What Physicians and Investors Must Know About California Medical Corporations? Corporate Practice of Medicine

Doctors can run their practice alone or team up with other doctors. Both ways have good points, but doctors should consider making a medical corporation.

This can reduce risks, save on taxes, make running the practice smoother, and open up more chances for success and managing risks.

What Physicians and Investors Must Know About California Medical Corporations? Corporate Practice of Medicine

In California, doctors can’t choose to make a regular C-Corporation or other usual professional corporations like S-Corporations or LLCs. Instead, they must make a particular type called a California professional medical corporation.

This corporation has to follow the rules in the Moscone-Knox Professional Corporation Act.

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What Physicians and Investors Must Know About California Medical Corporations? Corporate Practice in Medicine

Physicians and investors must know a few rules, state laws about corporate practice of medicine in California. Here I shared the information thoroughly.

Benefits of Professional Medical Corporation

Here are the benefits of a professional medical corporation, explained in simpler terms:

  1. Limiting Liability: When doctors form a medical corporation, it helps protect them from debts the business might owe. If the corporation can’t pay its bills and has to close, creditors can’t go after the doctors’ money as long as they didn’t personally guarantee any contracts. However, this protection doesn’t apply to medical malpractice lawsuits in California. But, if one doctor in a partnership messes up, the others might not be held responsible.
  2. Tax Savings: Medical corporations can help doctors save on taxes. They can be taxed like S-Corporations, which means they avoid double taxation. Also, they may allow for higher contributions to retirement plans than doctors could do alone. But, corporations usually pay higher tax rates, so it’s essential to manage income properly with help from tax professionals.
  3. Continuity: If a doctor dies while practicing alone, the practice ends. If they have a partner, the partner must find a new one. However, with a medical corporation, the practice keeps going according to the corporation’s rules, even if something happens to a doctor. This also helps with health insurance, life insurance, disability insurance, and retirement plans for doctors.

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Key State Laws in Professional Medical Practice Act

Here’s a simpler explanation of the key terms and rules in the Professional Corporation Act:

  1. Professional Services: These services need a special license, like those from the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.
  2. Ownership of Shares: Doctors must own most of the shares in California medical corporations. Non-doctors can own some shares, but doctors have to own the most. The law also says that non-doctors like podiatrists, psychologists, nurses, and others can own shares. Each type of medical corporation has its own rules for non-doctor ownership.

Permissible non-physicians in a medical corporation (provided they don’t have a majority interest) include:

  • Licensed doctors of podiatric medicine.
  • Licensed psychologists
  • Registered nurses
  • Licensed optometrists
  • Licensed marriage and family therapists
  • Licensed clinical social workers
  • Licensed physician assistants
  • Licensed chiropractors
  • Licensed acupuncturists
  • Naturopathic doctors
  • Licensed professional clinical counselors
  • Licensed physical therapists
  • Licensed pharmacists
  • Licensed midwives
  1. Non-Doctor Ownership: Non-doctors who own shares must have a license to practice their job in California.

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Concerns and California Law

Before making a professional medical corporation, there are important things to think about:

  1. Corporate Practice of Medicine: When doctors deal with non-doctors or let them invest in their practice, it’s a problem. This could include contracts or investments with non-doctors. In California, the Medical Board of California says it’s against the law for corporations to practice medicine directly.

California doesn’t let corporations do medical work because it wants to keep medical decisions separate from business decisions. This rule applies to non-doctors, regular corporations, and limited liability companies.

In simple terms, in California, non-doctors can’t own most of a medical corporation and can’t hire doctors as employees or contractors.

Other Options to Avoid California State Legal Issues

Instead of risking complaints about corporate medicine, one solution is for non-doctors to own a management service organization (MSO). This organization is meant to handle the business side of a medical practice, like administration.

  1. Selling Shares: When a shareholder wants to sell their part of the business, there are rules to follow. The sale can’t break the ownership rules, and it can’t lead to corporate medicine issues. Usually, shares can only be sold to another shareholder or someone licensed to do the same job in California.
  2. Unlicensed Professionals: If a healthcare provider loses their license or can’t practice, the medical corporation must buy back their shares. A lawyer can explain when this needs to happen and why it’s important to have clear rules in advance.
  3. Deceased Professionals: When a provider dies, the medical corporation must buy back their shares according to any agreements.
  4. Following Laws: Medical corporations and their doctors must obey federal and state laws about billing and patient privacy. The corporation’s leaders also need to follow the law.
  5. Using a Fictitious Name: Before using a fake name for the practice, the medical corporation should check if it needs approval.

A lawyer who knows about corporate medicine laws in California can explain how an MSO can also help follow Stark Law, avoid the Anti-Kickback Statute, and deal with state laws about sharing fees. They’ll explain how the MSO has to work to follow these laws, like charging fair prices for its services.

Email me sam@mollaeilaw.com or Book A FREE Call For Your Professional Corporations

More Things to Think About Corporation in California

Usually, doctors hire a specialized lawyer to help set up their medical corporation. The documents they create must follow California laws and rules from professional boards. The lawyer also rules how the corporation works, deals with problems, and closes if needed.

Talk to a healthcare lawyer who knows about forming a California medical corporation. They’ll explain why and how to do it right. They’ll also go over:

  1. Who Can Own and Control: Doctors need to know the rules about who can own and run the corporation.
  2. Benefits of a Medical Corporation: Lawyers will talk about how a medical corporation can help with things like liability, taxes, retirement, and controlling the business.
  3. Avoiding Legal Problems: They’ll also help doctors prevent issues like corporate medicine charges, splitting fees, transferring ownership, and registering a fake name.

Conclusion – California Corporate Practice in Medicine

Before starting a medical practice, doctors in California and beyond should think about the good and bad aspects of making a professional medical corporation.

Contact MollaeiLaw to learn when to create one and how it can help you and your practice. Know your professional and legal duties, and understand that money matters, too.

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