United States: The Corporate Practice Prohibition In New York: What We Can Learn From The ADMI Settlement

Last Updated: July 31 2015
Article by Nili S. Yolin

One of the most frequently asked questions posed to healthcare lawyers is whether State X has a prohibition on the corporate practice of medicine, nursing or other profession, and if so, whether the prohibition is enforced.  As demonstrated by last month's well-publicized settlement between Aspen Dental Management, Inc. (ADMI) and the New York State Attorney General's Office (AG), the answer to that question in New York is a resounding "yes."

Although most states with corporate practice and fee-splitting prohibitions focus on medicine, some, like New York, have broad prohibitions that encompass virtually all of the licensed professions, including nursing, clinical social work, and dentistry. While there are professionals who may run afoul of the corporate practice prohibition because they inadvertently render services through a business corporation rather than a professional corporation, more significant risks arise when third party vendors are hired to manage a professional's back-office matters, and the line between ownership and management becomes blurred.  In the case of ADMI, the AG believed that line was crossed.

Background

ADMI is a dental practice management company that provides business support and administrative services to independently owned dental practices throughout New York State.  After receiving hundreds of complaints concerning, among other things, the quality of care, billing practices and advertising at ADMI-managed dental practices, the Attorney General's Health Care Bureau launched an investigation of the company.  According to the Attorney General, the investigation revealed that ADMI "did not merely provide arms-length, back-end business and administrative support to independent dental practices. Rather, Aspen Dental Management has developed what amounts to a chain of dental practices technically owned by individual dentists but which, in violation of New York law, were subject to extensive control by Aspen Dental Management."  Such "undue control" was evidenced by a compensation arrangement based on a percentage of the practices' revenue, control over bank accounts, false and misleading advertising, and decisions involving patient care, treatment plans, and the hiring of clinical staff, all of which must be reserved to the licensed owners.

Pursuant to an Assurance of Discontinuance, ADMI agreed to pay $450,000 in civil penalties, cease exercising control over the practices' clinical decision-making (including the hiring of clinical staff), maintain separate bank accounts and not share in the dental practices' fees for professional services rendered.  ADMI also agreed to change its marketing practices to make it clear to consumers that ADMI only provides management support to dental practices owned by licensed professionals, and is not itself a dental practice.

Lessons Learned

The ADMI settlement shines a light on the pitfalls of entering into a management contract that is not carefully crafted to comply with state laws and regulations.

  1. It's All About Control

It is well settled that management fees based on a percentage of revenue violate New York law.  But the line between the provision of arms-length administrative services and the corporate practice of the professions can be more nebulous.  The AG believed ADMI crossed the line due in part to the "insufficient financial independence" of the dental practices.  Specifically, "ADMI used a single consolidated banking account for most of the Dental Practices and retained sole control over the account."  As a result, the AG voided and rendered unenforceable "any contractual provisions or agreements with ADMI that prevent the Practice Owners from having full and complete control over their revenues, profits, incomes, disbursements, bank accounts, and other financial matters and decisions."

The AG also took issue with the non-compete provisions in the services agreements: If a service agreement were to terminate, or if one of the dental practice owners wanted to sell his practice, the dentist had the choice of practicing outside of a restricted area or transferring the patients' records to a successor practice that also has a contract with ADMI.  The settlement states that ADMI is prohibited from restricting dentists from owning other practices for any period of time and in any geographic location, and also, interestingly, from managing a dental practice for any period of time and in any geographic location.  Thus, there is no question that, from the AG's perspective, a non-compete between a manager and professional practice crosses a line.

The settlement also prohibits ADMI from restricting a practice's ability to retain patient charts and records after its contract with the practice terminates.  Note that this limitation does not speak to stock transfer restrictions, only records retention.   (In New York, patient records belong to the practice, not to the treating physician or licensee.)

  1. The Fees – Renegotiate with Caution

Not surprisingly, the AG voided all compensation arrangements that constituted a percentage of a dental practice's earnings.  However, the settlement permits ADMI and the practices to renegotiate fixed fees on a quarterly basis during the first four years of any services agreement, and on a semi-annual basis thereafter.  This is interesting because the Federal Anti-Kickback Statute's safe harbor for service arrangements has a one year term requirement, which has been interpreted to prohibit the renegotiation of fees prior to the end of the first year term.  It may be the case that the AG was aware of this risk and therefore limited the fee renegotiation provisions to certain commercially reasonable and well-defined contingencies unrelated to referrals.  That said, professionals and management companies should be aware that the fee renegotiation terms of the settlement do not give them license to adopt the same provisions without the attendant safeguards.

  1. Quality of Care Matters

The ADMI investigation was launched by the AG "after receiving over 300 consumer complaints since 2005 concerning consumers' experiences at 'Aspen Dental' dental offices." These complaints involved "concerns regarding quality of care, billing practices, misleading advertising, 'upselling' of medical services and products the consumers feel are unnecessary, and unclear or incomplete terms for the financing of dental care."

The settlement makes clear that (i) under no circumstances should a manager exercise any control whatsoever over patient care decisions, and (ii) when patient care is compromised, regulatory agencies take notice – not just of the licensed professional's qualifications, but also of how the business is being operated.

Best Practices

In light of the ADMI settlement, consider the following safeguards:

  • Compensation to the manager should be a fixed fee, based on the services provided and unrelated to the earnings of the practice.
  • The manager should not have any say over the hiring and firing of licensed professionals.
  • All salaries should be paid by the practice, not the manager, and all income earned by the practice should be controlled by the practice.
  • All fees for clinical services should be established by the licensed professionals.
  • Under no circumstances should a manager exercise control over patient care decisions.
  • A management contract should not include any restrictive covenants that limit the licensee's ability to practice within a certain geographical area after the agreement terminates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nili S. Yolin
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions