Conrad v. Medical Bd. of California

• Decision Date: 19 August 1996
• Docket Number: No. D024003,D024003
• Citation: Conrad v. Medical Bd. of California, 55 Cal.Rptr.2d 901, 48 Cal.App.4th 1038 (Cal. App. 1996)
• Parties: , 96 Cal. Daily Op. Serv. 6215, 96 Daily Journal D.A.R. 10,065 Alan J. CONRAD et al., Plaintiffs and Appellants, v. MEDICAL BOARD OF CALIFORNIA, Defendant and Respondent.
• Court: California Court of Appeals

Page 901

55 Cal.Rptr.2d 901

48 Cal.App.4th 1038, 96 Cal. Daily Op. Serv. 6215,

96 Daily Journal D.A.R. 10,065

Alan J. CONRAD et al., Plaintiffs and Appellants, v.MEDICAL BOARD OF CALIFORNIA, Defendant and Respondent.

No. D024003.

Court of Appeal, Fourth District, Division 1, California.

Aug. 19, 1996.

Review Denied Nov. 13, 1996.

Weissburg and Aronson, Inc., Foley, Lardner, Weissburg and Aronson, Los Angeles, Gregory V. Moser, Parham & Associates, San Deigo and Jackson E. Parham, Irvine, for Plaintiffs and Appellants.

Dennis M. Lynch and Regina Tanner, Visalia, as Amici Curiae on behalf of Plaintiffs and Appellants.

Daniel E. Lungren, Attorney General, Robert L. Mukai, Chief Assistant Attorney General, and Beth Faber Jacobs, Deputy Attorney General, for Defendant and Respondent.

Catherine I. Hanson and Astrid G. Meghrigian, San Francisco, as Amici Curiae on behalf of Defendant and Respondent.

HUFFMAN, Associate Justice.

This appeal presents the issue of whether HEALTH AND SAFETY CODE SECTION 32129¹ creates an exception to the historic doctrine prohibiting the corporate practice of medicine, by expressly or impliedly expanding the powers of a hospital district or health care district to employ physicians, as opposed to treating these physicians as independent contractors.The plaintiffs and appellants are a local hospital district, Palomar Pomerado Health System (the District), and nine physicians with whom the District has employment agreements, Alan J. Conrad, M.D., et al. (collectively Appellants).The defendant and respondent is the Medical Board of California(the Medical Board), an administrative agency which has the authority to enforce the Medical Practice Act, which establishes professional regulation and a discipline system for physicians.(Bus. & Prof. Code, §§ 2000 et seq., 2004.)Amicus briefs have been filed at the trial and appellate levels by the California Medical Association(CMA), a professional association of physicians, and by several fellow hospital districts.

The trial court was presented with undisputed facts which raised a question of law as to the proper interpretation of the statutory scheme of which section 32129 is a part.On cross-motions for summary judgment, the court ruled in favor of the Medical Board, granting summary judgment and declaratory relief to the effect that local hospital districts could not legally employ physicians, but could only contract with them as independent contractors.(Code Civ. Proc., §§ 437c,1060 et seq.)As we shall show, the trial court's interpretation of existing law was correct.

IArguments on Appeal

The main focus of this appeal is section 32129, entitled "Contracts for professional health services," providing in full:

"Notwithstanding the provisions of the Medical Practice Act[Bus. & Prof. Code, § 2000 et seq.], the board of directors may contract with physicians and surgeons, health care provider groups, and nonprofit corporations for the rendering of professional health services on such basis as does not result in any profit or gain to the district from the services so rendered and as allows the board to ensure that fees and charges, if any, are reasonable, fair, and consistent with the basic commitment of the district to provide adequate health care to all residents within its boundaries."

One of the provisions of the Medical Practice Act(Bus. & Prof. Code, § 2000 et seq.) referred to by section 32129 is Business and Professions Code section 2400, providing that corporations and other artificial legal entities "shall have no professional rights, privileges, or powers"; in general, this section embodies a ban on the corporate practice of medicine.²However, the statute contains an exception allowing approval of the employment of licensees on a salary basis "by licensed charitable institutions, foundations, or clinics, if no charge for professional services rendered patients is made by any such institution, foundation, or clinic."

According to Appellants, the introductory phrase in section 32129, "[n]otwithstanding the provisions of the Medical Practice Act," establishes an express exception to the ban on corporate practice of medicine, allowing the board of directors of a hospital district or health care district ³"to contract with physicians and surgeons," including entering into an employment contract, for the provision of health care services, so long as the two general restrictions in section 32129 are met: the district may not profit or gain from the services so rendered, and the board must ensure that the fees and charges are reasonable, fair, and consistent with the district's commitment to provide adequate health care to its constituents.

If no express exemption to the corporate practice doctrine is created by statute, then Appellants argue an implied exemption may be found in the legislative history of the statute and its numerous amendments.(See pt. III.D., post.)Appellants then switch gears, arguing in response to the amicus brief of Kaweah Delta Health Care District that it is immaterial whether a particular doctor's contract is deemed to be one of employment or not, when considering whether section 32129 and the corporate practice doctrine permit any such contract; instead, only the general restrictions of section 32129 should control.Appellants now claim they are not seeking a broad ruling overturning the corporate practice doctrine, in order to allow the District to employ physicians, but rather seek only to establish that section 32129 permits these particular employment agreements.

In contrast, the Medical Board and amicus CMA stoutly defend the corporate practice doctrine against all attacks, direct or indirect, evidently assuming that Appellants' challenge was a broad one attacking the continued validity of this doctrine.To analyze these arguments and the proper scope of this appeal, we first set forth the background of the corporate practice doctrine, and then apply it to this record.

IICorporate Practice Doctrine

The Medical Practice Act prohibition of the corporate practice of medicine is declaratory of a basic public policy against corporate practice of the learned professions.(People v. Pacific Health Corp., supra, 12 Cal.2d at p. 159, 82 P.2d 429.)The doctrine is intended to ameliorate "the evils of divided loyalty and impaired confidence" which are thought to be created when a corporation solicits medical business from the general public and turns it over to a special group of doctors, who are thus under lay control.(Id. at pp. 158-159, 82 P.2d 429.)In that case, striking down one such arrangement, the Supreme Court noted that it had approved that day, in Butterworth v. Boyd(1938)12 Cal.2d 140, 148, 82 P.2d 434, a slightly different system adopted by the City and County of San Francisco for the furnishing of medical service to its employees.There, the Supreme Court held that the municipality of San Francisco had the power to act in this field to benefit city employees and, accordingly, their employer.(Ibid.)

As this authority shows, the general ban on the corporate practice of medicine is subject to several exceptions.First, Business and Professions Code section 2400 recognizes that physicians may be employed on a salaried basis by licensed charitable institutions, foundations, or clinics, if patients are not charged for the professional services rendered.⁴In County of Los Angeles v. Ford(1953)121 Cal.App.2d 407, 413-414, 263 P.2d 638, the court found no violation of the corporate practice of medicine doctrine when the county entered into contracts with certain medical schools to provide staffing for county general hospitals, with the doctors and medical students to act as independent contractors who were responsible for the manner in which they performed services for patients.(Id. at p. 410, 263 P.2d 638.)It was found significant that the schools were not offering medical services to the public generally, and that the schools played no part in the actual relationship of doctor and patient.(Id. at p. 414, 263 P.2d 638.)It was also found significant that the county had the obligation to provide care for the indigent sick, and that these contracts sought to fulfill that aim.(Id. at p. 408, 263 P.2d 638.)A similar result was reached in County of San Diego v. Gibson(1955)133 Cal.App.2d 519, 524, 284 P.2d 501, where it was held that a county could lawfully enter into a contract with a nonprofit charitable corporation for the corporation to provide medical instruction for staff at the hospital and care and service to patients in the hospital for stated fees.The court stated that these facts met all the requirements laid down in the Pacific Health Corporationcase (supra, 12 Cal.2d 156, 160, 82 P.2d 429)(i.e., that medical services were rendered to a limited and particular group as a result of cooperative membership or association, or employment by a corporation having an interest in its employees' health; and the doctors were not employed or used to make profits for stockholders, as the institution was organized as a nonprofit corporation or association).

Case law has also illustrated the types of contracts which have been approved as outside the ban on corporate medical practice.For example, in Blank v. Palo Alto-Stanford Hospital Center(1965)234 Cal.App.2d 377, 390, 44 Cal.Rptr. 572, it was held that a contract between a hospital and a physician's group was not illegal, even though it provided for a percentage split of gross income from fees for diagnostic services provided by the physician's group, because the doctors retained their freedom of action in conducting their practice.The evidence showed that the portion of the fees received by the hospital was proportionate to the hospital's expenses incurred in furnishing diagnostic facilities.(Ibid.)Thus, the hospital's contract for a closed staff practice of diagnostic radiology was not an illegal...