Business Counsel Services Firm News

The Dilution of Texas Corporate Practice of Medicine

Until recently, Texas had one of the strongest corporate practices of medicine in the United States.  Basically, the corporate practice of medicine required that any entity providing clinical medical services in Texas had to be a professional entity wholly owned by a physician.  In addition, only a physician could be an officer or manager of that professional entity.  There are several states that have corporate practice of medicine statutes but most states are more diluted to the extent the statutes allow non-physicians to own a medical practice. 

On June 17, 2011, the Governor of Texas signed House Bill 2098, which immediately amended the Code of the Texas Business Organization Code and the Texas Occupation Code to authorize joint ownership of professional entities by physicians and physician assistants.  This is a significant change from the past limitations of the corporate practice of medicine in Texas.
Although this law does allow the physicians and physician assistants to partner together, these joint ownerships still have certain criteria that they must meet to be legal under the new corporate practice of medicine law.  These criteria include the necessity to have significant language as it relates to the governance and ownership of the professional entity.   For example, the physician assistant cannot contract or employ a physician to be the supervising physician of that physician assistant.  In addition, the physician assistant may have only a minority ownership interest in that entity and the physician assistant may not have any ownership that is equal to or exceeding that of any other individual physician owner.  Furthermore, the statute limits the control that the physician assistant may have in governing the entity.  Finally, physician assistants with these types of ownership will have annual reporting requirements with the physician assistant board.    

This law is the first considerable step into allowing non-physicians to own professional entities with physicians.  As previously noted, the law applies only to physician assistants and not to other medical professionals or non-medical professionals.  Nevertheless, there are new creative ownership models for physician practices.  Because of the regulatory constraints involved with physician assistants owning a part of a medical practice, it is imperative that the entity and governing documents be carefully developed.

By:  Bradford E. Adatto and Michael S. Byrd

Firm News

Groundbreaking Decision on Non-Compete Agreements

Non-compete agreements traditionally have been disfavored but, under certain circumstances, have been enforceable in Texas.  In follow up to rulings in recent years that lighten the burden for employers to enforce non-competes, the Texas Supreme Court has reached another important decision that strengthens the ability of employers to enforce non-competes. In Marsh USA Inc. et al. v. Cook, Case No. 09-0558 (Tex. June 24, 2011), the Court held that a non-compete covenant contained in a stock option plan was enforceable. The Court reasoned that stock options are sufficient consideration for a non-compete because they give rise to the employer’s interest in protecting the "goodwill" of its business. 

 This holding is a significant departure from past holdings where courts for many years viewed that providing financial consideration was not sufficient for a non-compete agreement. Only the provision of confidential information, trade secrets, special training, and/or other proprietary information supporting a company’s goodwill was sufficient consideration. In Marsh, the Court established a new test that will pave the way to additional avenues for employers to take in seeking to protect the goodwill of their businesses.

by Jim Stanford and Michael S. Byrd

Business Counsel Services Firm News

Healthcare Reform Law Turns One

Where Are We Now?

 On March 23rd, 2011 the Patient Protection Affordable Care Act (“Act”) celebrated its first birthday. As a reminder, the Act provides a host of new legal requirements for health insurance reforms, and expansion of Federal and State healthcare authority.  Its intent is to improve the quality of care for and provide access to health insurance coverage to millions of Americans. 

Current Impact

 Since becoming law, the Act has done the following:  It fixed a “doughnut hole” for Medicare Part D; it added a high risk pool for those who couldn’t afford certain insurance; it allowed dependents to stay on their parents plan until the age of 26; and it provided for a small business tax credit. It also added language prohibiting insurers from blocking children from joining their parent’s plans if the child had a pre-existing condition. Finally, it added the first healthcare tax known as the “cosmetic tax.” This tax currently only taxes tanning services.

 In addition, beginning in 2011 the Medicare advantage rates are frozen at 2010 levels until the rates catchup to the current Medicare levels.  The Act has redefined medical expenses for FSA’s, HSA’s and HRA’s. Essentially, you can no longer purchase over-the-counter medicines and drugs without a prescription with these types of savings accounts.  Also added was the first market share tax on pharmaceutical companies. 

1099 Issue

The original act provided that starting in 2011, employers would need to start tracking any vendors that may purchase $600 or more of services and goods.  These vendors would receive a 1099 in 2012.  This provision has caused massive issues as it relates to how it would be implemented and whether or not there would be any exceptions to it.  The IRS moved implementation from 2011 to 2012. 

On March 3rd, the House passed a bill which aims to revoke and repeal the 1099 provision.  On April 5th, the Senate passed a measure repealing the 1099 provision.  The White House recently admitted “…that they were pleased that Congress has acted to correct the flaw that placed the unnecessary bookkeeping burden on small businesses….eliminating the 1099 reporting requirement as a right thing to do.”  As such, all parties agree that the repealed 1099 provision is best for the country as it would create a burden on small businesses that otherwise would not have been required.   However, the key sticking point is that Congress now needs to figure out how to offset the estimated $19-22 billion dollars in lost revenue the government would have received by requiring small businesses to file these new 1099 forms had it not been repealed.  This piece is still being worked out.

Accounting Care Organizations

It is also important to know that in 2012 certain primary care services will be treated and billed as accountable care organizations (“ACOs”).  In anticipation of the start date for the ACO’s, on March 31st, 2011, the government, through multiple entities, released guidelines for the ACO’s.  These proposed rules provide legal structures on how to develop ACO’s without violating fraud and abuse, anti-trust, tax and other legal implications.  The guidance issued also clarifies eligibility to participate, quality and privacy required. 

Congressional and Legal Challenges

 Clearly a lot has occurred since the signing of the Act.  However, uncertainty remains high as to the future of the Act, because multiple lawsuits have been filed in different venues ranging from Michigan to Florida, which challenge the constitutionality of the Act.  In some cases the courts have ruled in favor of the government while in other cases, like Virginia and Florida, the courts have ruled in favor of the plaintiffs. 

One such ruling was a ruling out of Florida which multiple states participated in, including Texas.  The Florida judge ruled the entire Act unconstitutional.  The government is appealing this decision to the local Circuit court.  In light of the different courts having different rules, the constitutionally issue will most likely be decided by the Supreme Court. 

In addition, with the Republicans in control of the House and the Democrats no longer a super majority in the Senate, other modifications to the Act are being negotiated.  With the Act just reaching its first birthday, many additional changes may occur this year.


Over the next 18 months there is a good chance the Act will continue to change as the 2012 elections approach.  Regardless of one’s political view regarding this healthcare reform, the Act a year later is still extremely controversial.  Most hope that the Act will not start showing signs of the “terrible twos” over the next 12 months.  Stay tuned…

By Bradford E. Adatto and Michael S. Byrd