People Ex Rel. State Board of Medical Examiners v. Pacific Health Corp. ( 1938 )

THE COURT.

This is an appeal from a judgment in quo warranto against defendant holding its activities violative of the California Medical Practice Act (now sections 2000-2496 of the Business and Professions Code).

The facts are stipulated. Defendant Pacific Health Corporation, Inc., is a corporation organized under the general corporation law of the state of California, with its principal place of business in San Francisco. Upon application of persons in good health, the defendant issues a contract by the terms of which defendant undertakes to pay for services rendered by physicians, hospitals, ambulance and medical laboratories under certain circumstances, and the applicant pays the required sum or premium therefor. When a contract holder becomes sick or is injured, defendant advises him from whom these services are to be obtained, that is, the physician, hospital or ambulance available to him. After the services are rendered, defendant pays the charges. Defendant keeps a list of physicians and surgeons approved by it, and to obtain the benefits of the service the contract holders must, save as to emergency expenses not exceeding $50, accept a doctor from the list.

Defendant is a stock corporation, operated for profit. It advertises its service and' solicits the public for purchase of its contracts, paying commissions to its soliciting agents. The money collected from contract holders is paid into the general fund, and this, together with the capital and surplus, is invested. The charges for medical services are paid out of the general fund and income from investments.

Upon these facts the lower court concluded that defendant was illegally engaged in the practice of medicine, in excess of its corporate rights, powers and franchises. It was ordered that defendant be excluded from such practice, and that its articles of incorporation be amended to conform to the decree. We are in accord with the court’s conclusion.

The issue presented herein is not new, and has been considered in this state by recent cases which are controlling. It is an established doctrine that a corporation may not engage in the practice of such professions as law, medicine or dentistry. (People v. Merchants Protective Corp., 189 Cal. 531 [209 Pac. 363]; Painless Parker v. Board of Dental Examiners, 216 Cal. 285 [14 Pac. (2d) 67]; Pacific Employers Ins. Co. v. Carpenter, 10 Cal. App. (2d) 592 [52 Pac. (2d) 992]; Benjamin Franklin Life Assur. Co. v. Mitchell, 14 Cal. App. (2d) 654 [58 Pac. (2d) 984]; People v. United Medical Service, 362 Ill. 442 [200 N. E. 157, 103 A. L. R 1229]; see notes, 25 Cal. L. Rev. 91; 10 So. Cal. L. Rev. 329; 30 Ill. L. Rev. 533.) This doctrine is not challenged by defendant, which seeks to distinguish its activities from those previously held to constitute illegal practice of medicine. It is stated that defendant does not itself undertake to perform medical services, but merely to furnish competent physicians; that the contracts do not contemplate that services shall be performed at its offices, but elsewhere; and that the doctors are not employed by defendant on a salary basis, nor directed by defendant, but are compensated for actual services after they are rendered. Defendant’s theory is that the doctors are independent contractors, and that this fact absolves it of the charge of practicing medicine.

We are unable to agree that the. policy of the law may be circumvented by technical distinctions in the manner in which the doctors are engaged, designated or compensated by the corporation. The evils of divided loyalty and impaired confidence would seem to be equally present whether the doctor received benefits from the corporation in the form of salary or fees. And freedom of choice is destroyed, and the elements of solicitation of medical business and lay control of the profession are present whenever the corporation seeks such business from the general public and turns it over to a special group of doctors. As the court said in Pacific Employers Ins. Co. v. Carpenter, supra, 10 Cal. App. (2d) 601: “But we need not quibble here over the use of terms as it is immaterial whether the appointed practitioners are termed employees, agents or appointees of the petitioner. The fact remains that petitioner’s agreement was to furnish, in consideration of the premium paid by the insured, the services of doctors and dentists who were to be appointed, engaged, hired or employed by petitioner for the purpose of furnishing such services. Any such agreement is clearly condemned as unlawful and against public policy by the authorities above cited.”

The foregoing case is so similar in its facts to the instant case as to be conclusive on the issue before us. (See, also, Benjamin Franklin Life Assur. Co. v. Mitchell, supra.)

Defendant suggests that the Medical Practice Act should be strictly construed so as not to prohibit its activities; but this argument ignores the basic policy of the law, of which the statute is merely declaratory, against corporate practice of the learned professions, directly or indirectly. (See authorities cited supra.)

Although, as we have already pointed out, defendant does not challenge but fully concedes that corporations cannot practice the learned professions, the procedure which it seeks to defend is within the prohibition of this doctrine. To avoid this result, defendant launches into a discussion of the effect of an adverse decision upon other organizations and activities. Our attention is called to certain data from medical and lay sources in support of the movement for group medicine and health insurance, and we are told that a decision against defendant will outlaw all fraternal, religious, hospital, labor and similar benevolent organizations furnishing medical services to members. We have given careful consideration to this argument and we find it wholly unconvincing.

The question of the effect of this decision upon any other organizations is not squarely before the court, and the information in the record as to their character and activities is meager and unsatisfactory. If we undertook to determine their legality in this proceeding, in which they are not represented, our decision would have no binding force. But it should be pointed out that the fear of applying the holding of this case to such philanthropic associations as those mentioned does not exist in the minds of the directors thereof, nor has it been suggested that the public authorities contemplate any attack on them. This illusory apprehension is expressed by defendant alone, in an attempt to bolster up its case by bringing it within the general class of associations furnishing medical or health benefits which have been tacitly approved for generations. But a most obvious and, to us, a fundamental distinction must be made between defendant and these other institutions. In nearly all of them, the medical service is rendered to a limited and particular group as a result of cooperative association through membership in the fraternal or other association, or as a result of employment by some corporation which has an interest in the health of its employees. The public is not solicited' to purchase the medical services of a panel of doctors; and the doctors are not employed or used to make profits for stockholders. In almost every case the institution is organized as a nonprofit corporation or association. Such activities are not comparable to those of private corporations operated for profit and, since the principal evils attendant upon corporate practice of medicine spring from the conflict between the professional standards and obligations of the doctors and the profit motive of the corporation employer, it may well be concluded that the objections of policy do not' apply to nonprofit institutions. This view seems almost implicit in the decisions of the courts and it certainly has been the assumption of the public authorities, which have, as far as we are advised, never molested these organizations.

The other question raised by defendant’s proffered materials is whether the time has come, as indicated by the movement for health insurance and group medicine, to reverse the long-settled policy against corporate medical practice and declare it legal and proper. . A simple answer would be that the few extracts from the opinions of writers which we find in the briefs furnish us with no evidence whatsoever of a widespread change in social viewpoint sufficient to repudiate the existing law of practically all the states. All that we have before us is the proof of a controversy which has raged for years, between medical men, sociologists and others, as to the future course of medical practice. The desirability of present methods and the suggested reforms, including various kinds of insurance and group treatment, are hotly debated. (See 25 Cal. L. Rev. 91, 93.) Public policy may change, and doubtless where statutes do not cover the field, the court may follow such changes, but the court must, in such case, declare the public policy, the social view of people generally, and not merely its own private choice among hopelessly conflicting views of desirable reform of settled practices or principles in this field. In the present circumstances there can be no true declaration by this court that a change in social viewpoint now requires the abandonment of the rule against corporate practice of medicine. Such a drastic change should come from the legislature, after the full investigation and debate which legislative organization and methods permit. Though certainly aware of the controversy, and with presumed knowledge of our decisions preventing corporate practice (see supra), the legislature thus far has not acted, and until it does we deem it proper to follow the existing law. (See Pacific Employers Ins. Co. v. Carpenter, supra, 10 Cal. App. (2d) 602.)

We might observe, in conclusion, that an admission of the desirability of some form of health insurance or group medicine by no means requires approval of the activities of defendant. It is perfectly possible to bring adequate medical service to the vast numbers of people who now can ill afford it by some means which will protect both the profession and the public from the evils of corporate .control of the practitioner. An example is found in the system adopted by the city and county of San Francisco for the furnishing of medical service to its employees, approved by us in Butterworth v. Boyd, S. F. 16017, this day filed. (Ante, p. 140 [82 Pac. (2d) 434].)

The future of group medicine would seem to lie either in such well considered plans, submitted to and adopted by the proper legislative authority, or in a carefully regulated statute setting forth the means by which private organizations may offer such services.

The judgment is affirmed.