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Can a Non-Physician Own and Operate a Medical Facility in Michigan?

An interesting case is winding its way through the Michigan Court of Appeals that involves the question of whether a layperson, as opposed to a licensed physician, can own a for-profit business that provides medical services.

The appeal stems from a lawsuit filed by the Michigan Radiological Society (the “MRS”) against Oakland MRI, a non-physician owned limited liability company that offers diagnostic imaging services.

Last year, the Oakland County Circuit Court ruled in favor of Oakland MRI, holding that Oakland MRI is permitted to operate in Michigan as an LLC and that its owner, a gemologist by trade, is not required to be a licensed physician in order to own and operate the diagnostic imaging center.

MRS has argued (and is arguing on appeal) that the state of Michigan erroneously allowed Oakland MRI to be organized as an LLC, and that medical corporations in Michigan must be organized as professional corporations. Oakland MRI countered that LLC ownership is allowed, and that Michigan granted it a certificate of need license 10 years ago under a statute that allows non-physicians to own various types of medical equipment. Therefore, Oakland MRI argues that MRS should be taking its complaints to the Michigan legislature and not the courts.

The appeal will require an interpretation of the Corporate Practice of Medicine (“CPOM”) doctrine. The CPOM doctrine was first implemented by the American Medical Association, and its principles have been adopted in Michigan through provisions in various state statutes. The CPOM doctrine prohibits unlicensed individuals and entities from engaging in the practice of medicine and owning medical facilities. The CPOM doctrine includes exceptions for non-profit hospitals and both non-profit and for-profit nursing homes.

Section 4(3) of the Professional Service Corporation Act states that if a professional corporation is organized to provide a professional service that is subject to Michigan’s Public Health Code then all of the professional corporation’s shareholders must be “licensed or legally authorized” in Michigan to provide the same professional service. An identical restriction is contained in Section 904(2) of the Limited Liability Company Act.

This case will require the Court of Appeals to consider whether Michigan’s statutory scheme prohibits non-physician ownership of a medical facility, or whether a non-licensed layperson (like Oakland MRI) may own a facility as long as licensed physicians provide the actual medical services.

This case could open the door for more competition against the existing non-profit health industry in Michigan by non-licensed owners.

In the meantime, if you have any questions about ownership or corporate formation requirements for medical practices and facilities in Michigan, please contact Gary J. McRay or Julie Hamlet.

Categories: Compliance, Licensing, Providers

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Gary has nearly 40 years of experience and has earned a reputation for handling sophisticated transactions for hospitals, managed care organizations, HMOs, health insurers, physician groups and other provider entities and for helping his clients stay on top of complex regulatory issues, such as Anti-Kickback Statute, Stark II, Medicare, Medicaid, and BCBSM reimbursement appeals. 

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