Washington Court Holds Insurer Not Entitled to Invoke Corporate Practice of Medicine Doctrine

A federal court judge from the Western District of Washington recently issued an order in State Farm Mut. Auto. Ins .Co. v. Jacobs, No. C14-5512 RBL, 2014 WL 5470623 (W.D.Wash. Oct. 28, 2014) addressing whether an insurance company has a private cause of action under the Washington corporate practice of medicine doctrine and Professional Service Corporate Act (PSCA), RCW 18.100.010 et seq.  After analyzing the purpose of the statute, the court concluded that an insurer did not have such a right and dismissed all of the insurer’s claims against a clinic that were based on application of it.

The case concerned an insurance company’s attempt to recoup approximately $800,000 it paid on behalf of its insureds—and individuals injured by its insureds—a clinic for physical therapy and massage services.  The insurance company’s claim was predicated on application of Washington’s corporate practice of medicine doctrine and the PSCA because the owners were not licensed to practice the medical services the clinic was providing.  The clinic and its owners sought to dismiss the insurance company’s claims on the ground that, even if the practice was improper, Washington law does not permit a private cause of action for an insurance company to collect a refund on that basis.

The court began its analysis by summarizing the corporate practice of medicine doctrine and PDCA as follows:

“Washington’s corporate practice of medicine doctrine prohibits corporations from employing medical professionals to practice their licensed professions.  In other words, medical professionals generally cannot form or work for limited liability companies.  The PSCA is a statutory exception to this prohibition.  It allows medical professionals to form (and to be employed by) professional (limited liability) services corporations, if and only if, all of the corporation’s shareholders are themselves licensed to provide the offered medical services.”

Id. at *1 (internal citations omitted).  For purposes of the motion, the clinic conceded that none of its stakeholders was licensed to practice the services the clinic provided and that the exception provided in the PSCA did not apply.

Washington appellate courts had not squarely addressed the arguments presented in the case.  Accordingly, the court undertook an analysis to determine whether an insurance company was intended to have a cause of action based on the prohibition.  The court ultimately agreed with the clinic and its owners, concluding that the insurance company was not within the class of persons the prohibition was designed to protect—nor did it align with the legislative intent in adopting the PSCA.  Instead, the court determined the prohibition was intended to protect patients treated by the provider and, perhaps, the public at large.  The court also rejected the insurance company’s citation to authority from other jurisdictions, finding those cases unpersuasive under the circumstances.  Finally, the court concluded that “permitting an insurance company to seek a refund for fees already paid on behalf of a presumably satisfied patient does nothing to advance purpose of this statute, and is not consistent with it.”  Id. at *4.

The attorneys of Maloney Lauersdorf Reiner regularly litigate cases involving clinic investigations, including analysis of application of the corporate practice of medicine doctrine and PSCA.  Please contact us with any questions about this matter or any other issue you see addressed on our Insurance Coverage Blog.

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