Corporate Practice of Medicine: Using an Old Doctrine to Thwart the New Threat of Private Equity to Medicine in America

Cole Heisner

ABSTRACT

Private equity owns large swaths of the American economy. States have grappled with this shift in ownership—and the accompanying fundamental business and economic changes—by drafting legislation designed to regulate M&A activity in certain industries. Often, states have tried to curb the influence of private equity in healthcare, an industry both particularly ripe for private equity investment and one long seen as particularly vulnerable to the worst of market economics. Recently, some states have drafted or enacted “mini-HSR” legislation: mandating a waiting period for private equity transactions in healthcare during which the state may approve or disapprove the deal (HSR stands for the Hart-Scott-Rodino Act, a core federal antitrust law). But an older rule may be more useful in curbing private equity’s attempts to own healthcare companies: the Corporate Practice of Medicine (CPOM) doctrine. Over a century old, this doctrine disallows corporations from practicing medicine. Traditionally, CPOM applies to individual practices and generally forbids anyone but a physician from making care-based decisions. CPOM originated in a far simpler world of corporate regulation (and medicine) and has come under scrutiny in modern times. But the essence of CPOM—that healthcare must be free from the control of purely financially motivated actors—seems to answer the calls of state legislatures to prevent private equity from running American healthcare. This Note will examine private equity’s interest in healthcare and the threat it poses to healthcare, track the CPOM doctrine through its history of enactment and enforcement, analyze recent states’ “mini-HSR” anti-private equity efforts, and finally recommend that courts enforce the CPOM doctrine using the practical approach articulated in Flynn Bros.