North Carolina Medical Board Links Physician Supervision to Corporate Practice of Medicine and Reiterates Concerns Regarding Unlawful “Straw” Practices

By Josiah Irvin and Robert Shaw

On August 30, 2024, the North Carolina Medical Board (the “Board”) published online guidance titled, "Lessons from NCMB’s Disciplinary Committee: Are you aiding the unlicensed practice of medicine?” (the “Guidance”).

The Guidance largely serves to emphasize the Board’s existing concerns regarding the corporate practice of medicine prohibition in North Carolina and articulates the potential for unlawful “straw” practices and other inappropriate arrangements where the licensee is essentially “rent[ing]” her license to a non-licensed business. In addition, in a potential expansion, the Guidance indicates that physician supervision of individuals employed by a non-licensed entity, standing alone, can trigger corporate practice of medicine concerns. Below we summarize the Guidance and some takeaways for licensees and other industry participants.

Summary of Guidance

The Guidance centers on a case study of clearly inappropriate conduct, such that the issuance of Board sanctions against the at-issue physician is expected. Specifically, an experienced physician agreed to serve as a “medical director” of a med spa, pursuant to an employment agreement for which he is paid $2000 per month, but he is assured that he does not need to be on site. All the physician appears to be doing is collecting a check. The med spa is owned and operated by a non-licensed individual, and it uses nurse practitioners (“NPs”) and physician assistants (“PAs”) to provide clinical services. The physician does not know that he is the supervisor for the NPs and PAs. Inevitably, a patient harm occurs, a complaint is filed with the Board, and both the at-issue PA and the physician are subject to Board investigation and presumed sanction.

Thus, Guidance links the issues of physician supervision and corporate practice of medicine. If a physician supervises, formally or informally, a PA (or even potentially a NP) employed by a non-licensed entity, then the physician is then supervising, and implicated in, potentially unlawful medical care done by the non-licensed entity – even if the physician herself or himself does not perform any direct medical care at the non-licensed entity. This appears to expand the reach of the corporate practice doctrine, given the ubiquitous utilization in North Carolina of PAs and NPs under supervision by third-party physicians.

The Guidance also lists other ownership and employment arrangements that are viewed as inappropriate and unlawful in North Carolina. In addition to the scenario above (i.e., a medical spa directorship where the physician medical director had no active role in the med spa), the Guidance also finds concern with:

1. Arrangements where the licensee is involved in the practice, even on a full-time basis, but has little autonomy to determine how care is provided, because “treatment protocols are dictated by the non-licensed owners”.
2. A “straw ownership” arrangement, where the physician is made the sole shareholder of a “practice controlled and operated” by a non-licensed person. The Guidance regards management agreements that “results in the bulk of the practice’s revenue going to the non-licensee” as indicia of unlawful straws arrangement.
3. A physician acquiring the titular ownership or becoming the sole shareholder of a medical practice or business, without investing money, property or anything else of value.
4. Arrangements where the physician has no meaningful responsibilities or duties, such that the substance of the agreement is just an unlawful rental of a professional license to a non-licensed entity.

Takeaways

While the Guidance largely serves to emphasize, and conforms with, existing Board policy and enforcement activity, some takeaways for the physicians and other health care industry participants in North Carolina are as follows:

1. An arrangement where a non-licensed entity employs PAs or NPs, who are supervised by a third-party physician, can potentially run afoul of the North Carolina corporate practice of medicine prohibition, especially if the physician has little or no role in the clinical operation.
2. The Board will likely scrutinize physician practices’ arrangements with third party management companies, to assess whether they amount to unlawful “straw” arrangements. In particular, the Guidance makes clear that this review is likely to assess the actual clinical involvement or economic risk on the part of the physician owner. For example, professional entity ownership arrangements with respect to clinical enterprises for which the owning physician lacked prior involvement may be higher risk.
3. Management agreements providing for significant payments to third-party management service organizations are common in the health care industry. Participants in these arrangements need to structure them carefully ensure that “control and decision-making authority” remain with the licensees.
4. The Board regularly investigates and sanctions licensees for violations of North Carolina’s actively enforced corporate practice of medicine prohibition. But the issuance of the Guidance may signal a heightened Board enforcement priority.

If you have any questions about this Client Alert, please reach out to the authors of this article or any member of the Smith Anderson Health Care team. The team regularly advises clients on North Carolina corporate practice of medicine matters, including transaction structuring, proactive compliance and Board investigation responses.