with JCAH standards, which includes hospital personnel other than licensed practitioners." Santa Rosa Memorial Hospital v. Superior Court (1985) 174 Cal.App.3d 711, 718]

Profit vs Non Profit

How to Add a Nonprofit Arm to a For-Profit Business | CO- by US Chamber of Commerce is an article explaining how a non-profit entity can have a for profit related arm.  When physicians are peer reviewed or disciplined by a 501(c)(3) we often consider whether a for profit motive is involved.  How much does the non-profit CEO earn?  In recent lawsuits that we filed against John Muir Hospital in Walnut Creek, California we alleged that its upper management and CEO made more money than the CEO of Coca Cola.  Many hospitals including Saint Agnes is Fresno and perhaps most non-profits will contract with closely affiliated medical groups that are physician owned and operate on a for profit basis.  John Muir affiliates with a hospitalist group that is for profit and which members of that group on the John Muir (non-profit) board of directors.

This type of complicated structure avoids or at least technically avoids the CPOM (corporate practice of medicine) rules in California but raises the question - who is the head of the horse and who is the butt?

Physician Legal Experts

The medical-legal field is an area of many specialized and complex subspecialties. No one is the best medical lawyer in every single medical-legal area.  When it comes to peer review, the Horowitz law office is highly experienced and skilled in both peer review law and contested evidentiary hearings.  

For an initial consultation on corporate or non-corporate peer review matters,  call the Horowitz law firm at (925) 283-1863.