Public Health Law Map - Beta 5 - Medical and Public Health Law Site

The legal consequences of the corporatization of medicine has been to broaden the legal
threats facing medical care practitioners from traditional medical malpractice litigation
to include fraud, financial crimes, and other civil and criminal business litigation. The
losses from such litigation are potentially much greater than from individual medical
malpractice cases. Civil fines can run to the tens and hundreds of millions of dollars, and
the individuals may be criminally prosecuted and face prison sentences.
This section deals with the special risks that arise from medical care practitioners
working with MCOs and in team care environments. Most of these risks arise from the
conflicts between the medical care practitioner’s fiduciary duty to the patient and the
MCO’s pressure to make the medical care practitioner a gatekeeper who protects the
interests of the MCO. Most of these risks run to physician medical care providers
because the vast majority of the statutes and case law dealing with fiduciary duty in
medical care are directed at physicians.
A. The Changing Nature Of Physicians’ Practices
Traditionally, physicians practiced as sole proprietors or as small partnerships. A small
number of physicians worked for employers such as railroads to provide care to the
employees, and, in some cases, care to the employee’s families. Patients paid directly
for their care, usually in cash, but sometimes with barter. The physician’s only
institutional relationship was with the local hospital. Hospital privileges were simple
independent contractor relationships, usually vetted by the local medical society.
Medical law was simple, dealing mostly with medical negligence, hospital privileges,
and perennially controversial areas such as abortion and narcotics prescriptions.
These patterns reflected the simplicity of the pre-World War II medical environment.
There were relatively few effective drugs, technology was limited and not capital
intensive, and hospitals were run mostly by religious orders and provided little more
than nursing, laundry, and food services. Physicians worked alone and specialty
practice, beyond surgery, was very limited. After World War II, medical specialization
and advances in technology and pharmacology profoundly changed hospitals and
physician practice patterns, but the old business organizations persisted beyond the
point where they made business sense for anyone but the physicians. Business
innovation was stifled by state laws, called corporate practice of medicine laws, that
protected the private practice model.
1. Corporate Practice of Medicine
The evolution of business forms for physicians’ practices has been limited by state
anticorporate practice of medicine of laws. [Mars, S. The corporate practice of
medicine: a call for action. Health Matrix. 1997;7:1,241–300.] These laws date back
to the 1920s and 1930s. Interestingly, they evolved from laws intended to prevent the
practice of law by corporations. Their purpose was to protect the independence of the
professional’s judgment from the pressures triggered by making money for the
stockholders of a business. In a quote that presages many current criticisms of the
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