CLIENT ALERT, March 2010
Last week, the Washington Supreme Court issued its much-anticipated decision in Columbia Physical Therapy, P.S. v. Benton Franklin Orthopedic Associates, P.L.L.C. addressing whether a physician-owned practice may employ physical therapists. Benton Franklin Orthopedic Associates (BFOA) is an orthopedic practice that employs physical therapists. Columbia Physical Therapy (Columbia), a physical therapist-owned professional service corporation, sued BFOA, alleging violations of the corporate practice of medicine doctrine, the PSCA, the anti-rebate statute, and the CPA.
The Court held that the group’s direct employment of physical therapists was permissible and did not violate (1) the corporate practice of medicine doctrine, (2) the Professional Service Corporation Act (PSCA), (3) the anti-rebating statute, or (4) the Consumer Protection Act (CPA). The crux of the Court’s decision was that the practice of medicine encompasses the practice of physical therapy, and thus the foregoing doctrines and laws do not prohibit a medical practice from directly employing physical therapists.
The Court held that the PSCA and the corporate practice doctrine do not prohibit the physicians’ employment of physical therapists. The Court determined that, under the PSCA, a professional service entity is organized to provide the services for which the owners are licensed—in BFOA’s case, the practice of medicine. The Court noted that the practice of medicine, which is broadly defined by statute, “readily encompasses” the practice of physical therapy, and therefore determined that employment of physical therapists is consistent with the PSCA. Similarly, the Court had little trouble concluding that BFOA did not violate the corporate practice of medicine doctrine by employing the therapists on the same basis. The physicians were simply providing lesser included services within their own lawfully organized entity.
The Court also rejected the claim that Washington’s so-called “anti-rebating” statute forbids the group’s employment of physical therapists. The anti-rebating statute prohibits certain licensed health care professionals from engaging in rebating, receiving unearned profits, and the like, in connection with the referral of patients. The law, though, exempts profits earned by an employee of a firm and flowing to the firm’s owners, if the owners practice in the firm. Because the BFOA owners practice within the same entity as the physical therapists, the Court held that the exemption applied (in contrast to an earlier case where the Court found a violation by ophthalmologists, who owned a separate entity that operated as an optical shop).
Finally, the Supreme Court concluded that BFOA was not entitled to summary judgment on Columbia’s claim that BFOA’s conduct was an unfair or deceptive trade practice. The Court cited evidence suggesting that BFOA denied a patient the right to see an independent physical therapist, in what sounds like a tying arrangement.
Columbia Physical Therapy clarifies that the PSCA and the corporate practice of medicine doctrine do not prohibit a physician-owned corporation from employing a licensed health care professional whose scope of practice is encompassed by the practice of the group’s physicians. Because the decision was limited to physical therapists, an open question is what fields besides physical therapy are subsumed under the “practice of medicine.” The decision also confirms that the anti-rebating statute does not prohibit physicians within the same firm from earning profits derived from the professional services of other members of the firm.
If you have any questions regarding this decision, please contact Anne Redman, Mike Madden, David Robbins, Renee Howard, or Megan Grembowski at 206-622-5511.
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