Options for Non-Veterinarians to Legally Own
and Operate a Veterinary Practice
Edward J. Guiducci, J.D.
Historically, state law in the United States prevented non-veterinarian ownership of veterinary practices. The purpose of this session is to examine the original justifications and whether or not these justifications continue to apply. We will examine current trends in changes to state laws and veterinary practice acts in the United States relating to non-veterinary ownership of veterinary practices. This session will also focus on legal options for non-veterinarians to own veterinary practices and alternative options structures that are slowly being accepted by veterinary boards across the United States permitting non-licensed veterinarians to be owners of practice assets and operations even when the state’s veterinary practice act has not been amended to permit non-veterinary ownership. We will also focus on certain practical issues that go beyond the legalities for non-licensed veterinary ownership of a veterinary practice.
What is the Rational for the Historical Prohibition of Non-Licensed Veterinary Ownership?
The historical prohibition on non-licensed veterinary ownership of veterinary practices was primarily based upon the fact that veterinary medicine is a licensed and regulated business. As part of the regulation of the veterinary profession, as with other licensed professions, veterinary practice acts in the United States prohibited non-veterinary ownership of veterinary practices in order to maintain the quality of service and protect the professional’s independent judgment. The primary rational that was utilized by the states in adopting their statutes was that the non-licensed veterinarian owners would impact the professional judgment of the licensed veterinarians.
What are Modern Day Views of the Prohibition of Non-Veterinary ownership and Its Impact Upon the Veterinary Profession?
There remain differing views in the veterinary profession as to the appropriateness of non-licensed veterinarians owning veterinary practices. The following are common arguments in favor of non-veterinarians owning veterinary practices:
Arguments Supporting Non-Veterinary Ownership:
1. Relaxing the rules will permit the introduction and development of innovative forms of professional practices with the input of non-veterinarian owners.
2. Relaxing the rules will permit widows/widowers and the heirs of the veterinarians from having a hardship placed upon them with a forced “fire sale” upon the death of the veterinarian. This is especially a hardship for spouses that manage the practice side-by-side with their veterinarian spouse.
3. Relaxing the rules will provide more opportunities for an exit strategy by expanding the market to sell existing practices.
4. Relaxing the rules will provide opportunities for key employees to become owners and remain in the profession.
5. Relaxing the rules could have a positive effect on competition and might afford consumers a wider selection of services and costs.
Arguments in Opposition to Permitting Non-Veterinary Ownership:
Some of the arguments that are propounded opposing non-veterinary ownership are as follows:
1. The corporate bottom-line would control over professional ethics and the Veterinary oath. This would create an unethical influence that would damage the public.
2. It is bad for the profession for cities and other public or quasi-public entities to own practices and compete with private practices.
3. If it ain’t broke, don’t fix it!!! This would prevent unforeseen problems caused by non-veterinary owners of veterinary practices.
Have Veterinary Practice Acts Been Amended to Permit Non-Veterinary Ownership in the United states?
There has not been one uniform change in the United States to this issue. There have been the following four basic approaches by the states:
1. Amendment to state veterinary practice act and/or corporation act permitting non-licensed veterinary ownership of 100% of veterinary practices;
2. Amendment of veterinary practice act and professional corporation act to permit up to 49% ownership of a veterinary practice by non-veterinarians;
3. Various amendments of state statutes that are inconsistent with each other permitting corporate ownership through certain legal entities but not others i.e. professional corporation acts prohibit non-veterinary ownership but for-profit corporation acts permit non-veterinarian ownership.
4. No amendment to act thereby continuing the prohibition on non-licensed veterinary ownership of veterinary practice.
How Do Non-Veterinarians Own an Interest in Veterinary Practices in States that Continue to Prohibit Non-Veterinarian Ownership?
Non-veterinarians are prohibited from individually owning a veterinary practice or forming a for-profit corporation to provide veterinary medical services and directly receive the fee for these services that reside in states that prohibit non-veterinary ownership or majority veterinary ownership. The individual or corporation would in these states be unlawfully engaged in the practice of veterinary medicine, while the licensed veterinarian employed by the corporation or individual would violate the prohibition against permitting or allowing another to use his or her license to practice medicine and would be subject to having his or her license canceled, revoked, or suspended by the states’ board of veterinary medical examiners.
This would appear to prevent a non-veterinarian from obtaining ownership of a veterinary practice in the states that have not amended their veterinary practice acts. However, there is another option. In some states a non-veterinarian is permitted to enter into an administrative services structure to work in conjunction with a veterinary professional services corporation that provides veterinary medical care. The basic premise of this approach is that the administrative services legal entity provides any and all services and staff that the veterinary professional services corporation needs to operate the veterinary practice except for hiring veterinarians and in some states licensed technicians. This includes providing the veterinary professional services corporation with leased space, equipment, furniture, instruments, marketing services, accounting services, billing services, general administrative services, training, recruiting of professional staff, etc. The majority of the fees that are generated by the veterinary practice are received by the veterinary professional services corporation but are then disbursed as service fees or reimbursement except for the professional personnel expenses of the veterinary professional services entity. This structure has satisfied many states’ concerns to protect the public because the separate structure insures that the professional judgment of the veterinarians is not being controlled by non-veterinarian owners.
What is a Typical Administrative Services Structure?
A typical administrative services structure involves a for-profit corporation being formed to purchase practice assets from a selling veterinarian to serve the role of an administrative services entity. A separate professional veterinary corporation is formed to provide professional veterinary services and one veterinarian will be the sole stockholder of the corporation to comply with state law. If one of the owners of the for-profit legal entity were a veterinarian then typically this person would be the sole shareholder of the professional legal entity. If the purchaser doesn’t have a licensed veterinarian as part of its ownership, then a veterinarian would need to be hired by the veterinary clinic to provide the veterinary services and to hold the share of stock while employed.
Typically the practice assets that are sold as part of a veterinary asset sale transaction consist of an assignment of the commercial lease on the land and buildings (or a purchase of the land and building), all the fixtures, furniture and equipment of the practice, trade name and drug and office supply inventory of the practice as well as the telephone numbers, email addresses, web sites, client and patient records and goodwill. The structure will vary depending upon the state that the practice is located in because certain states prohibit the for-profit administrative services corporation from owning the client/patient records and goodwill. In these cases the purchase of the client/patient records and good will assets will be assigned to the veterinary professional services entity.
The administrative services agreement is a formalized contract that clearly identifies the rights and responsibilities of each of the for-profit administrative services entity and the veterinary professional services corporation. It will outline the services that will be provided and the fees that will be paid the for-profit administrative services company.