Straw Ownership Issues
What is Straw Ownership?
Simply put, straw ownership of a medical practice is when a layperson/businessperson (a person with no medical license) says to a doctor “can I just use your license to open this clinic? No one will know that I’m the real owner”. In this case, the doctor is the straw owner, and the layperson would be the real owner. In other words, the doctor would be the owner on paper but would not really be the person making the key decisions.
If a Clinic is owned by a Straw Owner, the bills are not reimbursable (don’t need to be paid) and each submission of the bills could be a criminal act.
Why Would Someone Try to Get a Doctor to be a Straw Owner?
Some states don’t allow non-doctors to own medical clinics. In my opinion, this is harsh and prohibits the medical industry from advancing. Luckily, Florida is not one of those states. In Florida, there are legal and legitimate ways for almost anyone to own a clinic in Florida.
Typically, if someone is going to commit PIP insurance fraud, they don’t want their name on all the paperwork in case problems arise in the future. So, they will often try to find a doctor to put their name as the owner on corporate documents and everywhere else so that they can conceal their name for as long as possible and deny responsibility when problems arise.
Remember that www.sunbiz.org doesn’t actually list the “owner” of the corporation. It merely lists corporate officers like the President, Vice President, Managers, etc. However, be careful who is listed on sunbiz.org because it is public record and insurance companies will build a straw ownership case around who is listed on sunbiz.org.
Florida Law: Who Can Own a Medical Clinic in Florida- 400.9905?
Most people who own a healthcare clinic in Florida will do so by being:
- (1) wholly owned (100%) by a “licensed medical professional” or by more than one “licensed medical professional” so long as one of them is supervising the business activities and is legally responsible for the compliance with state and federal laws;
- (2) a layperson (ie not a licensed medical professional) who applies for and obtains an AHCA license;
- (3) a spouse, parent, child, or sibling of a physician if the physician is directly supervising the clinic;
- (4) a publicly traded company with more than $250,000,000 in gross revenue.
In regard to (1), AHCA created a form called “Application For Exemption as a Health Care Clinic” which is completely unnecessary because doctors who wholly own their own office are automatically exempt. When the doctor completes the Application, they receive a letter that basically says, “you are exempt.”
Interestingly enough, some doctors involved in straw ownership arrangements will apply for the Exemption as part of the arrangement with the layperson/businessperson and insurance companies know this. Insurance companies regularly check this publicly available database to background check the doctors to see if they are really just straw owners of clinics.
In regard to (2), the Florida Legislature enacted the Clinic Act in 2003 on its finding that non-medical professional clinics must be regulated to prevent significant harm to patients. The Clinic Act’s purpose “is to provide for the licensure, establishment, and enforcement of basic standards of health care clinics and to provide administrative oversight by the Agency for Healthcare Administration.” A clinic owned by a non-medical professional must submit to oversight by AHCA, including background checks on all employees; the types of services to be provided; the owner’s names, contact information, and percentage of ownership; proof of financial ability to operate; and most importantly, a medical director who must agree to accept legal responsibility for any fraud conducted at the clinic. This includes warrantless searches by AHCA. Once a license is issued, the clinic must re-apply for a license from AHCA every two years.
Florida Law: Who Can Legally Bill PIP in Florida- 627.736(5)(h)?
Since 2013, the Florida PIP Statute 627.736(5)(h) says being a “licensed medical professional” is enough to open a clinic but is not enough to bill PIP. It says that in order to legally bill PIP you must be:
- (1) wholly owned by an MD or DO,
- (2) wholly owned by a Dentist (another reason to be an anti-Dentite-Seinfeld reference)
- (3) wholly owned by a Chiropractic Physician;
- (4) a hospital or ambulatory surgery center;
- (5) wholly owned by a hospital;
- (6) a clinical facility affiliated with an accredited medical school;
- (7) certified by the federal government under 42 CFR part 485;
- (8) a publicly traded company with more than $250,000,000 in annual sales.
Does A Physician Assistant’s or Advanced Registered Nurses Need An AHCA License (627.736(5)(h))?
Florida Statute 627.736(5)(h) says PA’s and ARNP’s must have an AHCA license if they own their own clinic and want to bill PIP. This is important because many PA’s and ARNP’s own urgent care centers or a primary care practice that barely bills PIP. However, the law does not allow them to bill PIP unless they have that AHCA license and, if they obtain a new AHCA license and either (1) wait three years or (2) obtain accreditation with an organization like Joint Commission. I have represented many urgent care centers owned by PA’s and ARNP’s who billed PIP and had to pay back State Farm, Farmers, and Allstate insurance. They can bill health insurance and Medicare, but PIP has different requirements.
Also, 627.736(1)(a)(2) says a licensed health care clinic can bill PIP for follow-up services under these two scenarios:
(1) the clinic is licensed with AHCA and accredited with an organization like Joint Commission or American College of Radiology; or
(2) the clinic is licensed with AHCA and has a medical director that is a MD, DO, or DC; is continuously licensed with AHCA for three years or is a publicly traded corporation registered with the SEC; and provides at least four of the following medical specialties: (a) general medicine, (b) radiography, (c) orthopedic medicine, (d) physical medicine, (e) physical therapy, (f) physical rehabilitation, (g) prescribing or dispensing outpatient prescription medication, or (h) laboratory services.
What Is the Accrediting Organization Requirement?
Many people open AHCA licensed clinics hoping to bill PIP for therapies and chiropractic treatment but don’t know they must also be accredited with an organization like Joint Commission or American College of Radiology for the first three years they are open! If not, they have to wait for three years to bill PIP.
After three years, I don’t think the law requires them to maintain the accreditation, but an insurance company may argue otherwise (they argue about everything!).
How Do Florida Courts Determine Who Is the Real Owner?
Florida Courts allow insurance companies to prove ownership by submitting evidence of the following factors:
- (a) ownership of the stock of a corporation and the exercise of corporate powers;
- (b) the extent of any capital investment in the business;
- (c) the right to profit from the business and the risk of loss;
- (d) the power to sell the business or cause it to cease operations; and
- (e) the extent to which an individual participates in the management and control of the business operations.
Are Practice Management Agreements Valid?
Sometimes, non-doctors will use a “practice management agreement” in an attempt to avoid a straw ownership issue and/or to conceal it. Based on the fifth factor Florida courts use to determine the real owner- ie, participating in the management and control of the business operations- I don’t believe that most practice management agreements will hold up in court.
Most of the practice management agreements also divert a majority of the gross revenue to the management company and the doctor rarely sees any of those profits. An agreement makes sense for certain short-term situations and may be legal depending on the specific terms of the agreement. Always have a board-certified health care attorney review the practice management agreement and never use one without legal counsel.
Remember, that “contract” that you signed thinking it was a practice management agreement could end up being “evidence” against you in a civil or criminal case.