Texas law generally prohibits the practice of medicine by any corporation, entity, or non-physician individual. The “corporate practice of medicine” doctrine forbids a physician from entering into an agreement with a non-physician under which the non-physician would in any way control the physician’s medical practice. Based on this doctrine, non-physician individuals and entities generally cannot employ physicians.
There are, of course, exceptions to this general rule. For example, a nonprofit certified by the Texas Medical Board under Section 162.001(b) of the Texas Occupations Code– often called a “5.01(a) corporation” after the section of the Texas Medical Practice Act under which they were originally formed—may employ a physician if certain requirements are met. The directors of such a corporation must all be licensed by the Texas State Board of Medical Examiners and must retain the sole authority to direct all medical, professional, and ethical aspects of the practice of medicine within the corporation. Additional requirements must be met in case of any non-physician members of the corporation. Further, a 5.01(a) corporation, like any Texas non-profit corporation, may not pay dividends to its members, so any profits must be paid through management agreements or as compensation.
In 2011, the Texas Legislature enacted laws designed to allow specific types of hospitals and hospital districts to hire physicians and to allow physicians to form certain ownership-sharing agreements with physician assistants. Critical access hospitals, sole community hospitals, and hospitals in counties of 50,000 or fewer people may now employ physicians if certain protections are in place. Physicians may also form corporations, partnerships, professional associations, and professional limited liability companies together with physician assistants, provided that statutory ownership and control requirements are met.