Magan Medical Clinic v. California State Bd. of MedicalExaminers

• Decision Date: 03 March 1967
• Citation: 57 Cal.Rptr. 256,249 Cal.App.2d 124
• Court: California Court of Appeals Court of Appeals
• Parties: MAGAN MEDICAL CLINIC et al., Plaintiffs, Respondents and Appellants, v. CALIFORNIA STATE BOARD OF MEDICAL EXAMINERS, Defendant, Appellant and Respondent. Civ. 30980.

Page 256

57 Cal.Rptr. 256

249 Cal.App.2d 124

MAGAN MEDICAL CLINIC et al., Plaintiffs, Respondents and Appellants, v. CALIFORNIA STATE BOARD OF MEDICAL EXAMINERS, Defendant, Appellant and Respondent.

Civ. 30980.

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

March 3, 1967.

Musick, Peeler & Garrett, James E. Ludlam and Bruce A. Bevan, Jr., Los Angeles, for plaintiffs, respondents and appellants.

Thomas C. Lynch, Atty. Gen., and John M. Huntington, Deputy Atty. Gen., for defendant, appellant and respondent.

FOURT, Associate Justice.

This is an appeal which involves the interpretation of section 654 and other sections of the Business and Professions Code with reference to doctor-owned pharmacies.

In a declaratory relief action brought against the California State, board of Medical Examiners, sometimes hereinafter referred to as Board, filed in Los Angeles County on May 18, 1965, Magan Medical Clinic and its nine partners, Rees-Stealy Medical Clinic and its 20 partners, Santa Barbara Medical Clinic and its 19 partners sought a declaration from the court that section 654, Business and Professions Code, does not require a divesting of interests which they hold in certain pharmacies. The facts are not in dispute and are sufficiently set forth in the findings which, in part, are as follows: Magan Medical Clinic is a medical group partnership in Covina, California, holding a permit issued by the Board pursuant to section 2393, Business and Professions Code. Nine named plaintiffs are members of the partnership and are physicians and surgeons, licensed by the Board under division 2, Chapter 5 of the Business and, professions Code. The Clinic Pharmacy holding a permit issued by the California State, board of Pharmacy is a pharmacy operated in Covina, California, in conjunction with and as a part of the Magan Medical Clinic. The pharmacy is owned and conducted by a partnership entitled The Clinic Pharmacy, the members of which partnership are the members of the Magan Medical Clinic and two retired members of the latter.

Rees-Stealy Medical Clinic is a medical group partnership in San Diego, California, holding a permit issued by the Board pursuant to section 2393, Business and Professions Code. Twenty named plaintiffs are members of that partnership and are physicians and surgeons licensed by the Board under division 2, chapter 5 of the Business and Professions Code. The Rees-Stealy Clinic Pharmacy, holding a permit issued by the California State Board of Pharmacy, is a pharmacy operated in San Diego, California, in conjunction with and as a part of the Rees-Stealy Medical Clinic. The pharmacy is owned and conducted by a partnership, the members of which partnership are the members of the Rees-Stealy Medical Clinic with the exception of four of such members.

Santa Barbara Medical Clinic is a medical group partnership in Santa Barbara, California, holding a permit issued by the Board pursuant to section 2393 of the Business and Professions Code. Fourteen named plaintiffs are members of that partnership and are physicians and surgeons licensed by the Board under division 2, chapter 5 of the Business and Professions Code. The Santa Barbara Medical Clinic Prescription Pharmacy, Inc., is a California corporation; the sole shareholder and owner of the stock is the Santa Barbara Medical Clinic, the medical group partnership. The director and officers of said corporation are, and each is, a plaintiff and a member of the medical group partnership. The Santa Barbara Medical Clinic Prescription Pharmacy, Inc. holds a permit issued by the California State Board of Pharmacy and owns and conducts a pharmacy in Santa Barbara in conjunction with and as part of the Santa Barbara Medical Clinic.

Five other named plaintiffs (who are physicians and surgeons) own stock in publicly-owned corporations (such as Thrifty Drug Stores, Inc., and Walgreen Co.) which operate pharmacies in California pursuant to permits issued by the California State Board of Pharmacy.

The power to revoke or suspend a permit issued to a medical clinic or group is lodged with the Board.

In 1963, statutes 1963, chapter 1303, section 1 was enacted which amended Business and Professions Code section 654 by adding thereto the following language.

'* * * Nor, after June 1, 1967, shall any person licensed under Chapter 5 of this division have any membership, proprietary interest, or co-ownership in any form in or with a pharmacy regulated by Chapter 9 (commencing with Section 4000) of this code, except that this shall not apply to a hospital pharmacy nor prohibit ownership in the building in which a pharmacy is located. "Proprietary interest' does not include ownership of a building where space is leased to a pharmacy at the prevailing rate, either under a straight lease or a percentage of the gross income of the pharmacy.'

Business and Professions Code, section 2393(b) provides that a permit may not be issued to a clinic or group unless 'The place or establishment, or the portion thereof, in which the applicant or applicants practice, is owned or leased by the applicant or applicants, and the practice conducted at such place or establishment, or portion thereof, is wholly owned and entirely controlled by the applicant or applicants.'

Plaintiffs' clinics have complied with section 2393(b). The respective pharmacies owned and operated in conjunction with the clinics constitute part of the medical facilities made available to the public at the clinics. The plaintiffs filed a petition with the Board seeking a declaration of the construction and validity of said amendment by the Board and said Board declined to file the petition and refused to hold a hearing thereon.

The court held and adjudged that: (1) Section 654 Is applicable to a state of facts in which medical clinic and medical group partnerships, operating pursuant to section 2393, own and conduct pharmacies regulated under chapter 9; in other words, that the act does apply to a partnership of physicians and surgeons owning a pharmacy. (2) Section 654 is Not applicable to a state of facts in which medical clinic or medical group partnerships, operating pursuant to section 2393, own stock in corporations which own and conduct such pharmacies; in other words, that the act does not apply to a partnership of physicians and surgeons which owns all of the stock in a corporation which owns a pharmacy. (3) Section 654 is Not applicable to a state of facts in which persons licensed under Chapter 5 of said code own stock in corporations which own and conduct such pharmacies, if the stock is traded among the public and, (4) Section 654 as so construed is not unconstitutional.

Plaintiffs have appealed from that part of the judgment numbered herein as 1 and 4. The Board has cross-appealed from that part of the judgment numbered herein as 2 and 3.

In our opinion, section 654 is constitutional. A statute is presumed to be constitutional and the burden in this case is on the plaintiffs to establish clearly that it is unconstitutional. If there is a state of facts which can reasonably be conceived that would sustain the statute, there is a presumption of the existence of such state of facts, and the burden of showing arbitrariness is upon the party so claiming. (Board of Education of City of Los Angeles v. Watson, 63 Cal.2d 829, 833, 48 Cal.Rptr. 481, 409 P.2d 481.)

Plaintiffs assert that the law singles out physicians as being the only persons ineligible to obtain a pharmacy permit, that it is arbitrary and capricious, that no evil is eliminated by the statute, that the statute bears no necessary relation to the supposed evil and that the Legislature made no effort in the first instance to attempt to regulate any evil practices but flatly prohibited pharmacy ownership by all physicians. Plaintiffs suggest that the statute was sponsored by various pharmacy associations and that it was claimed that some physicians gouged their patients through their pharmacy connections.

It would seem that the problem between the physicians and pharmacists is not new. For several centuries business relationships between physicians and pharmacists have been forbidden. The prohibition is apparently in recognition of the fact that, where the professional practice of an individual may have an influence on the economic success of a proprietary venture, the best interest of the patient may not be the primary factor in selecting either the medication prescribed or dispensed. The Genoa Legal Code of 1407 stated: 'We fix and ordain--to prevent any pharmacist from having temptation or reason for sinning, and to keep prices from being raised higher than is becoming--that no pharmacist may keep shop in partnership or agreement with any physician. All pharmacists must swear an oath before the masters of the craft each year, to observe completely and precisely the letter and spirit of this prohibition.' (See page 188, Hearings before the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary, United States Senate, 88th Congress, 1964.)

The problem, in any event, came to the attention of the California Legislature and ot acted. Perhaps it came to the attention of the Legislature through the hearings of the subcommittee of the Judiciary Committee of the United States Senate where, among other things, it was developed that physicians in California owned 39 pharmacies in 1949, 213 in 1962 and that between February, 1962, and February, 1963, an additional 39 such pharmacies were registered with the State Pharmacy Board which, to say the least, indicated a trend. ¹ However, whether the doctors are at the start of a campaign to secure to doctors all of the lucrative prescription-filling business by getting into that business and ultimately discouraging or eliminating the independent druggist- merchant from entering into the business is not the present concern of this court.

Other states have statutes with reference...