Under Texas law, certain healthcare services may be provided only by specified types of entities. The Texas Business Organizations Code (TBOC) classifies these entities as “professional entities,” characterized by the fact that they provide “professional services.” A professional service, as defined by the TBOC, is any type of service “that requires, as a condition precedent to the rendering of the service, the obtaining of a license in this state,” including but not limited to the personal services provided not only by physicians, but also by architects, attorneys, certified public accountants, dentists, and veterinarians. This article surveys the three types of entities that may provide healthcare services in Texas: professional associations (PAs), professional corporations (PCs), and professional limited liability companies (PLLCs). While the TBOC contains provisions that are specific to professional entities, PAs and PCs are also subject to the TBOC provisions governing non-professional corporations and PLLCs are subject to the TBOC provisions covering non-professional limited liability companies to the extent that they do not conflict with the provisions specific to professional entities. Choice of entity will depend on the type of healthcare services to be provided and preferences of the owners regarding governance and structuring of the entities.
Professional Associations. A PA is the most restrictive type of professional entity. A PA may be formed only for the purpose of providing professional services rendered by the following: doctors of medicine or osteopathy, podiatrists, dentists, chiropractors, optometrists and therapeutic optometrists, veterinarians, and licensed mental health professionals. The list is exclusive. No other type of licensed professional can own or provide services through a PA. The owners of a PA are referred to as members. A PA may provide services only through individuals licensed by the State of Texas to provide the same service that the PA provides. For example, only physicians licensed by the Texas Medical Board can own a PA engaged in the practice of medicine. As with a business corporation, the members may adopt bylaws for the PA. A PA is governed by a board of directors or an executive committee elected by the members. The board or executive committee elects officers, which must include a president and secretary. All officers and all members of the board or executive committee must also be members of the PA, and the president of a PA must also be a member of the board or executive committee.
Professional Corporation. A PC is structurally much like a PA except that a PC cannot be formed for the practice of medicine by physicians, surgeons or other doctors of medicine. All other types of healthcare services that can be provided by PAs can also be provided by PCs. In addition, many types of health care services that are not permitted to be provided by PAs can be provided by PCs, including but not limited to services provided by audiologists, dental hygienists, EMS personnel, nurses, physical therapists, and physician assistants. The PC is also less restrictive than the PA in terms of permissible owners. While a PA may be owned only by individuals licensed to provide the service that the PA provides, a PC may be owned by appropriately licensed individuals or other professional entities. Furthermore, while a PA may only provide its services through individuals licensed by the State of Texas, a PC may provide services through individuals licensed by the State of Texas or another jurisdiction. Except for the requirement that directors and officers of a PC must be licensed professionals, the rules regarding governance of a PC are much like those that are applicable to non-professional corporations.
Professional Limited Liability Company. The PLLC is the least restrictive form of professional entity. Any type of healthcare service that may be provided by a PA or a PC may also be provided by a PLLC. Therefore, while doctors of medicine and osteopathy may form and practice through PAs but not PCs, they, along with all other types of licensed healthcare professionals, may form and practice through PLLCs. Like PCs, a PLLC may be owned by appropriately licensed individuals or by other professional entities that provide the same service as the PLLC. A PLLC may elect to be governed either by its members or by managers. Unlike either a PA or a PC, a PLLC’s governing authority, whether managers or members, may include either appropriately licensed individuals, professional entities providing the same service as the PLLC, or both. A PLLC is not required to have officers, but if it does, each officer must be a licensed professional individual.
Group Practices. The general rule set by the TBOC is that a professional entity may provide only one type of service and may render that service only through individuals who are licensed to provide the same professional service as is provided by the professional entity. Strictly read, this would mean that a medical practice group organized as a professional association could only employ or provide services through doctors and not any non-physician personnel. In order to allow such physician groups to function, the TBOC states that its provisions shall not be construed to prohibit a professional entity “from employing nurses or from employing individuals who do not, according to general custom and practice, ordinarily provide a professional service, including clerks, secretaries, bookkeepers, technicians, or assistants.”
Professional entities are generally limited to providing only one type of service, but the TBOC does permit certain types of healthcare providers to jointly practice and provide services through a single professional entity. Specifically, the following types of healthcare providers may jointly form PAs or PLLCs: (1) doctors of medicine, osteopathy, and podiatry; (2) doctors of medicine and/or osteopathy and optometrists, including therapeutic optometrists; and (3) professionals other than physicians “engaged in related mental health fields such as psychology, clinical social work, licensed professional counseling, and licensed marriage and family therapy.” In addition, licensed physicians and licensed physician assistants may jointly form, own, and practice through a PA or PLLC, though restrictions apply. The restrictions, which are intended to ensure that physician assistants will not interfere with the practice of medicine by physicians, prohibit physician assistants from serving as officers of the entity and from owning, collectively, a majority ownership interest in the entity. Furthermore, no individual physician assistant may own an interest in the entity that is greater than or equal to the interest owned by any individual physician.
In choosing the type of entity to provide healthcare services, the rules of the TBOC that govern professional entities must be observed and tax considerations may also play a role. All professional entities are subject to the Texas franchise tax, but PAs and PCs will be taxed as corporations, as opposed to partnerships or pass-through entities, unless they elect otherwise. In addition to consulting a tax professional, one must also take care to choose an entity form that is permitted to provide the service or services in question and to structure it appropriately.