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Navigating Michigan’s Corporate Practice of Medicine Doctrine

June 8, 2023

A Reference for Starting Medical Practices and Investing in Health Care-Related Entities

Medical professionals and entrepreneurs looking to invest in health care enterprises face a complex regulatory landscape. To operate within this regulatory framework, medical professionals and entrepreneurs must comply with the Corporate Practice of Medicine doctrine and Michigan’s LLC Act, which establish requirements for health care professionals forming limited liability companies (LLCs) to provide professional services.

What is Michigan’s Corporate Practice of Medicine Doctrine?

Michigan’s Corporate Practice of Medicine doctrine is a legal principle that prohibits unlicensed individuals or entities from owning medical practices in the state of Michigan. The doctrine serves to protect the public by ensuring that medical decisions are made by licensed professionals accountable to their respective licensing boards. Its principles are captured in Michigan’s LLC Act, which permits medical professionals—including, but not limited to, physicians, osteopathic physicians, chiropractors, dentists, optometrists, surgeons and podiatrists—to form LLCs for the purpose of providing professional services.

Key Considerations for Corporate Practice of Medicine and LLC Act Compliance

Professional LLCs Must Be Owned by Licensed Individuals

Michigan’s Corporate Practice of Medicine doctrine requires that medical practices be owned exclusively by licensed health care professionals to protect patients from unqualified individuals making medical decisions and mitigate compromises of professional judgment. While certain non-licensed individuals, such as managers or administrators, may be involved in the business operations of the medical practice, they cannot own any equity in the entity.

All Owners Must Generally Be Licensed in the Same Professional Service

Michigan’s LLC Act generally requires all members of a health care-related professional LLC to share the same profession. Simply put, medical practices must typically be owned by individuals who hold the same type of license to practice medicine. For example, physicians and dentists may not co-own a single professional LLC. However, the LLC Act carves out a notable exception: chiropractors, physicians, osteopathic physicians and podiatrists may own a practice together and cross-practice.

Fee-Splitting Arrangements Between Licensed and Non-Licensed Individuals are Prohibited

Michigan’s Corporate Practice of Medicine doctrine prohibits fee-splitting arrangements between licensed medical professionals and non-licensed individuals or entities. This means that medical professionals within the LLC cannot share their fees with non-licensed individuals, including non-licensed investors or non-licensed employees. The prohibition also extends to indirect fee-splitting arrangements, such as profit-based bonuses and compensation of non-licensed individuals. To mitigate the risk of violating Michigan’s Corporate Practice of Medicine, compensation of unlicensed individuals and entities, including management companies, should be set at fair market value for commercially reasonable services.

Management Services Organizations Enable Flexible Ownership and Investment Structures

Management Services Organizations (“MSOs”) are an increasingly popular compliance structure that permits flexibility in ownership and investment structures. MSOs are separate entities that provide management and administrative services to the medical practice, such as billing, accounting and human resources, allowing medical professionals to focus on providing patient care by offloading administrative tasks. Although the medical practice itself must be owned exclusively by licensed health care professionals, the MSO may be owned by non-licensed individuals, such as investors. Notably, though, MSOs must be carefully structured to comply with state and federal regulations and avoid potential conflicts of interest between the medical practice and the MSO. Accordingly, entrepreneurs and medical professionals interested in utilizing this option should seek legal counsel to navigate its complexities.

As medical professionals and unlicensed entrepreneurs structure and invest in health care-related entities, they should take careful note of these key requirements to help ensure compliance with Michigan’s Corporate Practice of Medicine doctrine and LLC Act. By adhering to these regulations, professional LLCs and unlicensed individuals can mitigate the risks of noncompliance and focus on building thriving medical practices.

Please contact your Varnum attorney with any questions.

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