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(The below is content that will be published in an upcoming PT Interventions, the official newsletter of the California Physical Therapy Association)
For years there has been much confusion about physical therapists working for and owning different types of corporations, and whether a physical therapist may form or work for a limited liability company or “LLC.” Assembly Bill (“AB”) 1000, effective January 1, 2014, resolved much of this confusion by allowing patients direct access to physical therapy. A significant question remains – can a physical therapist work for a general corporation owned by a non-physical therapist layperson? Given the state of the law in 2015, it would be risky for a physical therapist to do so. This article discusses the history and law regarding physical therapy corporations.

History of Confusion: The 1990 Board Resolution and Subsequent Legislative Counsel Opinion

The Moscone-Knox Professional Corporations Act (“Moscone-Knox”) is the general corporation law that governs professional corporations in California. The Act articulates how certain licensed professionals must incorporate their practices. In 1990, the Physical Therapy Board (“Board”) adopted a Resolution stating that a corporation not organized as a physical therapy professional corporation could offer physical therapy services under the Physical Therapy Act. By this resolution, the Board stated that a general corporation owned by a lay person could offer physical therapy services.[1] Moscone-Knox did not state otherwise. This Board resolution allowed physicians, other health providers, laypersons, and even physical therapy assistants to own corporations and employ physical therapists.
Confusion regarding who could work for medical corporations and what type of corporations could provide physical therapy services remained. Assembly Member Pedro Nava requested an opinion from the Legislative Counsel on the issue. Thus, in 2010, the State Legislative Counsel (attorneys for the state Legislature) weighed in on the subject. In Legislative Counsel Opinion Number 1021592, dated September 29, 2010, the Legislative Counsel provided its conclusion regarding the discrepancy between the Moscone-Knox Act and the Board resolution in 1990. The Legislative Counsel found that:

  • The Moscone-Knox Act[2] contradicted the Board’s 1990 resolution as it pertained to medical corporations because physical therapists were not listed as authorized providers in the Act;
  • Physical therapists could not be employed by medical corporations; and
  • The only corporations that could employ physical therapists were physical therapy professional corporations and naturopathic doctor professional corporations as they were listed in the Moscone-Knox Act.

The Legislative Counsel opinion further opined that it would be unprofessional conduct under the Physical Therapy Practice Act for a physical therapist to provide services in violation of the Moscone-Knox Act.[3]

Rescinding the Board Resolution

Due to the conflict between the Board’s 1990 resolution and the Moscone-Knox Act as highlighted in the Legislative Counsel Opinion, the Board acted to rescind its former resolution. On November 3, 2010, the Board voted to repeal the 1990 Resolution upon two grounds. First, the Board was advised that the 1990 Resolution itself constituted an underground regulation in violation of the Administrative Procedure Act.[4] In addition, the Board determined that the 1990 Resolution conflicted with the Moscone-Knox Professional Corporations Act.
On July 20, 2011, the Board issued a Summary of Facts, attempting to clarify this history and the ensuing confusion. The Board explained its view of the law after rescinding the 1990 resolution, and reiterated that physical therapists practicing in a corporate setting had to comply with the Moscone-Knox Act:

The [Board] has now clarified to the licensed population that all corporations providing physical therapy must come into compliance with Moscone-Know (California Corporations code section 13400 et seq.) and those provisions of the Physical Therapy Practice Act which pertain to the corporate practice of physical therapy Business and Professions Code section 2690 et seq.). Failure to comply with Moscone-Knox is unprofessional conduct for licensees and can constitute aiding and abetting (section 2691).

Regardless of when the corporation was formed, any corporation holding itself out as a physical therapy corporation (or a general corporation offering physical therapy services) must come into compliance with, and remain in compliance with, all provisions of Moscone-Knox. Failure to remain in compliance with Moscone-Knox violates the Physical Therapy Practice Act.[5]
By 2011, given the Legislative Counsel opinion and the Board’s “Summary of Facts,” physical therapists (and physicians) who did not comply with the Moscone-Knox Act faced license discipline, including for aiding and abetting the unlicensed practice of medicine and/or physical therapy.

AB 1000

In October of 2013, an Assembly Bill (“AB”) 1000 was introduced that would allow “direct access” to physical therapy services in California and amend the law regarding professional corporations for Physical therapists. The Governor signed the bill into law, effective January 1, 2014. AB 1000 significantly changed the Moscone-Knox Professional Corporations Act regarding:

  1. The types of professional corporations that may employ a physical therapist, including medical corporations;
  2. The types of professional corporations that may allow a physical therapist to have an ownership interest or serve as an officer or director; and
  3. The types of practitioners who may own, serve as officers or directors, or be employed by a physical therapy professional corporation.

As the result of the passage of AB 1000:

  • Physical therapists may be employees, officers or shareholders of medical professional corporations.[6]
  • Almost any health care licensee listed in the Business and Professions Code, including physical therapists, may be employed “to render professional services” by any professional corporation listed in the Moscone-Knox Act, including the newly added physical therapy professional corporations.[7]

A new Section 13401.5(p) was added defining who may be legally permissible shareholders, officers, directors and professional employees of physical therapy corporations. These include:

  1. Physicians and surgeons
  2. Podiatrists
  3. Acupuncturists
  4. Naturopathic doctors
  5. Occupational therapists
  6. Speech-language therapists
  7. Audiologists
  8. Registered Nurses
  9. Psychologists
  10. Physician Assistants

These amendments to Moscone-Knox specified which health care providers could own which types of professional corporations and allowed nearly all licensees to work for them. AB 1000 also added and defined a “physical therapy professional corporation.” But in spite of all of this clarification, the Legislature did not make any mention of “general corporations.”

Status of General Corporations

While the Legislature did not mention general corporations directly in AB 1000, it generally specified how physical therapists should practice in a corporate setting. The Board’s Summary of Facts from 2011 regarding general corporations appears to still demonstrate the Board’s disfavor of a physical therapist working for a general corporation. Because the Moscone-Knox Act now states just how a physical therapy professional corporation should be structured, any deviation from the Act would likely draw disfavor from the Board. It is therefore imperative to discuss this issue with legal counsel.

Final Note on LLCs

One cannot discuss confusion in the business structuring of physical therapy corporations without addressing the issue of Limited Liability Companies or LLCs. It is illegal in California for an LLC to render professional services, including physical therapy services. In 2004, the California Attorney General confirmed and refined this point, stating that because health care providers perform professional services under the guise of a professional corporation pursuant to the Moscone-Knox Act, they may not perform such services under an LLC. (See Attorney General Opinion No. 04-103, July 23, 2004).

Conclusion

The area of physical therapy corporations has been a legal minefield and has changed significantly over the years. The issue is not just about the proper entity for a physical therapist to organize and establish; it is also about not offending the Board’s perspective on how physical therapists should practice. Complying completely with corporate law may still subject a physical therapist to discipline if their actions run afoul of the Board’s interpretation of the law.
As history shows, what used to be legal is now likely not. Even with the clarifications of AB 1000, physical therapists who practice for a general corporation can be at risk and should always seek experienced healthcare legal counsel to evaluate their situations.
[1] Regarding its 1990 resolution, the Board has recently stated:

In 1990, the Physical Therapy Examining Committee (later renamed Physical Therapy Board of California) passed a resolution, authorizing a provision of physical therapy services by a general corporation. The resolution was prepared and adoption recommended by legal counsel provided by DCA. The resolution was consistent with the understanding of the law at that time.

(See Physical Therapy Board’s “Summary of Facts Related to the Practice of Physical Therapy by Corporations,” [Summary of Facts], p. 2, at https://www.ptbc.ca.gov/about_us/meetings/materials/20110804_11_2.pdf.
[2] Corporations Code, section 13401.5.
[3] Physical Therapy Practice Act, at Business and Professions Code, section 2660.
[4] Government Code, section 11340.5.
[5] See Physical Therapy Board’s “Summary of Facts Related to the Practice of Physical Therapy by Corporations,”[Summary of Facts], p. 3, at https://www.ptbc.ca.gov/about_us/meetings/materials/20110804_11_2.pdf.
[6] Corporations Code, section 13401.5.
[7] Ibid.