Health Care Franchising and the Law: What You Need to Know

If you’re looking into healthcare franchising, it’s essential to know the laws governing this industry. There are many regulatory requirements and legal considerations regarding healthcare, and violating them can result in serious penalties. In this blog post, we’ll discuss the most important things you need to know about healthcare franchising and the law. We’ll cover topics such as licensure, regulation, and liability.

Types of Healthcare Franchises

Healthcare franchising is a rapidly growing industry, with many different types of franchises available. Some of the most popular healthcare franchises include medical, senior care, optometry, and chiropractic care.

Medical Franchises

Medical franchises provide a wide range of services, from primary care to specialty care provided by a licensed physician. These franchises typically require the franchisor to have a medical degree and/or experience working in the healthcare industry.

Senior Care Franchises

There are several different types of senior care franchises, providing various services to elderly clients. These services include home health care, assisted living, and skilled nursing care. Senior care franchises often require franchisors to have a certain amount of industry experience, a strong commitment to providing quality service, and a valid state license.

Optometry Franchises

Optometry franchises provide eye exams, glasses, and contact lenses to patients. Most optometry franchisors require franchisees to have a degree from an accredited optometry school, as well as a valid state license.

Chiropractic Franchises

Chiropractic franchises offer services such as spinal adjustments, massage therapy, and physical therapy.

Other Healthcare Franchises

There are many other types of healthcare franchises available, such as dental care,  pharmacies, regenerative medicine, and weight loss. Whatever type of franchise you’re interested in, make sure you research and understand the laws and regulations that apply to it.

Franchising Basics

When it comes to franchising a healthcare business, franchisors and franchisees have to contend with both franchising laws and the laws applicable to the particular healthcare industry the business operates in. We have previously discussed the basics of franchising here.   But below, we outline some additional considerations that are unique to healthcare franchises. 

The Corporate Practice of Medicine and How It May Impact your Business Structure

The corporate practice of medicine (CPM) is the term used to describe the situation where a corporation employs licensed physicians to provide medical services. The CPM laws vary from state to state, but they generally forbid corporations from owning or operating medical practices.

There are a few exceptions to this rule, such as when the corporation is a hospital or insurance company. Still, in most cases, if you’re looking to franchise a healthcare business, you’ll either need to be a licensed physician or enter into a management agreement with a licensed physician. The licensed physician will be responsible for directly providing or supervising any medical-related services.

This doesn’t mean that a non-licensed physician can’t start a healthcare franchise. It just means that they’ll need to structure the business in a way that complies with the CPM laws. One common way to do this is through a management agreement. In a management agreement, the licensed physician agrees to provide their services to the franchise, and the franchise agrees to pay them a management fee. The management agreement should be in writing and outline the responsibilities of each party, as well as the compensation arrangement.

If you’re thinking of franchising a healthcare business, it’s important to consult with an experienced franchise attorney to discuss the best structure for your business and ensure that you’re in compliance with the CPM laws.

Licensing

Another thing to keep in mind when franchising a healthcare business is that you’ll need to comply with all applicable laws and regulations, including those related to licensing, insurance, HIPAA, and patient privacy. For example, individual and organization health care providers are often required to be licensed, certified, registered or accredited, and the specific requirements vary from state to state. These laws can be complex. It’s important to understand the franchisee and franchisor’s responsibilities clearly.

HIPAA

While many states have similar privacy laws, HIPAA is the primary law and is best known for protecting the privacy and security of individual health information. Under HIPPA, the individual and the organization health care provider have legal obligations that impact the confidentiality and security of health care information. HIPAA covers, among other things, the privacy rule, the breach notification rule, the security rule, and penalties (545 CFR pts. 160, 162, 164 (2013)), all of which offer complexities that need to be understood by both franchisee and franchisor.

Business Format:

A health care franchise typically follows the business format for franchises. This means the franchisor would provide operating systems, artwork, equipment, training, etc., and a franchisee (the medical professional) would be responsible for the actual practice of medicine and treatment of individuals. Both parties should understand the limits, laws, requirements, and special issues to consider regarding the business of health care franchising.

Reimbursement

When franchising a healthcare business, providers must enroll in and comply with an applicable program to qualify for reimbursement from a governmental payment source. These sources might include Medicare, Medicaid, Medicaid waiver21, TriCare22, the Veterans Administration, health insurance, and payments directly from the patient, and may come from federal, state or local government. It’s important to note that not all services will qualify for reimbursement. For example, new technology, new treatments, or elective procedures like LASIK and cosmetic surgery may not be included.

Fraud and abuse

Health care fraud, pursued by both federal and state governments, leads to aggressive prosecutions. It’s important to understand the complexity of the laws, as what may be lawful outside your healthcare franchise may be unlawful with criminal penalties when undertaken inside your healthcare franchise.  

The five main federal health care-related laws of general applicability regarding fraud and abuse and impact franchises are:

1. Anti kick-back Statute. As noted in United States v. Greber, 760 F.2d 68,69 (3d Cir. 1985), even if only one of the purposes is to induce or reward referrals, the anti-kick-back statute is violated. The remuneration does not have to be the only purpose. This statute applies to any offer, payment, solicitation or receipt of remuneration. Violation is a felony punishable by a maximum fine of $25,000, imprisonment of up to five years, or both (42 U.S.C § 1320a-7b(b)(1) -(2) (2012)), and are also subject to civil monetary penalties (42 U.S.C. § 1320a-7a-7a(a)(7) (2012)).
2. The Stark Law (42 U.S.C. § 1395nn(a)(1)(A) (2012). This law prohibits physician referrals for Medicare and Medicaid patients to a healthcare provider if the physician has a financial relationship with that healthcare provider.
3. False Claim Statutes. The federal False Claims Act is a well-known law that aims to stop false claims from being submitted to the federal government for reimbursement of health care services. A violation does not result in criminal penalties, but the civil penalties are significant: treble damages plus an additional penalty for each false claim in the amount of $5,500 to $11,000.
4. Civil Monetary Penalties: Any person who submits, or causes to be submitted, certain false or improper claims is subject to civil monetary penalties up to $10,000 per item or service.
5. Exclusion: The Office of Inspector General of the Department of Health and Human Services can exclude participation in federal health programs, including Medicare and Medicaid. Without participation in federal health programs, a person or entity’s involvement in the health care industry is basically finished.

Business Organization

Laws may place limits on options available to health care franchises. State law can affect what type of business entity the healthcare provider can become, who can be the owners, and whether non-professionals will be allowed to own the healthcare business.   

Work With an Experienced Franchise Attorney

Healthcare franchising is a booming industry. However, along with opportunity comes complex federal and state healthcare laws that impact not only the franchisee and franchisor but the overall success of a franchise. Laws vary in every state. It’s important that franchisee and franchisor are aware of these laws so that hurdles can be jumped, and roadblocks can be avoided. When contemplating a health care franchise, consider consulting with an experienced franchise lawyer. It’s essential to have an attorney who understands the complexity of the franchising relationship and can successfully solve legal issues. We have experience advising franchisors and franchisees on state franchise investment laws in every state. We can create a compliant franchise system for you if you are a franchisor or bring claims on your behalf if you’re a franchisee. Contact Luther Firm, PC to schedule a consultation if you need assistance.