An idea birthed in the Gilded Age is gaining traction as a way to counter increasing consolidation in the healthcare industry: banning the corporate practice of medicine.
In the late 1800s and early 1900s, physicians and state legislatures grew concerned that corporations and monopolists were hiring and controlling company doctors whose first concern would no longer be the needs of their patients, but of their employers'. About two-thirds of states enacted laws that, to varying degrees, dictate that lay people may not own or control medical practices.
Related: Why some conservatives are targeting healthcare consolidation
Yet corporate involvement in the medical field is perhaps greater than it has ever been as large companies and private investors buy up physician practices.
Private equity acquisitions of medical groups jumped nearly seven-fold from 2012 to 2021, according to University of California, Berkeley research. UnitedHealth Group subsidiary Optum employs or affiliates with so many physicians — about 10% of U.S. doctors — that it has attracted the attention of both federal regulators and lawmakers.
Powerful legislators including Senate Finance Committee Chair Ron Wyden (D-Ore.) and Senate Health, Education, Labor and Pensions Committee Chair Bernie Sanders (I-Vt.) say revisiting corporate practice of medicine laws may be an intriguing way to tackle consolidation.
Private equity and corporate employers would seem to be very specifically barred from owning physician practices under these bans. But Erin Fuse Brown, a lawyer who did extensive research on the corporate practice of medicine as the director of the Center for Law, Health and Society at Georgia State University College of Law, said states with such laws have allowed many loopholes and carve-outs over the past 100 years.
"They basically can be contractually worked around," Fuse Brown said.
The most common workaround is known as the PC-MSO — or professional corporation-management services organization — model, under which a group of doctors cuts a deal with a management services organization, often controlled by a corporation or private equity group.
Fuse Brown pointed to an article that she co-authored for the New England Journal of Medicine in September that highlights CVS Health subsidiary Oak Street Health and Amazon subsidiary One Medical as running "friendly PC” models. Under this setup, a licensed medical professional is tapped as an owner and executive of the management services organization, but there are numerous restrictions on the doctors within the professional corporation.
That practice, combined with broader healthcare consolidation trends, has a number of state and federal lawmakers and regulators taking a fresh look at beefing up the old laws, Fuse Brown said.
Oregon nearly passed new restrictions last year that would have tightened rules to ensure that doctors maintain control of their businesses, said Fuse Brown, who consulted with state legislators on the bill. She expects it to be revived when the Oregon Legislative Assembly reconvenes in January.
California, Florida and Minnesota are also eyeing such measures, while Federal Trade Commission Chair Lina Khan and a number of U.S. senators have made inquiries, Fuse Brown said.
On Capitol Hill
Wyden and Sanders said they are interested in exploring corporate practice of medicine laws at the federal level.
"I'm looking at it," said Wyden, whose committee oversees vast swathes of the healthcare sector, including Medicare and Medicaid. "I'm very concerned about consolidation issues generally, and particularly in the areas of healthcare that have the closest connections to patients, and those certainly are their providers. So yes, we're looking at that."
"It is a huge issue, and what we are seeing is private investment firms moving very aggressively in many aspects of healthcare," Sanders said. "It is an issue we're going to deal with."
In the House, Republicans who have also expressed alarm at consolidation in healthcare were less aware of the concept. "I haven't heard that much about that," said Rep. Vern Buchanan (R-Fla.), who chaired a Ways and Means subcommittee hearing last month on the state of independent physician practices in an age of consolidation.
Similarly, Rep. Chip Roy (R-Texas), a Ways and Means Committee member who has been among the more vocal GOP critics of giant healthcare companies such as UnitedHealth Group, said he'd only heard a little about corporate practice of medicine laws. Roy is not wholly opposed to large corporations or consolidation in healthcare, as long as doctors are left in charge of medicine, he said.
"I want physicians and patients to be at the center of everything — not corporate, but humans," Roy said.
Envision Healthcare lawsuit
Legislative efforts may not be the only path to reanimating bans on corporate medicine. The courts may have a role to play, especially in California, where the the American Academy of Emergency Medicine is suing staffing firm Envision Healthcare, which private equity firm KKR & Co. acquired for $9.9 billion in 2018, in state court.
The emergency physician's organization sued in 2021 after Envision Healthcare won a contract at Placentia-Linda Hospital in Placentia, California, away from a medical practice that used the American Academy of Emergency Medicine's Physician Group for management services. Placentia-Linda Hospital was owned by for-profit, Dallas-based Tenet Healthcare until March, when Orange, California-based nonprofit UCI Health took ownership and renamed it UCI Health-Placentia.
Envision Healthcare, which declared and emerged from bankruptcy during the lawsuit, maintains that the American Academy of Emergency Medicine group simply lost business to a competitor and that its arrangement with UCI Health-Placentia is standard and complies with the law.
"Envision follows an operating structure that is common across the healthcare sector and widely used by nonprofit, privately held and public groups as well as hospitals and insurers," Envision Healthcare said in a statement. "Industrywide legal challenges to that structure have proved meritless."
Often, doctors turn to such deals to get needed capital infusions and to ease the administrative and staffing burdens that drive physician burnout and make it difficult for practices to thrive. Envision Healthcare alluded to that trend in its statement.
"Every day, clinicians are tasked with saving patients’ lives while operating in a flawed U.S. healthcare system that is placing increasing demands on them," Envision Healthcare said. "Envision is committed to supporting clinicians so they can focus on that care and contributing to solutions that improve the healthcare system so patients can access care when they need it most.”
In the eyes of the emergency doctors group, however, the Placentia deal violated California law, was motivated by profit-seeking, not patient care, and impermissibly put a lay business in control of physicians. American Academy of Emergency Medicine President Dr. Robert Frolichstein said this specialty was an early target of private equity firms because of low overhead. Emergency doctors don't need their own facilities because they use equipment and space hospitals provide.
Envision Healthcare's bankruptcy put the case on pause, but the American Academy of Emergency Medicine, which is not seeking damages, hopes that ongoing discovery involving tens of thousand of documents proves non-doctors are calling the shots.
"Our desire is to have a court rule that the model that Envision Healthcare uses, and to the best of our knowledge other similar corporations use, is illegal in the state of California," Frolichstein said. "We believe that physicians should make the decisions that affect the clinical care that is delivered to patients, and not businesspeople that are not physicians."
While the American Academy of Emergency Medicine case necessarily focuses on California, the organization wants other states take note. "Our hope would be that the precedent that this ruling would have would cause other states to take a look at their own corporate practice of medicine laws, and investigate whether or not they're being violated in their states," Frolichstein said.
'No panacea'
Exactly how far opponents of corporate consolidation in healthcare can get by targeting corporate practice of medicine is unclear. Fuse Brown said it's "no panacea," and that it's really focused on "protecting physicians from the corporate influence" when they enter into an agreement with companies such as Optum, a management services organization or a private equity outfit.
Brown University School of Public Health Dean Dr. Ashish Jha, who testified at the Ways and Means Committee hearing, said in an interview afterwards that corporate consolidation in medicine was a "huge problem."
But Jha was not sure that resuscitating century-old laws would get much traction or be effective. Corporate ownership, per se, is not the issue, he said. Concentrated markets, rising prices and poorer medical care are. "What we want to focus on is behavior," he said.
"If you have a business that buys up physician practices, but then financially supports them [and] lets them provide really high-quality care, then it's not necessarily a problem," Jha said. "If it's leading to consolidation, if it's leading to market power, and if it's leading to higher costs and lower quality, then we need to do more, whether it's antitrust enforcement or using some of these other laws."
Old statutes might be hard to apply, Jha said. "Those laws probably all vary. They come from a very antiquated time," he said. "You want principles that can withstand different trends in the healthcare marketplace."
Fuse Brown said she and the National Academy for State Health Policy are working on updated model legislation, based on the Oregon bill, that should be ready for state and federal legislators to consider next year.
Asked whether this approach had legs, at least at the federal level, Wyden expressed optimism. "I'm standing here, and I've got legs," he said. "We are very serious about corporate consolidation."
