Rumors of the death of professional practice statutes prohibiting the corporate practice of medicine or dentistry have been greatly exaggerated. Recent enforcement actions, which have come as a surprise to some, have affirmed the relevance of these laws, affording dentists and physicians both a risk and an opportunity, as well as a blaring wakeup call to corporate practice organizations and chain practices. 

Corporate practice statutes (both medical and dental) generally prohibit ownership of a practice entity by anyone other than a licensed professional (dentist or physician); preclude arrangements where a licensed professional’s judgment is interfered with by a lay person; and prohibit pervasive controls causing the corporation, in effect, to engage in the practice of dentistry or medicine. The near-total lack of enforcement by state boards (medical and dental) has led many to conclude that these statutes have become atavistic relics of a bygone era. Consequently, certain dental service organizations and chain practices have set up structures that either ignore the dental practice statutes or pay lip service to them while simultaneously employing control techniques that turn licensed professionals into mere marionettes. Organizations pursuing this strategy now face grave risks.

In January, we published an alert based on the New Jersey Supreme Court decision in Allstate Insurance Company v. Northfield Medical Center¹, in which Allstate recovered a $4 million verdict against a medical practice management company, its owner, and their attorney for violating the New Jersey statutes forbidding the corporate practice of medicine. The court held that this violation meant that the practice had failed to satisfy a “necessary precondition to a valid insurance claim,” rendering the insurance claims invalid and subject to recovery. In that same article, we predicted that tremors from Allstate “may be felt beyond insurance claims and state law disputes.” Continuing, we predicted that “federal False Claims Act (FCA) [suits] may be implicated when claims for program reimbursement are made by practices that falsely ‘certify’ they are in compliance with state law.”

These predictions came true last month with the announcement of the settlement of a whistleblower (qui tam) fraud case brought by the Department of Justice against Samson Dental Partners (“Samson”) and ImmediaDent of Indiana (“ImmediaDent”).² Although there was no “admission of wrongdoing,” Samson and ImmediaDent forked over $5,140,000 in payments.

At the time of settlement, ImmediaDent operated nine dental practices in Indiana, and Samson provided administrative and other support services to these practices. The Department of Justice and the Indiana Attorney General alleged that Samson and ImmediaDent upcoded simple tooth extractions, characterizing them as surgical extractions, and billed for scaling and root planing (deep cleaning) when they were either not performed or were not medically necessary. Added to these somewhat typical false claim allegations, however, was the allegation that Samson engaged in the corporate practice of dentistry in violation of Indiana state law by exerting obtrusive influences over ImmediaDent’s medical professionals and staff.

Though agreeing to pay over $5 million, Samson and ImmediaDent refused to enter into a corporate integrity agreement (a “CIA”) in the settlement, and as a consequence, were the first entities placed on the brand new (as of October 1) “High Risk - Heightened Scrutiny” list by the Office of Inspector General for the United States Department of Health and Human Services (the “OIG”). According to some, this list is OIG’s way of shaming companies that balk at entering into a CIA and of warning patients and potential business partners that the listed companies should be considered veritable Medicare/Medicaid lepers. Practitioners and others, therefore, should check this list and think twice before contracting with listed companies. 

For physicians and dentists under contract with a corporate practice entity, whether through an employment agreement, a management services agreement, a franchise agreement, or some other arrangement, a serious dilemma exists. As practitioners, they are considered to be the recipients of the claims payments, the very claims the OIG may claim to be false. Moreover, the corporate practice statutes almost always condemn BOTH the corporation’s exercise of control over a professional’s judgment and the professional’s contractual relinquishment of control. By continuing to practice under these circumstances, professionals expose themselves to liability that may include civil or criminal penalties, loss of license, invalidation of contracts, money damages, or reimbursement claims and/or program exclusion. At the same time, exiting the corporate practice often is made very difficult. 

Many of the corporate practice entities execute a series of interlocking agreements with individual professionals, including separate agreements for management services, office leases, equipment purchases, laboratory services, and related matters; these agreements are often complex and burdensome for practitioners since their complexity requires professionals to seek legal counsel, and many such agreements prevent the professional from seeking relief or interpretation from a court, instead mandating private and mandatory arbitration before an arbitration service selected by the corporate entity.³ The corporate practice organization may threaten suit for breach of contract; may demand immediate payment of one or more promissory notes for hundreds of thousands of dollars; may file or threaten to file one or more complaints with the relevant licensing board, claiming patient abandonment or other allegations of wrongdoing; may lock the doctor out of the practice; and/or may enforce (or attempt to enforce) oppressive covenants against competition. The prospect of being out of a job and facing a formidable legal battle (especially if carrying massive school debts) would be terrifying.

It is not surprising, therefore, when practitioners like ImmediaDent’s Dr. Jihaad Abdul‑Majid turn whistleblowers, thereby shielding themselves and, if successful, collecting a reward for their efforts.⁴ Being a whistleblower is no simple task. After all, by doing so in these circumstances, one is almost inevitably confessing one’s participation in an illegal scheme. The practitioner, therefore, may be tempted just to threaten to become a whistleblower in order to persuade the corporate practice entity to let him/her out of those burdensome covenants mentioned above. That, however, may even be worse. Such a threat may easily cross the line of criminality and be characterized as extortion or the equivalent. Engagement of competent legal counsel is essential. Thus it is that the statutes prohibiting the corporate practice of medicine or the corporate practice of dentistry, once thought dead, have risen from their ashes to pose significant risk for both practitioners and chain practice organizations. Both would be well advised to exercise caution and engage competent and experienced counsel to help them choose the best course of action and to mitigate the multiple layers of risk these various laws pose.

Thomas J. Kenny is a partner in Kutak Rock’s Omaha Litigation Department, with a practice focused on healthcare litigation and government disputes. Ed Marquette is a partner in Kutak Rock’s Kansas City office with a practice focused on transactional, technology, and trade regulation matters in healthcare and other industries. Neil L. Arney is a partner in Kutak Rock’s Denver Litigation Department, with a practice focused on complex litigation, including technology and healthcare litigation. Suzanne Shehan-Ames is a partner in Kutak Rock’s Omaha Litigation Department, with a practice focused on healthcare and other complex litigation.

If you would like assistance evaluating and handling these and other related matters, please contact one of the authors.

 

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1. 159 A.3d 412 (N.J. 2017).

2. U.S. ex rel. Abdul-Majid v. ImmediaDent Specialty PC, W.D. Ky., No. 13-cv-222.

3. A recent federal court decision in New Jersey, involving the Affordable Care system, provides a rare example of a dentist’s suit that in part escaped mandatory arbitration of all claims. In Affordable Dentures-Audubon v. Affordable Care, LLC, No. 17-12136 (RMB/JS), 2018 U.S. Dist. LEXIS 78059, (D.N.J. May 9, 2018) the Court analyzed the numerous claims asserted by the individual dentist, and held that several of her claims were not subject to arbitration, including claims that the agreements gave excessive control to the corporate practice entity, causing it to violate the state Dental Practice Act, and causing it to become subject to New Jersey’s state statutes. Id. at 27-29. Because those and other claims fell outside the scope of the agreements’ arbitration clauses, the Court denied in part the corporation’s motion to compel arbitration, and held that the claims asserting state law violations would be determined by the Court, not an arbitrator.

4.ImmediaDent’s Dr. Jihaad Abdul-Majid received $925,000 plus expenses.