Healthcare is supposed to be different than other sectors of the economy, driven not by profit but by the desire to help people.  Doctors and other medical practitioners have taken an oath to put their patient’s interests above their own.  Historically, they have put themselves in harm’s way to treat patients with infectious diseases and to treat the injured during times of war and tumult.  They have also sacrificed long periods of their life to education and training, working hard and numerous hours to gain the skills necessary to treat patients appropriately.  Doctors are taught that the patient’s ability to pay should not be a consideration.  Even in modern times, doctors and other medical professionals have occasionally been given the opportunity for self-sacrifice, such as during the recent COVID-19 pandemic.  In return, the medical profession has been respected throughout history, with practitioners allowed to practice independently of outside influence and be well-compensated for their services.  Then, the corporations stepped in, and the corporate practice of medicine began.

The Corporate Practice of Medicine

     The corporate practice of medicine (CPOM) doctrine is a collection of state laws, regulations, and legal precedents that prevent corporations from practicing medicine.  Backed by the American Medical Association, this doctrine first sprang to life in the early 20th century to professionalize medicine and prevent the commercial exploitation of doctors by corporations.  Thirty-five states now have laws governing CPOM, although they are inconsistent in letter and enforcement.  Texas and California have some of the strictest laws, while others have less robust legislation.  There are three principles underlying the various CPOM laws: (1) the practice of medicine should only be performed by licensed practitioners, (2) corporations are designed to benefit their shareholders, which does not always align with the best interests of patients, and (3) the independent judgment of physicians should be protected.   

State-by-State Variations

     These principles manifest in different ways from state to state.  For instance, every state allows a professional corporation, although some allow only physicians to be owners, while some allow other professionals, such as dentists, RNs, and PAs.  Many states allow hospitals to employ physicians directly, provided the physician maintains independence over clinical decision-making.  Others allow only non-profit hospitals to employ them.  Conveniently for for-profit entities, ways around CPOM laws exist.  For example, in Texas, only certain critical access hospitals and counties with a population of less than 50,000 may directly employ physicians.  However, hospitals that don’t meet these criteria can simply start an “independent” company that hires physicians directly.  This company then exclusively contracts with the hospital to provide services.  These loopholes are common throughout the country when it comes to the CPOM. 

Corporate Practice of Medicine Erosions 

     Along with methods to circumvent the law, CPOM protections have also been slowly eroded over the years.  Since the early 1970s, insurance companies have chipped away at the sanctity of physician autonomy through HMOs and managed care.  Physicians are now indirectly told what tests they can order, what drugs they can and can’t prescribe, and to which specialists they can refer, based on the whims of the patient’s insurance company.  What good is ordering an outpatient CT if the insurance company won’t pre-approve it?  The government itself has joined in by setting practice guidelines through CMS.  If you don’t follow the guidelines, your hospital won’t get paid, and you will be out of a job.  Non-profit companies like JCAHO have even piled on to tell us, through “voluntary” hospital accreditation, how to wash our hands and when and where we can drink water.

Wall Street Arrives

     In the last few decades, the CPOM doctrine has come under direct pressure from Wall Street, with many healthcare companies being bought by private equity (PE) firms or taken public.  Private equity firms raise capital to purchase privately held companies with the goal to return a 15 – 20% annualized profit to their investors within a 5 to 7-year timeframe.  In order to accomplish these lofty returns, PE firms use leverage to purchase the companies and then seek to increase revenue while decreasing expenses.  In the healthcare world, this means practically that PE-owned companies increase charges to patients and decrease compensation to medical providers.  

      PE firms have been buying up healthcare companies at an alarming rate, with annual acquisitions rising from $2 billion in 2001 to $151 billion in 2021 (see graph below).  PE firms are relatively indiscriminate, buying nursing homes, private physician practices, rehab facilities, rural hospitals, contract management groups, and entire hospital systems. 

private equity firms

     Private equity firms have skirted the CPOM doctrine by structuring their investments to maintain compliance in letter, if not in spirit, with various state-specific laws and regulations, allowing them to operate throughout the US.  The two main methods PE firms use are the friendly physician and staffing company models.  

     The friendly physician model is typically used to purchase and consolidate private physician practices and practice groups.  A physician remains the owner of the medical practice but yields control to a separate management group owned by investors.  The corporate manager controls practice administration, operations, billing, and support services, while the physician owner remains “independent.”  

Contract Management Groups (CMGs)

     The staffing company model has given rise to the PE-owned contract management groups (CMGs) that employ (or contract with) physicians of various specialties and then use them to staff hospitals and other practice sites.  Initially started to staff emergency rooms, these companies have expanded to hospitalists, anesthesiologists, general surgeons, obstetricians, and trauma services.  These groups have worked diligently to turn doctors into a commodity by increasing their supply through for-profit residency training programs and decreasing their demand by increasingly offloading patient care to APPs.  For a more in-depth discussion of contract management groups, click here

Not Everyone Agrees

     Opponents contend that CPOM laws constrain the formation of an integrated health system in the US by blocking physician and non-physician partnerships.  They believe healthcare is a complicated, interstate business requiring professional business management to increase efficiencies, drive innovation, and decrease costs.  Meanwhile, proponents point to mounting anecdotal and scientific evidence to support CPOM’s basic premise that the interests of corporations and patients do not align.  A 2023 Forbes article claims that the average cost per claim increases by 20% once an entity is PE-owned.  A National Bureau of Economic Research paper suggests an 11% increase in short-term mortality for Medicare patients in PE-owned nursing homes.  A 2023 meta-analysis in the BMJ concluded that costs increased once PE firms assumed ownership of healthcare businesses and that quality of care most likely declined.

Point of No Return?

     A debate about the corporate practice of medicine might be too little too late.  We may already be past the point of no return in the corporate takeover of medicine.  In 2023, 74% of US physicians work for a hospital or corporate entity, up from 69% in 2021.  Studies have found that the number of self-employed physicians decreases with each successive class of medical school graduates, portending a further fall in these numbers.  Perhaps the most compelling argument that the corporations have taken over is the increasing talk of unionization.  Medical residents are attempting to unionize with increased frequency, and there has been more talk about it in the last few years among graduated physicians as well.  While some may feel that unionization is a step in the right direction, the fact that it is even being discussed means that physicians have accepted that they are employees who need organization and protection.

Conclusion

     While many doctors and other medical professionals have been practicing with 19th-century traditions and the assumption of 20th-century regulations, Wall Street has been playing by 21st-century rules of capitalism.  Whether you know it or not, the corporate practice of medicine is here.  Have doctors lost an epic chess match for control of their profession, playing by antiquated rules?  Will the independent doctor become a relic of the past, a defeated pawn lying broken on the board?  Will the once proud physician become just another employee bargaining for more vacation time or longer coffee breaks?  Recent trends point to this dystopian future being closer than one might think.  

      Here at Business is the Best Medicine, we want to empower medical professionals to fight back against the corporate siege of our industry.  We believe there is a path to victory through personal financial security, business education, professional advocacy, and medical entrepreneurship.  Join us as we explore these topics and more.