Midtown Med. Group, Inc. v. State Farm Mut. Auto. Ins. Co. (12/23/2008)

December 30, 2008

Arizona Court of Appeals Division One Holds That An Outpatient Treatment Center, as Described in A.R.S. § 36-405(B)(1) and A.A.C. R9-10-101(39), May Be Owned by Persons Who Are Not Licensed Physicians or Chiropractors.

Plaintiff Midtown is incorporated as an Arizona general corporation and is solely owned by an individual who is not licensed to practice medicine or chiropractic.  All of Midtown’s medical and chiropractic services are provided by licensed physicians and chiropractors.  A number of insurance companies, including Defendant State Farm, refused to reimburse patients treated at Midtown, claiming that it was not legally licensed.  Midtown, however, is licensed as an “outpatient treatment center” (“OTC”) by the Arizona Department of Health Services (“ADHS”).  Midtown field a declaratory action, seeking an order stating that it is legally providing medical and chiropractic services in Arizona.  Both parties moved for summary judgment.  The trial court granted Midtown’s motion and State Farm appealed. 

The ArizonaAppeals Court affirmed.  The Court first described in detail Arizona’s statutory licensing scheme for OTCs.  ADHS has the authority to license OTCs under A.R.S. § 36-405.  Using that authority, ADHS promulgated A.A.C. R9-10-102(A)(16), which states that a “person,” including a corporation, may apply for an OTC license.  Thus, the Court concluded that under the plain language of the rule, a corporation can be licensed as an OTC.  Moreover, it explained that no other statutes or rules support a requirement that the owner of an OTC be a licensed physician or chiropractic; indeed the Court noted that the statutes demonstrate the contrary.

The Court rejected State Farm’s argument that OTCs can only be owned by professional corporations, not general corporations because the latter cannot practice a profession.  Citing numerous statutes, the Court explained that State Farm’s foundational premise was flawed because neither professional nor general corporations ever practice professions; only licensed natural persons do.  The Court also rejected State Farm’s contention that a general corporation that owns an OTC must itself be 100% be owned by a licensed professional, noting that neither A.R.S. § 10-2213(C), the provision cited by State Farm, nor Title 36 contain such a requirement.  The Court also noted that nothing in Arizona’s licensing statutes or case law prevents physicians and chiropractors from being employed by a lay person or general corporation.  Finally, the Court rejected State Farm’s argument that a general corporation cannot divide its business into two departments: business and the practice of medicine.

After discussing the statutory framework allowing a general corporation owned by an unlicensed individual to own an OTC, the Court discussed the application of the “corporate practice of medicine doctrine” as set forth in Funk Jewelry Co. v. State ex rel. La Prade, 46 Ariz. 348, 50 P.2d 945 (1935), and State ex rel. Board of Optometry v. Sears, Roebuck & Co., 102 Ariz. 175, 427 P.2d 126 (1967).  That doctrine provides that a corporation may not practice medicine because it cannot be licensed to do so.  The Court held that the doctrine, and the cases supporting it, did not apply to this case because this case arises from a completely different statutory framework through which ADHS did in fact license Midtown. 

The Court awarded Midtown costs on appeal but denied its request for attorneys’ fees below and on appeal.

Judge Barker authored the opinion; Presiding Judge Brown and Judge McVey concurred.