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Sunday, February 5, 2023

Corporate Medicine Practice Doctrine: Dead or Alive for Arizona Ketamine Clinics?

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As we have written before, the corporate practice of the doctrine of medicine (“CPOM”) is a manufacture of state law (“CPOM”).click here To review a previous post on CPOM). While some states do not have a CPOM doctrine (such as Florida), other states have very strict CPOM principles (such as New York and California). In essence, CPOM prevents private individuals and regular entities from venturing directly with health care providers, and similarly prevents the normal entity from employing health care providers. The reason is obvious – no one wants health care providers to respond to lay people who are not familiar with clinical care. Therefore, in cases where CPOM prohibits these activities, private individuals and normal entities form management service companies to assist service providers with non-clinical activities (eg, billing, staffing of non-physicians, provision of clinic space and supplies, etc.).

The origins of CPOM in Arizona

In Arizona, the CPOM doctrine is based on ancient case law. In the case of Funk Jewelers Inc. v. State Related Ex. Labrad, 46 Ariz.348, 50 P.2d 945 (1935), The Arizona Supreme Court has ruled that a company’s inability to obtain a license to operate a store employing an optometrist renders this practice illegal. 46 Ariz. at 351, 50 P.2d at 946. Because “[t]The defendant company could not carry on business without a license” and the state “had the right to exclude any individual from the exercise of such profession unless he had fulfilled the legal qualifications and obtained a license from the state”, the Supreme Court concluded that the defendant “violated the Optometry Regulatory Act By operating a store without such a license. ID. (quotes omitted) (inner quotation marks omitted). The panic The decision was confirmed in subsequent decisions. While panic When dealing with an optometrist, the prevailing wisdom is that the decision applies to anyone who practices healthcare, whether it is a dentist, physician, or any other type of healthcare provider.

Midtown Medical Group’s decision

In 2008, the landscape in Arizona changed. while the panic The decision and its descendants remains good law in Arizona, and there is now an Arizona Court of Appeals decision that opens the door for investors to venture directly with health care providers, as well as to hire these providers.

in a Midtown Medical Group, Inc. v. State Farm Mutual Automobile Insurance Co., 220 Ariz.341 (App. 2008), the Court of Appeals was asked to decide whether an “outpatient treatment center” as described in the Arizona Revised Code (“ARS”) section 36-405(B)(1) and management Arizona Code (“AAC”) R9-10-101 (39), which physicians and chiropractors use, may be owned by persons who are not licensed physicians or chiropractors. The Court of Appeal answered this question in the affirmative, allowing this arrangement to remain.

The Court of Appeal has analyzed various laws and regulations that have been amended long after panic resolution. The appeals court found that the clear language of the amended regulations clearly allowed a company to be licensed as an “outpatient treatment centre”. Furthermore, the Court of Appeals further found that amended laws and regulations do not require a “natural person” to hold a professional license to obtain an Arizona outpatient treatment center license for such an entity.

Generally, a clinic does not need to obtain a license in Arizona if the health care providers have at least 50.01% of the ownership. However, in cases where the clinic is owned by private individuals who have at least a 50.01% ownership interest, it must hold an outpatient treatment center license. As the Court of Appeal noted:

… If a physician owns an office or private clinic that provides services such as those specified for an “outpatient treatment center,” the licensed physician does not need to obtain a license from the director [of the Arizona Department of Health Services]. In fact, a typical physician’s office is a virtual counterpart to the definition of an “outpatient treatment center”: an entity “without beds for inpatients that provides medical services to diagnose and treat patients.” AAC R9-10-101 (39). This leads to the inescapable conclusion that the licensing laws and regulations for “outpatient treatment centers” are intended to regulate [the Defendants] You may seek to prevent: the ownership of such an entity by persons (whether individuals or companies) who do not themselves hold a license to practice in the medical field or the health care field in which the Medical Services are provided.

However, because Midtown Medical Group had been decided upon by the Arizona Court of Appeals, the Court of Appeals could not overturn the Arizona Supreme Court’s decision in panic and his offspring. Thus, the Court of Appeals found a narrow exception to the CPOM doctrine in Arizona for “outpatient treatment centers.” As the Court of Appeal noted:

Based on the legal and regulatory scheme related to “health care institutions” in general and “outpatient treatment centers” in particular, the holdings panic And Burn Do not specify the result in this case. To reach this conclusion, we affirm that our decision is narrow. We have no authority to modify, not modify, any part of Burn Wow panic. Likewise, we do not make any statements regarding the general vitality of the doctrine of the practice of group medicine. We only address and judge the narrow issue before us: that the legal and regulatory scheme for “Outpatient Treatment Centers” expressly allows the Director [of the Arizona Department of Health Services] To issue a license to a public institution, whether or not that company is owned by individuals who have a separate license to practice in the health care in question.


While CPOM still exists in Arizona, at least for outpatient treatment centers (such as ketamine clinics), there is now a way forward for co-ownership between medical professionals and regular entities, as well as the right of regular entities to hire health care providers. While it is likely that the Arizona Supreme Court will be asked to review these cases, it appears that the logic of the appeals court is likely to prevail and be upheld.

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