Untitled Texas Attorney General Opinion

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DAN MORALES
ATTORNEY
GENERAL December 22,199s

Mr. Ron Allen Opinion No. DM-498
Executive Director
Texas State Board of Veterinary Re: Whether business arrangements between
Medical Examiners corporations and practicing veterinarians constitute
333 Guadalupe, Suite 2-330 the practice of veterinary medicine, and related
Austin, Texas 78701-3998 questions (RQ-1086)

Dear Mr. Allen:

On behalf of the Texas State Board of Veterinary Medical Examiners (the “board”), you
inquire about the 1egalityundertheVeterinaryLicensing Act, article 8890, V.T.C.S., ofcertainnovel
business arrangements that corporate entities have recently attempted to enter into with practicing
veterinarians. You describe three kinds of business arrangements between a veterinarian and a
corporation not owned exclusively by veterinarians, asking in each case whether the corporation is
practicing veterinary medicine.

Various provisions of the Veterinary Licensing Act (the “act”) are relevant to your question
about business arrangements between a veterinarian and a corporation not owned exclusively by
veterinarians. Section 22(a) of the act bars a sole proprietorship, partnership, or corporation from
engaging in veterinary medicine unless the owner, partners, or shareholders are all licensees of the
board.’ Thus, a corporation not owned exclusively by licensed veterinarians may not practice
veterinary medicine. Section 4 of the act states that “[a] person may not practice, offer or attempt
to practice veterinary medicine in this State without first having obtained a valid license to do so
from the Texas Board of Veterinary Medical Examiners.“2 Violation of this provision constitutes
a class A misdemeanor.’ Pursuant to section 17 of the act “[tlhe Board, through the Attorney
General or any District or County Attorney, may institute an injunction proceeding . . to enjoin any
person from the practice of veterinary medicine . without such person having complied with the

‘A “corporation” within section 22(a) of article 8890, V.T.C.S., does not include a municipal corporation or
anonprofitcorporationorganizedundertheTexasNon-ProfitCorporation Act, V.T.C.S. arts. 1396-l.Ol- 11.01. Letter
Opinion No. 95-003 (1995).

‘A list of exceptions from the licensing requirement is set out in section 3 of article 8890, V.T.C.S

‘V.T.C.S. art. 8890.5 4(b).
Mr. Ron Allen - Page 2 @M-498)

other provisions ofthis act.‘” Another enforcement mechanism against unlicensed persons is found
in subsection 14(d) of the act:

A person not licensed under this Act who violates this Act or a rule adopted
by the Board under this Act is subject to a civil penalty of $1,000 for each
day of violation. At the request of the Board, the attorney general shall bring
an action to recover a civil penalty authorized under this subsection.

A licensed veterinarian who “has permitted or allowed another to use his license, or certificate to
practice veterinary medicine in this state” is subject to discipline by the Board ofVeterinary Medical
Examiners.5

Your first question is as follows:

1. A corporation, not owned exclusively by veterinarians, buys an
established veterinary clinic consisting of land, buildings, all the equipment,
goodwill, trade name, business records, patient records, and drug inventory.
Regardless of the relationship between the corporation and an unrelated
veterinarian who will practice at the location, is the corporation’s ownership
of the clinic the practice of veterinary medicine prohibited by the Veterinary
Licensing Act whenever animals are treated by a veterinarian at the clinic?

The “Practice of Veterinary Medicine” is defined as follows:

(A) the diagnosis, treatment, . relief, or prevention of animal disease,
deformity, defect, injury, or other physical condition, including the
prescription or administration of a drug, or other therapeutic or diagnostic
substance or technique;

(B) the representation of an ability and willingness to perform an act
included in Paragraph (A) of this subdivision;

(C) the use of a title, words, or letters to induce the belief that a person
is legally authorized and qualified to perform an act included in Paragraph
(A) of this subdivision; or

‘Id. $ 17.

‘Id. 5 14(a)(6).

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(D) the receipt of compensation for performing an act included in
Paragraph (A) of this subdivision.6

Thus, a corporation that performed any of the above acts would engage in the practice of
veterinary medicine. Texas cases on the corporate practice of medicine have established the
following rule on a non-physician’s receipt of compensation for medical services performed by a
physician: “[Wlhen a corporation employs a licensed physician to treat patients and itself receives
the fee, the corporation is unlawfully engaged in the practice ofmedicine.“’ In Garcia Y. Texas State
BoardofMedicalExaminers,384F. Supp. 434(W.D. Tex. 1974),afld,421 U.S. 995 (1975)athree
judge court discussed the policies underlying this rule:

It appears to the Court that not only is such a corporation fraught with
practical and ethical considerations, but may well represent a backward step
in the legislative protections it has taken so long to achieve. Without
licensed, professional doctors on Boards of Directors, who and what criteria
govern the selection of medical and paramedical staff members? To whom
does the doctor owe his first duty--the patient or the corporation? . Who
is to dictate the medical and administrative procedures to be followed?
Where do budget considerations end and patient care begin?s

Where the corporation is engaged in the unlicensed practice of medicine, the physician
employed by the corporation is in effect “permitting or allowing another to use his license or
certificate to practice medicine in this state,” in violation ofthe Medical Practices Act, and is subject
to having his license canceled, revoked, or suspended by the Board of Medical Examiners? This
rule, in our opinion, also applies to licensed veterinarians, because of the similarities of provisions
in both licensing statutes and the specific reference to the receipt ofcompensation in V.T.C.S. article
8890, section 2(2)(D). Accordingly, we conclude as a matter of law that a private, for-profit
corporation may not employ a licensed veterinarian to provide veterinary medical services and itself
receive the fee for these services. The corporation would be unlawfully engaged in the practice of
veterinary medicine, while the licensed veterinarian employed by the corporation would violate the
prohibition against permitting or allowing another to use his license to practice medicine and would

Vd. $ 2(2).

‘Garcia v. Texas State Bd. of Med. Exam’rs, 384 F. Supp. 434,431 (W.D. Tex. 1974), affd, 421 U.S. 995
(1975); Flynn Bras, Inc. v. First Med. Assocs., 715 S.W.Zd 782, 785 (Tex. Civ. App.--Dallas 1986, wit refd n.r.e.);
Watt v. Texas State Bd. of Med. Exam ‘rs, 303 S.W.2d 884, 887 (Tex. Civ. App.--Dallas, 1957, wit ref d n.r.e.), cert.
denied, 356U.S. 912(1958);Rockettv. TexasStateBd. ofMed. Exam is, 287 S.W.Zd 190, 191-92(Tex. Civ. App.--San
Antonio 1956, writ ref d n.r.e.).

*Garcia, 384 F. Supp. at 440

9Rocktt, 287 S.W.2d at 191 (citing former V.T.C.S. art. 4505, 5 12, now codified as V.T.C.S. art. 4495b,
5 3.08(12);seea[so V.T.C.S. art. 4495b. 5 3.08(15)).

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Mr. Ron Allen - Page 4 (DM-498)

be subject to having his license canceled, revoked, or suspended by the Board of Veterinary Medical
Examiners.

However, you have asked whether the corporation’s ownership of the clinic constitutes the
practice of veterinary medicine, regardless of the relationship between the corporation and the
veterinarian. Whether a corporation is engaging in the practice of veterinary medicine in violation
of law is a fact question,“’ which cannot be addressed in an attorney general opinion.” You provide
facts that may be some evidence of unauthorized practice, but we cannot answer your question as
a matter of law.

The transaction you describe does implicate other provisions ofthe Veterinary Licensing Act
as well as other statutes. Pursuant to subsection 23(c) of the act, it is not a violation of the act for
a veterinarian to lease space. Thus, the mere fact that a corporation owns space leased to a
veterinarian does not constitute a violation of the act. However, additional limitations apply if a
veterinarian leases space in a mercantile establishment: “[t]he practice of a veterinarian who leases
space from and practices veterinary medicine on the premises of a mercantile establishment must
be owned by a licensed veterinarian” and “must be under the exclusive control of a licensed
veterinarian.” Physical separation between the veterinarian’s leased space and the rest of the
commercial space is required.

Section 23 also provides that “[a]11patient and business records . . are the sole property of
the veterinarian and free from the control of . any person not licensed under this Act,” although
a veterinarian is not prohibited from entering into a management agreement and permitting
employees or agents of the management company to have access to copies of patient records as
necessary for management functions. ” A corporation that is not owned exclusively by veterinarians
may not own the patient records or business records, I3nor may it own the drug inventory.‘4 Finally,
subsection 2A(b) of article 8890, V.T.C.S., provides in part that “[tlhe professional services of a
veterinarian may not be controlled or exploited by any person or entity not licensed under this Act
that intervenes between the clientI and the veterinarian.” The rest of this subsection makes it very
clear that a veterinarian may not allow an unlicensed person to interfere with his or her practice of

‘?Yee generally, Rock&, 287 S.W.2d at 191

“See, e.g., Attorney General Opinions DM-388 (1996) at 4; DM-98 (1992) at 3; M-187 (1968) at 3; O-291 1
(1940) at 2. In some cases, a question of fact may be resolved as a matter of law; see Attorney General Opinions
DM-121 (1992) at 2,4; JM-1216 (1990) at 2; Letter OpinionNo. 92-E (1992) at 2.

‘2V.T.C.S. at. 8890, $23(b).

“Health & Safety Code 5 483.041

‘me “client” is the owner 01 other caretaker of an animal under a veterinarian’s care, while the animal is the
“patient.” See V.T.C.S. art. 8890, $ 2A(s)(l).

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Mr. Ron Allen - Page 5 (DM-498)

veterinary medicine, and that a veterinarian is directly responsible to the client and for the care and
treatment of the patient. We cannot determine as a matter of law whether the corporation’s
ownership of equipment, good will, and trade name, either individually or in combination with
ownership of other elements of a practice, would violate any provision of the act, although such
ownership might be relevant to violations of it.

You next ask:

[2.] Assuming that a corporation not owned exclusively by veterinarians
owns only that much of a veterinary practice as permitted by law,16 may that
corporation enter into a “management agreement” with a veterinarian to
operate the practice without violating the provisions of the Veterinarian
Licensing Act, where the corporation:

1) receives a percentage of veterinarian’s gross receipts,

2) is assigned all accounts of the veterinarian,

3) determines amount of veterinarian’s time-off,

4) has approval of relief veterinarian,

5) requires veterinarian to deliver to it all patient records,

6) sets fees for all procedures,

7) requires veterinarian to carry liability insurance naming corporation
as third party beneficiary, and

8) employs all office and technical staff.

Your third question is as follows:

[3.] Assuming that a corporation not owned exclusively by veterinarians,
owns only that much of a veterinary practice as permitted by law, may that
corporation enter into an “independent contractor agreement” with a
veterinarian to operate the practice, without violating the provisions of the
Veterinarian Licensing Act, where the corporation:

‘6You do not identify the elements of a veterinary practice that a corporation may own even if the corporation
is not owned exclusively by veterinarians. We note that subsection 23(a) of qticle 8890, V.T.C.S., states that “[t]he
practice of a veterinarian who leases space from and practices veterinary medicine on tbe premises of a mercantile
establishment must be owned by a licensed veterinarian.”

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Mr. Ron Allen - Page 6 (W-498)

1) pays for the veterinarian’s employee benefits (health insurance,
retirement, etc.),

2) withholds the veterinarian’s income and social security taxes,

3) sets the time periods that the veterinarian is at the clinic,

4) sets the time period allowed for each examination,

5) has sole authority to determine which patient-client may make an
appointment and when, and

6) establishes a drug protocol[.ln

Subsection 23(b) of the act, as already noted, provides that a veterinarian is not prohibited
“from entering into a management agreement and permitting employees or agents of the
management company to have access to or copies of patient records as necessary for management
functions.” This provision does not define “management agreement,” but certainly the terms of any
management agreement entered into by a veterinarian must be consistent with the act as a whole.
The provisions of the “management agreement” and the “independent contractor agreement”‘s are
more relevant to the validity of each than the name applied to the agreement.

Your questions about the management agreement and the independent contractor agreement,
like your first question, involve some underlying fact questions, which cannot be resolved in an
attorney general opinion. We are able to discuss terms of the agreement that are specifically
addressed by provisions of the act.

As we have already pointed out, patient records are owned by the veterinarian and free from
the control of any person not licensed under the act. I9 While a veterinarian may allow employees
or agents ofthe management company to have access to or copies ofpatient records as necessary for
management functions, we do not believe the management company may require the veterinarian
to deliver patient records to it, either temporarily or for the duration of the agreement.

Subsection 23(c) of the act states that it is not a violation of the act for a veterinarian “to pay
for franchise fees or other services on a percentage of receipts basis, or to sell, transfer, or assign

17Aprotocol is defmed as a precise and detailed plan for a regimenof drug therapy. STEDMAN’SMEDICAL
DICTIONARY1155(5th ed. 1982).

‘*The relationshipbetween corporation and veterinarianis described as an “independent contractor agreement,”
but it appears to involve more control ova the veterinarian’s work than typically found in an independent contractor
relationship. See Attorney General Opinion MW-129 (1980).

‘V.T.C.S. art. 8890,s 23(b)

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Mr. Ron Allen - Page 7 (DM-498)

accounts receivable.” These arrangements do not per se violate the act, but might, in combination
with other terms of an agreement, provide evidence that the corporation was actually operating the
veterinary practice.

Other terms of the agreements may provide evidence that a veterinarian’s professional
services are controlled by “any person or entity not licensed under this Act that intervenes between
the client and the veterinarian,“zO or that the veterinarian is employed by the corporation. We cannot
make this determination as a matter oflaw, but the corporation’s control over the veterinarian’s work
schedule, fees, office staff, and more important, over the veterinarian’s appointments with patients
and use of medications in treatment raise the possibility of such violations. Factors such as payment
for the veterinarian’s employee benefits and withholding of his or her income and social security
may also indicate that an employment relationship exists.

You finally ask:

[4.] If any of these arrangements violate the provisions of the Veterinary
Licensing Act, what action may the Board take against the veterinarian and/or
the corporate entity?

We have not said that any of these arrangements violate the act as a matter of law, although
we have identified particular terms of the agreements that are prohibited by provisions of the act.
The board should determine, in the first instance, whether a particular veterinarian or unlicensed
person has violated the act. It provides remedies against licensed veterinarians and unlicensed
persons who engage in the unauthorized practice of veterinary medicine.

The board may discipline a licensed veterinarian who engages in the conduct stated in section
14(a) of the act. The following grounds for discipline are particularly relevant to your questions:

[The veterinarian] has engaged in practices or conduct in connection with
the practice of veterinary medicine which are violative of the standards of
professional conduct as duly promulgated by the Board in accordance with
law; [or] has permitted or allowed another to use his license, or certificate to
practice veterinary medicine in this state”*l

While the board has enforcement authority against a licensed veterinarian who violates the
act or rules promulgated thereunder, it does not have independent authority to enforce the statutory
remedies against persons who engage in the unauthorized practice of veterinary medicine or
otherwise violate the act. The local prosecutor has jurisdiction to enforce the criminal penalty for

“Id. $ 2A(b).

“Id. 5 14(a)(5), (6)

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Mr. Ron Allen - Page 8 (DM-498)

practicing veterinary medicine without a license. ” Although the board may make a complaint to the
prosecutor about a person that it believes has violated this provision, it is within the prosecutor’s
authority to decide whether or not to prosecute the alleged violator.23 Under subsection 14(d), the
board may request the attorney general to bring an action to recover a civil penalty from “[a] person
not licensed under this act who violates this act or a rule adopted by the board.“24 Section 17
provides that the board, “through the Attorney General or any District or County Attorney,” may
institute a proceeding to enjoin a person from practicing veterinsry medicine without having
complied with the act.

However, we do not believe that these remedies apply to a corporation that practices
veterinary medicine without a license. *j Each of the three penalties applies to “a person.” Section
312.01 l(10) of the Government Code states with respect to the construction of civil statutes, that
“‘[pIerson’ includes a corporation,” “unless a different meaning is apparent from the context of the
statute.” In the context of the three remedy provisions under consideration, we do not believe that
“person” includes a corporation.

The act’s provisions on licensing generally refer to a“person” or “persons,“see V.T.C.S. art.
8890, $3 3(a)(2), (5), 4,7(e), 10, 11, and the only specific reference to a “corporation” appears in
section 22(a), which provides that “[n]o sole proprietorship, partnership, or corporation shall engage
in veterinary medicine unless the owner, partners, or shareholders, respectively, are all licensees.”
Thus, the legislature stated its intent expressly when it wished a provision to apply to a corporation.
In contrast to the act, various other licensing provisions define “person” as expressly including
“corporation.” See V.T.C.S. arts. 4512e, 5 l(10) (Board of Physical Therapy Examiners); 4512j,
5 2(3) (State Committee of Examiners for Speech-Language Pathology and Audiology); 45120,
5 l(4) (licensed chemical dependency counselors); 4542a-1,s 5(31) (Texas Pharmacy Act); 4566-
1.01(10) (fitting and dispensing ofhearing instruments); see also V.T.C.S. art. 4495b, 5 1.03(10)
(Medical Practice Act)F6

The language of section 17 in particular shows that it does not apply to a corporation. This
provision authorizes an injunction proceeding “to enjoin any person” from the unlicensed practice
of veterinary medicine and provides that the “venue for such injunction proceedings shall be in the

~,Ueshell v. State, 739 S.W.2d 246,254 (Tex. Grim. App. 1987) (en bane)

*rThe penalty is $1,000 for each day of violation. V.T.C.S. art. 8890, 5 14(d)

“The legislature may establish civil penalties or fmes for violation of a state agency rule “against any person,
firm or corporation subject to and violating such rule or regulation.” Hanil v. State, 188 S.W.2d 869, 87 1 (Tex. Civ.
App.--Austin 1945, writ ref d).

x“Person” is defmed in the Medical Practice Act to mean an individual, unless otherwise expressly made
applicable to a partnership,association, orcorporation. V.T.C.S. art.4495b, 5 l.O3(1O);see id. $9 3,07(c),(e), 3.08(E).

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Mr. Ron Allen - Page 9 (DM-498)

county of the residence of the person against whom such injunction proceedings are instituted.“2’
The general rule of venue found in section 15.002 of the Civil Practice and Remedies Code provides
that a lawsuit shall be brought “in the county of [the] defendant’s residence at the time the cause of
action accrued if defendant is a natural person,” and “in the county of the defendant’s principal office
in this state, ifthe defendant is not a naturalperson.” Section 17 incorporates the venue provision
for natural persons, indicating that the legislature contemplated that the injunction remedy would
apply only to natural persons.

Section 7.22 of the Penal Code states the rule for determining whether a criminal penalty
such as section 4 of article 8890, V.T.C.S., applies to corporations .Z9 Section 7.22 provides in part:

(a) If conduct constituting an offense is performed by an agent acting in
behalf of a corporation or association and within the scope of his office or
employment, the corporation or association is criminally responsible for an
offense defined:

(1) in this code where corporations and associations are made subject
thereto;

(2) by law other than this code in which a legislative purpose to impose
criminal responsibility on corporations or associations plainly appears;
or

(3) by law other than this code for which strict liability is imposed
[Emphasis added.]

Section 4 of article 8890, V.T.C.S., the criminal penalty provision, states that “a person may
not practice, offer or attempt to practice veterinary medicine in the State without first having
obtained a valid license to do so.” No legislative purpose to impose criminal responsibility on
corporations or associations plainly appears in section 4. Accordingly, it does not subject
corporations to criminal prosecution. We conclude, in answer to your fourth question, that none of
the remedies we have discussed enable the board to take action or to request another officer to take
action against a corporation engaged in the unauthorized practice of veterinary medicine.30

“If the person does not reside in the state, venue is in Travis County. V.T.C.S. art. 8890, $ 17

%iv. Prac. &Rem. Code 5 15.002(a)(2), (3) (emphasis added).

%eegenerally Vaughan & Sons, Inc. Y. State, 737 S.W.Zd 805 (Tex. Grim. App. 1987) (en bane)

)OAnaction in the nahtre of quo warranto is available if “a corporation exercises power not granted by law.”
Civ. Prac. & Rem. Code 8 66.001(5). If grounds for the remedy exist, the attorney general or the county or district
(continued...)

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Mr. Ron Allen - Page 10 (DM-498)

SUMMARY

The Veterinary Licensing Act, article 8890, V.T.C.S., prohibits the
practice ofveterinary medicineby a private, for-profit corporation not owned
exclusively by veterinarians. Such a corporation may not employ a licensed
veterinarian to provide veterinary medical services and itself receive the fee
for those services nor may it own the patient or business records or drug
inventory of a veterinary medical practice. The Board of Veterinary Medical
Examiners may discipline a licensee for permitting or allowing another to use
his license or certificate to practice veterinary medicine. Remedies and
penalties in the Veterinary Licensing Act for practicing veterinary medicine
without a license do not apply to corporations.

DAN MORALES
Attorney General of Texas

JORGE VEGA
First Assistant Attorney General

SARAH J. SHIRLEY
Chair, Opinion Committee

Prepared by Susan L. Garrison
Assistant Attorney General

attorney ofthe proper county may petition the district court for leave to file an information in the natureof quo warranto.

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