California Corporate Practice of Medicine Lawsuit Survives Motion to Dismiss

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On May 27, the U.S. District Court for the Northern District of California refused to dismiss a lawsuit[1] brought against Envision Healthcare Corp. alleging violations of California’s corporate practice of medicine (CPOM) prohibition, as well as state fee-splitting and kickback prohibitions. The action was brought by the American Academy of Emergency Medicine Physician Group (AAEMPG), an Envision competitor, under California’s unfair competition law (UCL).

Like New York and many other states, California prohibits corporations and other entities owned by non-licensed parties from directly or indirectly practicing or controlling the practice of medicine and other professions. AAEMPG’s complaint alleged that Envision circumvents the CPOM ban by controlling professional medical corporations by means of management services agreements. The complaint also alleged that the agreements reduce physicians to “mere employees” of Envision, which controls billing and coding decisions and requires physicians to agree to restrictive covenants that restrict their ability to practice.

Envision moved to dismiss the suit, arguing (among other things) that the Medical Board of California should decide the issues in the case. However, the court found that the Medical Board, which investigates allegations of unprofessional conduct against physicians, lacks the expertise to evaluate Envision’s business structure, contracts and practices.

[1] American Academy of Emergency Med. Physician Grp., Inc. v. Envision Healthcare Corp., No. 22-cv-00421-CRB (N.D. Cal. May 27, 2022).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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