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So You Want to Own Your Own Medical Practice?

“Owning my own business.” This is often the goal of many as they start college and move through graduate school and into their first jobs. For those set on making this a reality, there are many important factors to consider, including what entity should I form? Do I have enough investors or partners? Do I have enough capital? How will I generate business? For physicians looking to go out on their own, these questions are no different. However, physicians must ask themselves a few additional questions to make sure their business is adequately protected and most importantly their business structure is legal.



This article will provide a brief overview of two of the initial considerations physicians must take into account when deciding to start their own practice: 1) the most advantageous entity and 2) compliance with the anti-kickback and fee for referral rules. This article is not meant to be an exhaustive list of considerations for the physician, but merely examines two key initial considerations a physician should take into account.

First, a physician or group of physicians contemplating starting a medical practice must first decide which legal entity to form to limit liability and protect the physician’s personal assets. A physician has many options when it comes to choosing an entity, including: a limited liability company; a sub-chapter S corporation; a sub-chapter C corporation; or a professional service corporation or professional limited liability company. Each entity has specific formation requirements and operates slightly different than the others. However, from a requirement standpoint the two most restrictive entity forms are the sub-chapter S corporation and the professional service corporation. To qualify for sub-chapter S status with the IRS, the corporation cannot have over 100 shareholders; all shareholders must be either domestic or resident individuals, an estate or a qualified trust; and the corporation can only have one class of stock. 26 USC §1361(b)(1)(A)-(D). A professional service corporation or a professional limited liability company’s shareholders or members may only be individuals, professional corporations, or professional limited liability companies, which are duly licensed or otherwise legally authorized to render the professional services for which they are licensed. §621.05, Fla. Stat. Further, a professional service corporation name must be associated with the term “chartered” or professional association or the abbreviation “P.A.” §621.12(2)(a) and (2)(b)(1), Fla. Stat. Similarly, in the case of a professional limited liability company, the words “professional limited company” or “professional limited liability company,” the abbreviation “P.L.” or “P.L.L.C.” or the designation “PL” or “PLLC” must accompany the name. §621.12(2)(b)(2), Fla. Stat. In addition, transfers of an interest in the company may only be made to those persons authorized to be shareholders under §621.05, Fla. Stat., §621.09, Fla. Stat.

After the entity is chosen and registered with the state, another major issue to consider when starting a medical practice is the fee-splitting and anti-kickback rules on both federal and state level. Fee-splitting and kickbacks for referrals are highly disfavored by both the Federal and state governments in multiple professional areas. The rules against fee-splitting and kickbacks for referrals are still stringently enforced in both Federal and state courts for the medical profession. 42 USC §1320a-7b and Florida Statutes Section 458.331(1)(i) and Florida Statutes Section 817.505(1) govern fee splitting and kick back for referrals.

Under Federal law, 42 USCA §1320a-7b(b)(1) provides that whoever “knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly…in return for referring an individual to a person for furnishing…any item or service for which payment is made in whole or in part under a Federal health care program…” shall be guilty of a felony. It is widely accepted that this statute makes it illegal to offer any compensation or kickback for the referral of a patient. However, 42 C.F.R. Section 1001.952 exempts from the word “remuneration” any mutual referral arrangement for a specialty service where one party refers a patient to the specialty party in return for the specialty party sending the patient back to the referring party. To qualify for the exemption, the arrangement must meet strict requirements.

Under Florida law, Section 458.331(1)(i), Florida Statutes provides that paying or receiving “any commission, bonus, kickback or rebate, or engaging in any split-fee arrangement in any form whatsoever with a physician, organization, agency or person, either directly or indirectly, for patients referred to providers of health care goods and services…” is grounds for denial of a license or disciplinary action. Further, Section 817.505(1), Florida Statutes provides it is unlawful for any person, including any health care provider or health care facility to: offer, pay or solicit “any commission, bonus, rebate, kickback, or bribe, directly or indirectly, in cash or in kind, or engage in any split-fee arrangement, in any form whatsoever, to induce the referral of patients or patronage to or from a health care provider…”

A physician must consider and understand these rules and their application to the physician’s proposed business structure to ensure compliance and avoid any penalties associated with the violation. Failure to properly structure business entities or relationship could have serious consequences for the physician up to and including suspension or denial of a medical license.

Prior to establishing a medical practice, physicians must give serious thought to the appropriate business entity to form and whether the proposed business structure complies with State and Federal law. For more information or assistance establishing a medical practice please contact Pat McNamara at pmcnamara@dgfirm.com or Kristin Morris at kmorris@dgfirm.com.