The Michigan State Medical Society Petitions Attorney General To Investigate Investment Firm Ownership Of Medical Staffing Companies And Physician Practices

Michigan’s Corporate Practice of Medicine (CPOM) doctrine is a legal principle that prohibits unlicensed individuals or entities from owning medical practices in the state of Michigan. The doctrine was devised to ensure that medical decisions are made by licensed professionals accountable to their respective licensing boards. The CPOM Doctrine is the basis of the Michigan’s Limited Liability Company Act, which permits medical professionals to form LLCs to provide medical services.

The Michigan Attorney General has exclusive legal standing to take action against corporate medical entities which are improperly practicing medicine.  The Michigan State Medical Society has petitioned AG Dana Nessel to investigate for-profit investment firms that own medical staffing companies and physician practices:

https://www.msms.org/Portals/0/Documents/MSMS/Advocacy/CPOM_AG%20Letter_Oct%202023.pdf?ver=2023-11-16-040457-967&timestamp=1700107521393

https://www.crainsgrandrapids.com/news/health-care/medical-society-urges-attorney-general-to-investigate-corporate-medicine-for-violating-state-law/

Medical Society urges attorney general to investigate ‘corporate medicine’ for violating state law
By Mark Sanchez - November 30, 2023

In asking state Attorney General Dana Nessel to investigate what it claims is “widespread violations of Michigan’s prohibition on the corporate practice of medicine,” the Michigan State Medical Society wants to bring greater awareness to a growing issue within health care.

The Medical Society alleges that for-profit investment firms that own medical staffing companies and physician practices violate state law and regulations. The organization claims that the holding companies that investment firms create to hold investments are “deceptive legal loopholes and shell corporations” that essentially practice medicine in Michigan without a license.

The Medial Society’s letter to the attorney general contends that such professional corporations and limited liability companies are “owned by Michigan MDs and DOs in name only,” violating state law barring unlicensed, for-profit businesses from practicing medicine. The business practice, the Medical Society asserts, “must come to a stop.”

“Michigan does have a law and we’re asking that it be enforced,” Medical Society CEO Dr. Tom George told Crain’s Grand Rapids Business. “We think they evade Michigan law by maybe having a nominal medical director who’s included, but that, in fact, decisions are being made that are financially motivated that effect patient care. The corporate medicine statute is intended to prohibit that.”

The Medical Society’s request to the state attorney general takes direct aim at private equity firms, which for years increasingly have invested in health care services, although deal flow nationally has declined since peaking in 2021.

Instances in which physicians work for a for-profit, PE-backed practice and hold a medical license in Michigan are “not good enough because their actions are being dictated to them and decisions are being made regarding staffing, regarding charges, regarding referral patterns, maybe what they can write in the chart,” George said. “There’s a whole range of instructions that may come down to them from shareholders that they are obligated to follow, which may not always be in the best interests of the patients.”

Private equity’s push into health care raises concerns about whether the for-profit care providers and operating companies that investment firms own make medical decisions based on the interest of patients, or the interests of shareholders.

Nessel’s office, in response to an inquiry from Crain’s Grand Rapids, said in a statement that the “Department of Attorney General is reviewing this and considering whether and how to proceed.”

Deals mount

Private equity investments in health care services grew solidly for years before tailing off in 2022 and 2023.

A recent quarterly report from PitchBook tracked 1,114 private equity deals in health care services nationwide in 2021, two and a half times the 443 in 2017. Deal flow tempered to 938 transactions in 2022 and slowed further to 443 deals through the third quarter of 2023, according to PitchBook.

The Michigan State Medical Society, which represents more than 10,000 physicians practicing in the state, worries that for-profit ownership of care providers by non-physicians can lead to higher rates of medical procedures and diagnostic testing, higher fees charged to patients and health insurers and patient referral patterns being dictated by financial interests. The decisions “are designed to enhance their bottom line and not having the best interests if the patient in mind,” George said.

“If the physicians have to answer to shareholders instead of patients, then that can interfere with medical judgment, and that’s problematic,” said George, who believes that medicine “is being corrupted by shareholder influence that is untoward.”

PE track record

However, the American Investment Council, a lobbying, advocacy, and research organization based in Washington, D.C., contends that private equity helps health care by providing medical practices with needed capital.

“Unfortunately, few medical practices today possess the capital on hand to upgrade services, renovate facilities, and modernize their practice. Private equity has played a key role in providing medical practices with capital to strengthen services, and research has shown that it has enhanced care,” American Investment Council President and CEO Drew Maloney wrote in a July op/ed published in the digital magazine AlphaWeek.

Maloney argued that private equity ownership can help physician practices with day-to-day administrative functions, expand into underserved markets and improve quality.

“We should be embracing private equity investment in our health care system. Our communities and families are healthier for it,” he wrote.

Maloney also cited how PE-backed medical staffing firms helped to fill an acute staffing shortage during the pandemic, although many health system CEOs the last few years complained how they charged excessive rates.

Driving awareness

The Medical Society plans to continue driving greater awareness of the issue, even if the attorney general declines to launch a formal investigation, said George, a Kalamazoo anesthesiologist and former Republican state lawmaker.

“That’s an important part of this,” he said. “We’ve given the AG solid footing to act on, but it is also important to make the public and the health care community more aware of this and more aware of the existing law.”

The Medical Society’s letter to the attorney general was co-signed by affiliated organizations that include Michigan College of Emergency Physicians, Michigan Dermatological Society, Michigan Orthopaedic Society, Michigan Radiological Society, Michigan Society of Hematology & Oncology and Michigan Society of Anesthesiologists.