Business Arrangements May Attract College Scrutiny

signature-962388_960_720In our health law practice, we are often asked to provide advice with respect to whether the proposed business arrangements of health professionals are compliant with the rules regarding conflicts of interest. Each health regulatory college in Ontario defines and prohibits conflicts of interest for their members through a combination of regulations, by-laws and college policies. For physicians, the rules regarding conflicts of interest are set out in sections 15 to 17 of Regulation 114/94 made under the Medicine Act, 1991 (the “Regulation”).

Under the Regulation, a number of business arrangements are prohibited. In particular, a physician, a member of his or her family, or a company owned or controlled by that physician, is not permitted to receive a benefit from a supplier to whom the physician refers his or her patients, or who sells or otherwise supplies medical goods or services to his or her patients. Nor is a physician permitted to refer his or her patients to a diagnostic or therapeutic facility in which the physician, or member of his or her family, has an ownership interest, unless the details of the interest are first disclosed to the College and to the patient. While facility ownership interests must always be disclosed to the College, physicians do not have to disclose to their patients if the facility is owned by a public company that is not wholly, substantially or actually owned or controlled by the physician, a member of his or her family, or a combination of them.

The term “supplier” is defined in the Regulation and means a person who sells or otherwise supplies medical goods or services, or who is a regulated health professional. The term “benefit” is also defined in the Regulation as any benefit, gift, advantage or emolument of any kind, whether direct or indirect, and includes nearly every conceivable form of payment or reimbursement that a physician could receive. Despite this broad language, it is often challenging to determine whether a particular business arrangement results in a benefit to a physician as defined by the Regulation. And, unfortunately, there have been very few college discipline decisions or Health Professions Appeal and Review Board (“HPARB”) decisions to provide guidance on this issue.

Case Suggests Holding Shares is a Benefit

There is one case, however, which demonstrates that HPARB may consider it to be a benefit for a physician to be a shareholder in an organization that receives income from a supplier to which a physician refers his or her patients.

The case arose out of a complaint to the College of Physiotherapists of Ontario (the “College”) about the actions of a physiotherapist (the “Member”) who had entered into a business arrangement with a group of physicians. The complainant, who was a competitor of the Member, alleged that the business arrangement at issue involved a referral for profit scheme. In his response to the complaint, the Member denied making any payment for referral to any physician.  He claimed that the physicians provided consulting services to the physiotherapy clinics through a management company, of which the physicians were shareholders. The Member also noted that signs were displayed in the physicians’ offices to notify their patients of the business arrangement and to avoid any perceived conflict of interest under the regulations of the College of Physicians and Surgeons of Ontario.

The Committee found that it could not conclusively determine whether the business arrangement met the strict definition of referral for profit scheme, but decided to issue a written caution to the Member due to the fact that the arrangement allowed for the appearance of a potential referral for profit.  In its decision, the Committee reasoned that the profits obtained by the physicians’ group were not directly related to the referral of patients to the Member and had not been distributed to the physician shareholders.  The Committee cautioned the Member that it would be inappropriate to provide a benefit to a referral source including a share of profits.

The complainant asked HPARB to review the decision. HPARB found that the Committee’s investigation was inadequate and referred the matter back for further investigation.  According to HPARB, the Committee should have examined the business arrangement further. Further, HPARB found that based on the record of the investigation, it appeared that the Member had provided a benefit to the physicians, in that the physicians were shareholders of the management company, which had generated profits; even if the money remained undistributed, the physician shareholder had control over the distribution of these funds.

Conclusion

In addition to demonstrating that HPARB may consider it to be a benefit for a physician to simply hold shares in a company to which he or she refers patients, the decision serves as a reminder that business arrangements may be scrutinized by a College. It is always best to seek legal advice regarding whether a proposed business arrangement gives rise to any conflict of interest concerns that would be in breach of College regulations and/or policies. If you require assistance in this regard, please do not hesitate to contact us.

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