Texas Legislation Further Limits Ban on Corporate Practice of Medicine


During the 2011 legislative session that just ended, Texas Governor Rick Perry signed into law a bill that allows rural hospitals to employ physicians, known as the “corporate practice of medicine,” despite the state’s long-standing ban on such practices. This legislation, along with similar recent legislation, signals that Texas might eventually do away with its ban on corporate employment of physicians altogether.

History of Texas’s Ban on the Corporate Practice of Medicine

The state’s historical ban on the corporate employment of physicians has its roots in the seemingly contradictory expectations that the public had of corporations and the practice of medicine. On one hand, the public expected corporations to exert great influence over the people they manage and stimulate business by creating customer demand for products and services. Physicians, on the other hand, were expected to apply independent medical judgment free of outside influence and be honest and forthright with patients concerning the risks and rewards of medical products and treatment. Thus, Texas has long been skeptical of the corporate employment of physicians.

Texas’s viewpoint, one that few other states share, has been the target of increased scrutiny in recent years. One of the key aspects of federal healthcare reform is the financial and clinical integration of physicians with other healthcare providers, and Texas’s ban on the corporate practice of medicine is an obstacle to that goal. Furthermore, many younger physicians shy away from the administrative burdens of a solo practice and prefer the steady salary and singular focus on medical practice that corporate employment allows. Texas’s ban does not account for this reality.

New Legislation Further Limits the Outright Ban

The bill Governor Perry signed into law during the 2011 legislative session expands those hospitals that qualify for an exception to the ban on corporate employment of physicians. It allows critical access hospitals, sole community hospitals, and hospitals in counties with a population of 50,000 or less (nearly 200 of the state’s 254 counties) to employ physicians. The legislature in the past had made similar concessions for private nonprofit medical schools, school districts, some nonprofit health organizations, and certain hospital districts.1

Texas legislators remain concerned that corporate influence could be detrimental to the practice of medicine. Hospitals that take advantage of the new legislation must appoint a chief medical officer who has been recommended by the medical staff and who will supervise the practice of medicine in that hospital. They must also “enforce policies to ensure that a physician. . .exercises the physician’s independent medical judgment” and establish a process for complaints regarding interference with that judgment.2 Additionally, participating hospitals must “give equal consideration regarding the issuance of medical staff membership and privileges” to physicians employed by the hospital and those who are not.3 Finally, employed physicians may participate in the selection of any professional liability coverage the participating hospital obtains on their behalf.4

Could this Signal the End to Texas’s Ban on the Corporate Practice of Medicine?

The stated goal of the new Texas legislation is to attract more physicians to rural areas, but it leaves one to wonder, in light of other similar legislation, whether state legislators will eventually lift the ban on the corporate practice of medicine altogether. The ban certainly impedes clinical integration that is integral to federal healthcare reform and ignores the evolution of medical practice away from solo practitioners. If Texas legislators do lift the ban, the recent legislation will likely be a model for how the state will do so – by carefully considering the impact of corporate influence and crafting provisions that limit that impact.

More Information

For more information regarding these or other health care legal developments, please contact one of the following Haynes and Boone, LLP lawyers.

1 See, e.g., TEX. HEALTH & SAFETY CODE ANN. § 281.0282 (allowing the Dallas County Hospital District to employ physicians); TEX. OCC. CODE ANN. §§ 162.201-162.207 (allowing a private nonprofit medical school that meets certain requirements to employ physicians); TEX. OCC. CODE ANN. § 162.001 (allowing certain nonprofit health organizations and migrant, community, or homeless health centers to employ physicians).
2 TEX. HEALTH & SAFETY CODE ANN. § 311.063(a), (b).
3 Id. § 311.063(d).
4 Id. § 311.063(h).

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