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NEW JERSEY REGISTER
VOLUME 36, NUMBER 15
MONDAY, AUGUST 2, 2004
RULE PROPOSAL

LAW AND PUBLIC SAFETY
DIVISION OF CONSUMER AFFAIRS
STATE BOARD OF MEDICAL EXAMINERS
PROFESSIONAL PRACTICE STRUCTURE

Proposed Amendments: N.J.A.C. 13:35-6.16

Authorized By: State Board of Medical Examiners, William Roeder, Executive Director.

Authority: N.J.S.A. 45:9-2.
Calendar Reference: See Summary below for explanation of exception to calendar requirement.
Proposal Number: PRN 2004-291.

Submit written comments by October 1, 2004 to:

William V. Roeder

Executive Director

State Board of Medical Examiners

PO Box 183

Trenton, New Jersey 08625-0183

The agency proposal follows:

Summary

The Board of Medical Examiners ("the Board") proposes to amend N.J.A.C. 13:35- 6.16 to codify its long-standing informal authorization of a limited liability company (LLC) as an acceptable professional practice form.

On February 13, 1996, the Attorney General issued an opinion, in which the Board was advised that, because the New Jersey Limited Liability Act "neither permits nor prohibits board licensees from organizing and providing goods and services through an LLC . . ., the format may be utilized." See February 13, 1996, Attorney General Opinion authored by Douglas J. Harper, Deputy Attorney General (Harper Opinion) at 1. For the past seven years, the Board consequently has advised licensed medical practitioners that they may form LLCs, and there are now many such practice structures in the State.

Many practitioners have preferred to establish LLCs because that business form can afford members the advantages of limited liability, similar to that delineated in the Professional Service Corporation Act, combined with the preferential Federal and State tax treatment accorded partnerships. See N.J.S.A. 14A:17-8 and 42:2B-69a. Given these benefits, other professionals have sought to form LLCs. The statute under which accountants are licensed to practice has been amended to allow accountants to form LLCs. See N.J.S.A. 45:2B-44. In addition, the New Jersey Rules of Court explicitly provide that attorneys may engage in their practice as LLCs. See R.1:21-1B.

Absent a formal rule codifying the Board's long-standing recognition of LLCs, however, there recently has been much confusion among insurers and courts on the legitimacy of LLCs comprised of medical practitioners. Issuance of an amendment identifying the LLC as an acceptable professional practice form for medical practitioners has become critical since the issuance of an opinion in the discovery phase of Selective Ins. Co. of America v. Medical Alliances, LLC, 362 N.J. Super. 392 (Law Div. 2003) on January 31, 2003. In that case, an insurer alleged, inter alia, that a medical group formed as an LLC under the Illinois Limited Liability Company Act was not entitled to personal injury protection because of its allegedly illegal business structure. The court voiced its concern about recognizing LLCs formed by medical personnel or entities when the Board had "never adopted a rule permitting or prohibiting LLCs." Id. at 394. The court acknowledged that there are circumstances under which the Legislature could permit medical personnel or entities to form an LLC, particularly "with all members being duly licensed." Id. at 398. The court concluded that the insurer could take discovery on whether licensed medical professionals or entities could practice as an LLC. Id. at 402.

Thus, New Jersey health care providers organized in LLCs are concerned that, absent a rule codifying the Board's position over the past seven years recognizing LLCs, insurers may be unaware that the Board tacitly has recognized LLCs over the last seven years, and, thus, may be making determinations on reimbursement for bona fide medical services that are at odds with what the Board has accepted as an appropriate practice format. The proposed amendment to N.J.A.C. 13:35-6.16 explicitly listing LLCs as an acceptable professional practice form for medical practitioners has therefore become vital.

Accordingly, the Board proposes to amend N.J.A.C. 13:35-6.16 to codify unambiguously its authorization of LLCs by including in its list of acceptable professional practice forms at subsection (f), the term "limited liability company" along with its definition, "[a] limited liability company means a limited liability company formed under the laws of this State, pursuant to the New Jersey Limited Liability Company Act, N.J.S.A. 42:2B-1 et seq., except where inconsistent with these rules." The rule further is to provide that a "member" of an LLC shall be the same or in a closely allied medical or professional health care field, as defined in the rule.

Formulating the amendments to N.J.A.C. 13:35-6.16, the Board shares the Selective Ins. Co. court's interest in maintaining the accountability of all LLC members. First, the proposed amendments maintain the LLC members' accountability to the Board by stating that an LLC, like other acceptable practice forms, "shall be composed solely of health care professionals, each of whom is duly licensed or otherwise authorized to render the same or closely allied professional service within this State." See N.J.A.C. 13:35-6.16(f)2. The amendments also provide that a "licensee may also have an equity or employment interest in a . . . limited liability company." N.J.A.C. 13:35- 6.16(f)5 (emphasis added). To ensure maximum accountability to the Board, the proposed rule does not authorize foreign LLCs.

Second, like the rule adopted by the Supreme Court governing practice formats to be utilized by attorneys, the proposed amendments duplicate the standards of liability prescribed in the Professional Services Corporation Act. Specifically, the amendments provide that "[a] practitioner who is a member, employee, agent or representative of the limited liability company shall remain personally responsible for his or her own negligence, omissions, malpractice, wrongful acts, or misconduct, and that of any person under his or her direct supervision and control while rendering professional services on behalf of the limited liability company." N.J.A.C. 13:35-6.16(f). Compare with N.J.S.A. 14A:17-8; R.1:21-1B(a)(2). Finally, the proposed amendments continue to exclude professional practice in a general business corporation. See N.J.A.C. 13:35- 6.16(f).

As the Board has provided a 60-day comment period on this notice of proposal, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.

Social Impact

This proposed amendments will serve to codify the Board's long-standing position that an LLC is an acceptable professional practice form for Board licensees. This explicit authorization should dispel any uncertainty that currently exists among licensed practitioners, insurers or courts about the legitimacy of such business structures and should provide continued guidance in the future. By providing guidelines, the Board is ensuring that medical care organizations are formed in such a way that professional liability will not be divested and medical control will be maintained.

Economic Impact

The proposed amendments may have a positive economic impact on licensed practitioners as they may enter into an LLC with the certainty that their practice is recognized as an acceptable business form. Depending on their structure, LLCs may be accorded the preferential Federal and State tax treatment governing partnerships. The Board also believes that, given recent legal developments, many licensed practitioners may believe that it is necessary to reorganize the structure of their practices absent the certainty provided by these amendments. The cost of this reorganization, which could be considerable, would be borne by the licensed practitioners. The Board does not believe that the proposed amendments will have any other economic impact on licensees. The Board does not believe that the proposed amendments will have any economic impact on the public.

Federal Standards Statement

A Federal standards analysis is not required because there are no Federal laws or standards, applicable to the proposed amendments.

Jobs Impact

The Board does not believe that the proposed amendments will increase or decrease the number of jobs in the State.

Agriculture Industry Impact

The proposed amendments will not impact the agriculture industry of this State.

Regulatory Flexibility Statement

The Regulatory Flexibility Act (the Act), N.J.S.A. 52:14B-16 et seq., requires the Board to provide a description of the types and an estimate of the number of small businesses to which the proposal will apply. If, for purposes of the Act, the 30,000 Board licensees are considered "small businesses" within the meaning of the statute, then the following analysis applies.

The Act requires the Board to set forth the reporting, recordkeeping and other compliance requirements of the proposal including the kinds of professional services likely to be needed to comply. The Act further requires the Board to estimate the initial and annual compliance costs of the proposed amendments with an indication of the varying impact on small businesses of differing types and sizes and to outline the manner in which it has designed the rules to minimize any adverse economic impact upon small businesses.

The proposed amendments do not impose any compliance, recordkeeping or reporting requirements on licensees. Neither does it impose any costs or the need for professional services. The proposed amendment simply acknowledges that Board licensees may organize as LLCs.

Smart Growth Impact

The Board does not anticipate that the proposed amendments will have any impact on the achievement of smart growth and implementation of the State Development and Redevelopment Plan, otherwise known as the State Plan.

Full text of the proposal follows :

<< NJ ADC 13:35-6.16 >>

13:35-6.16 Professional practice structure

(a)-(e) (No change.)

(f) Acceptable professional practice forms are as follows:

1. (No change.)

2. Partnership <<-or->><<+,+>> professional association <<+or limited liability company+>>: A practitioner may practice in a partnership<<+,+>> <<-or->> professional association, <<+or limited liability company,+>> but such entity shall be composed solely of <<- licensed->> health care professionals<<-.->><<+, each of whom is duly licensed or otherwise authorized to render the same or closely allied professional service within this State+>>. <<+A limited liability company means a limited liability company formed under the laws of this State, pursuant to the New Jersey Limited Liability Company Act, N.J.S.A. 42:2B-1 et seq., except where inconsistent with these rules. A practitioner who is a member, employee, agent, or representative of the limited liability company shall remain personally responsible for his or her own negligence, omissions, malpractice, wrongful acts, or misconduct, and that of any person under his or her direct supervision and control while rendering professional services on behalf of the limited liability company.+>> The professional services offered by each practitioner, whether a partner<<+, member+>> or shareholder, shall be the same or in a closely allied medical or professional health care field. For the purpose of this rule, closely allied fields, pursuant to the Professional Service Corporation Act, N.J.S.A. 14A:17-1 et seq., shall be deemed to include the health care professions licensed by the State Professional Boards under the Division of Consumer Affairs, for example, chiropractic, dentistry, nursing, nurse midwifery, optometry, physical therapy, podiatry, psychology, social work, etc. If the scope of practice authorized by law for each such person differs, any document used in connection with professional practice including<<+,+>> but not limited to<<+,+>> professional stationery, business cards, advertisements or listings and bills, shall designate the field to which such person's practice is limited. Prescriptions shall list only those practitioners authorized by law to prescribe; shall designate the practice of each listed prescriber as required by N.J.A.C. 13:35-6.1; and shall comply with the data requirements of N.J.A.C. 13:35-6.6.

3.-4. (No change.)

5. A licensee may also have an equity or employment interest in a professional practice (including a professional service corporation <<+or limited liability company+>>) which is a limited partner to a general business corporation which, in turn, has a contractual agreement with the professional service entity, in the following circumstances only. The general business corporation may contract to provide the professional practice with services exclusively of a non-professional nature such as<<+,+>> but not limited to<<+,+>> routine office management, hiring of non-professional staff, provision of office space and/or equipment and servicing thereof, and billing services. The licensee shall nevertheless be responsible, at all times except as excused by (g) below, to assure that an appropriate licensed health care professional determines and carries out all services and medical care policies set forth in (b) and (c) above, including retention of sole discretion regarding establishment of patient fees and modification or waiver thereof in an individual case. The licensee shall assure, as a condition of such contractual arrangement, that the general business corporation makes no representations to the public of offering, under its own corporate name, health care services which require licensure.

(g)-(m) (No change.)


END OF DOCUMENT



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