Companies Bypass Laws Which require Physicians to Work for Other Physicians by Setting up Shell Companies


Corporate Encroachment

In 2015, Hospital Internists of Austin went into a partnership with TeamHealth, one of the biggest medical staffing companies in the United States.

The partnership was not destined to last.

Originally Published:  July 2018 | Republished: Nov 21, 2022

It was supposed to work like this: Hospital Internists of Austin (now Hospital Internists of Texas, or HIT) would supply the internists for five of the six hospitals in the St. David’s HealthCare chain, which is majority-owned by HCA Healthcare.

With about 85 physicians and 35 nurse practitioners, HIT would work through TeamHealth. TeamHealth, owned by Blackstone Group, would recruit the emergency physicians for the hospital chain.

Dieter Martin, MD, HIT past president, says he was wary about this arrangement at the time, but felt it created a “good arms-length relationship, where we’re not owned by TeamHealth, and therefore, we can still look out for our patients’ interests.”

Instead, HIT doctors say TeamHealth’s demands to cut costs and raise revenue gradually became more frequent and less reasonable. They say the company encouraged the hospitalists to speed up discharge times to clear out beds for new patients, and it promoted transfers from other hospitals, even when those transfers were not medically necessary.

“Over the past three years, we’ve been having increasing encroachment from TeamHealth on our decision-making and increasingly we’re being asked to do things that are unsafe or against the patients’ best interest,” Dr. Martin said.

The final blow to the relationship came in November 2017. HIT physicians found out — accidentally — that TeamHealth planned to drop their practice by July 2018. HIT discontinued its relationship with St. David’s and since then has scrambled to find work for its physicians at other area hospitals.

TeamHealth and St. David’s would not comment for this article initially. (See June 19 update below.) As this article went to press, Texas Medicine obtained a June 5 email from St. David’s CEO Todd Steward to hospital and medical staff. It states that as of June 9, “the contracted internal medicine hospitalist program will fully transition to TeamHealth, and those services will be provided by physicians employed by TeamHealth.”

A growing number of hospital-based physicians work with hiring firms — about 40 percent of Texas emergency physicians, according to the American Academy of Emergency Medicine (AAEM).

Critics of the arrangements say physicians and patient care often come out on the losing end.

Based on a steady stream of complaints received by the Texas Medical Association, HIT’s experience may not be that unusual.

“Physicians have the highest duty, a fiduciary duty under Texas law, to put each patient’s needs first,” said TMA Vice President and General Counsel Donald P. “Rocky” Wilcox. “We continue to work on this issue, and more needs to be done to ensure that non-physicians are not able to unduly influence how medicine is practiced.”

Robert McNamara, MD, is a past president of AAEM and chair of emergency medicine at Temple University Hospital in Philadelphia. In a 2016 paper he co-wrote for The Journal of Emergency Medicine, he documented several obstacles physicians encounter with “corporate contract management” companies that do hiring, billing and collections, and other administrative functions on behalf of hospitals. (See

These problems don’t just infringe on the practice of medicine here and there — they signal the steady erosion of key legal protections designed to keep non-medical professionals from interfering in a physician’s medical judgment, Dr. McNamara told Texas Medicine. “There’s some legendary stuff that they’re doing [to] the practice of medicine.”

Steady erosion? 

Most states — including Texas — have corporate practice of medicine laws. Despite differences, they all have one goal: to keep lay people and organizations from interfering in a physician’s medical judgment, especially for financial reasons. Since 1956, Texas has had some of the strictest prohibitions in the country that, among other things, bar non-physicians from employing physicians. (See “TMA’s Corporate Practice of Medicine White Paper,” page 40.)

Historically, the Federal Trade Commission (FTC) has pressured states to ignore or abrogate these laws, according to a 1997 history of corporate practice of medicine statutes produced by the American Health Lawyers Association (AHLA). The FTC’s efforts were driven by concerns the legal doctrine drove up the price of health care and made it difficult for large companies to offer health plans.

“The FTC has maintained that restricting corporations from these kinds of practices can thwart development of ‘innovative’ healthcare-related delivery venues that lower prices for consumers,” the AHLA report says.

There have been many calls for outright repeal of corporate practice of medicine bans, but most states instead have carved out exceptions or created modifications. Some states like New York, Illinois, and Colorado allow non-physician medical entities like hospital corporations and health maintenance organizations to hire physicians. Texas’ law still forbids this. However, in 2011 Texas amended its law to allow critical access hospitals, sole community hospitals, and hospitals that serve populations of 50,000 or less to directly employ physicians, largely to improve access to care in underserved areas.

Even so, some physicians say the state has failed to enforce the existing protections amid a changing business environment. Recent cases suggest a potential pattern. While deposing a witness in a case brought by Central Texas Hospitalists of Austin, an executive in the TeamHealth organization referred to “this arcane law we call corporate practice of medicine that nobody needs,” according to an unofficial copy of the transcript on file at the Travis County District Clerk’s office. (See “A Pattern?,” page 38.)

AAEM’s Dr. McNamara says companies are taking advantage of a quirk in hospital economics. In hospitals, the billing done by emergency physicians pays for the doctors’ entire salaries, but the billing for hospitalists does not. That means the hospitals have to subsidize hospitalists’ salaries, a costly expense.

“[Management companies are] basically saying to a hospital administrator, ‘Look, we know you’ve got to subsidize your hospitalists. We can make money off your emergency physicians. If you give us the contract [for the emergency physicians], we’ll lessen or eliminate your subsidy on the hospitalist contract,’” Dr. McNamara said.

Companies get around laws that require physicians to work for other physicians by setting up shell companies “that will have a physician owner of that shell corporation” as a regional medical director, for instance, he added. Showing that they are shell companies can usually be done only with a lawsuit, which is difficult and expensive.

Just another business deal

Concern over management groups’ actions is hardly universal.

The Society of Hospital Medicine General Counsel Joshua Boswell says the national professional group for hospitalist physicians has not received complaints about situations like that faced by HIT.

According to Jed Morrison, a San Antonio attorney who has represented both sides in various medical issues, “all the things that tend to come up [between physicians and contract management companies] in the end would be compensation-related or financial-related in one way or another.”

He says hospitals and physicians have had a hand in promoting business arrangements with management companies. Hospitals are looking for someone to recruit good physicians into multispecialty practices, and a growing number of physicians are less interested in private practice.

“I’ve represented doctors for 30 years or more, and it’s changed so much,” Mr. Morrison said. “Many of them come out of medical school now, and they really do just want to be employed and get a paycheck, and they don’t want to go open up their own office and have to deal with billing and hiring and firing and compliance, and all that. They just want somebody else to do that for them.”

Mr. Morrison adds that simply calling these entities “shell” corporations doesn’t necessarily mean much, legally speaking. He pointed out that large companies like TeamHealth and EmCare — the nation’s largest contract management company — are sophisticated and well-represented, and understand how to legally navigate corporate practice of medicine laws.

“‘Shell’ certainly has a bad connotation, but it’s not illegal in and of itself,” he said. “People will do what they have to do to comply with the law. Sometimes they’ll do just the bare minimum, and other times it will be a more genuine thing.”

Limited recourse

For physician practices that encounter these tactics, the most obvious course of action is to sue.

Dr. McNamara says some suits have been successful in states with strict corporate practice of medicine laws, like California, but lawsuits against well-financed national corporations carry obvious difficulties.

“The real issue is getting physicians who are going to say, ‘We want to fight,’” he said. “The trouble is that the docs get fired. Or the docs are afraid they’ll get a black mark on their name and they’ll never be able to work again because these corporations are so dominant.”

HIT’s Dr. Martin said one of the biggest problems with legal action is management companies have the resources to drag out litigation for months or years; most physician practices don’t.

“We’re not a huge company that can take on two multi-billion-dollar, publicly-traded companies,” he said.

Mr. Wilcox, TMA’s general counsel, says physicians can encourage state and county law enforcement officials to properly enforce corporate practice of medicine laws. In some cases, the Texas Medical Board has enforcement powers, but usually it can discipline only the physicians involved who violate these laws. It has no jurisdiction over non-physicians or non-physician management companies, he says, and must seek the cooperation of other state and county enforcement agencies. TMA continues to push for related protections. (See “Delegates Act to Protect Hospital-Employed Physicians,” page 40.)

Meanwhile, HIT physicians face an uncertain future.

“It wasn’t like this previously. Our daily duties were previously focused on taking care of our patients,” said Ellis Doan, MD, HIT’s chief medical officer. “Now, we’re constantly pressured to discharge patients faster and earlier in the day, tracked with discharge time goals created arbitrarily by non-clinical hospital administrators, and pushed to quickly issue admission orders under time goals — oftentimes prior to seeing the patients — to meet a time metric. It has nothing to do with patient care at all.”

 June 19 update

After this article went to press, HIT filed a lawsuit against TeamHealth.

In a June 19 statement provided to Texas Medicine, St. David’s HealthCare maintains the hospital chain and TeamHealth “were holding HIT accountable for improved performance,” and rather than responding to the requests, “HIT instead chose to terminate their contract with TeamHealth.”

“As such, TeamHealth was required to replace the HIT physicians in order to maintain its coverage of St. David’s HealthCare hospitals and the care of our patients. … We have an obligation to provide exceptional care and service to our patients, and the actions we took with HIT and TeamHealth are steps we needed to take to ensure that is being done,” the statement says.

The hospital chain also says HIT physicians “still have privileges as private, non-contracted physicians at St. David’s HealthCare hospitals.”

A Pattern?

In 2008, the American Academy of Emergency Medicine sued Memorial Hermann Health System and TeamHealth, alleging they violated Texas’ ban on the corporate practice of medicine by putting lay individuals in charge of a physician practice. TMA filed a friend-of-the-court brief supporting AAEM. The Texas Supreme Court dismissed the case, saying the physician did not have standing to sue.

In 2016, Central Texas Hospitalists (CTH) of Austin sued TeamHealth, alleging the company required “material changes to the CTH physicians’ workplace” by demanding they do work they were not trained for, namely providing services typically handled by emergency department physicians and staff. The suit says TeamHealth was aware that forcing this responsibility on the hospitalists would result in mass resignations, which is exactly what happened.

In a high-profile report, EmCare, the nation’s largest medical staffing company, owned by Envision, faced scrutiny for its actions. In 2012, 60 Minutes reported that EmCare, working with the hospital chain Health Management Associates (HMA), ordered physicians to admit at least 20 percent of their patients to the hospital automatically or face being fired (

And a 2017 study by Yale University researchers found that when EmCare entered a hospital, the rate of out-of-network doctors’ bills rose sharply, use of the highest billing code increased, and the rates for tests ordered and patients admitted from the emergency department rose ( The same study looked at TeamHealth. It found a smaller rise in out-of-network bills when the company took over, but no other significant changes.

TeamHealth would not comment for this article. CTH declined to comment because of the pending litigation. HMA denied the claims in the 60 Minutes report.

Delegates Act to Protect Hospital-Employed Physicians

The TMA House of Delegates in May voted on a host of new protections for physicians who work for nonprofit health corporations (NPHCs) and serve on hospital medical staffs.

Delegates directed TMA to develop legislation that stops NPHCs from retaliating against employees who file complaints or reports of suspected violations of state or federal law. The house also told TMA to ask the Texas Medical Board (TMB) to adopt rules that give TMB authority to accept, process, and dispose of complaints against a licensed NPHC.

TMA will push for such legislation again during the 2019 session of the Texas Legislature. A 2017 bill TMA backed never made it out of committee.

TMA’s Corporate Practice of Medicine White Paper

The corporate practice of medicine doctrine helps Texas physicians exercise independent judgment in the best interests of their patients without interference from non-physicians. Find out more at

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