Can a corporation owned by non-doctors get a Texas permit to dispense methadone or other synthetic narcotics if it hires physicians?

Texas AG Opinion JM-1042: Can a Non-Physician Corporation Get a Permit to Dispense Synthetic Narcotics?

Plain-English summary

Texas runs a permit system for the drugs used to treat narcotic addiction, such as methadone. A county attorney asked the Attorney General a pointed question about who can hold one of those permits: can a corporation that is owned by non-doctors, but that hires physicians to do the actual medical work, get a permit from the Department of Health to prescribe and administer these synthetic narcotics? The Attorney General said no.

The reason runs through a longstanding Texas rule called the "corporate practice of medicine" doctrine. In Texas, a business owned by people who are not physicians generally cannot practice medicine, and it cannot get around that by employing doctors as staff. Courts have treated that kind of setup as both the unlawful practice of medicine by the corporation and a violation of the Medical Practice Act by the employed physician, who is not allowed to let a non-licensed entity use his license or to aid the unlicensed practice of medicine.

The permit statute, article 4476-11, lets either a licensed physician or "any institution... organized and operated under the laws of this state for the purpose of providing health services" apply. A corporation was hoping to fit inside that "institution" language. The Attorney General said the two statutes have to be read together, and a corporation that is breaking the Medical Practice Act is not a lawfully "organized and operated" health-services institution. So it does not qualify for the permit.

The corporation had a fallback argument based on federal law. Federal rules do register methadone-treatment program sponsors, and those rules say a program sponsor does not personally have to be a licensed practitioner as long as the program employs a licensed physician as medical director. The corporation argued that federal law therefore overrides the stricter state rule. The Attorney General disagreed. The federal drug law itself (21 U.S.C. section 903) says Congress did not mean to occupy the field and pushes state law aside only where there is a "positive conflict." There was no positive conflict here: a state is free to impose a stricter permit requirement of its own on top of the federal registration, and the federal treatment rules even say programs must conform to all state requirements.

Currency note

This opinion was issued in 1989. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The statutes involved here have been recodified since 1989: the Medical Practice Act (former article 4495b) is now in the Occupations Code, and the controlled-substances permitting scheme has moved into the Health and Safety Code. The federal narcotic-treatment rules have also changed. Anyone dealing with a present-day question about who may hold a narcotic-treatment permit should consult the current Texas and federal law rather than rely on this 1989 analysis.

Who this opinion affected (as of 1989)

The Department of Health: The opinion told the department it had no authority to issue an article 4476-11 permit to a non-physician-owned corporation, even one that employed physicians.

Corporations wanting to run narcotic-treatment programs: The opinion closed the door on a non-physician corporate structure holding the state permit directly, pointing them back to the corporate-practice-of-medicine limits.

Physicians employed by such corporations: The opinion reinforced that working for a non-physician entity in this arrangement risked violating the Medical Practice Act's prohibitions on lending a license and aiding unlicensed practice.

Common questions

Can a corporation owned by non-doctors get a Texas permit to dispense methadone?
No. The AG concluded the Department of Health had no authority under article 4476-11 to issue such a permit to a corporation formed by non-physicians that employs physicians, because that arrangement is the unlawful corporate practice of medicine.

Why does it matter who owns the corporation?
Because Texas's corporate-practice-of-medicine doctrine bars a non-physician entity from practicing medicine through employed doctors. The AG concluded such a corporation is not an "institution organized and operated under the laws of this state for the purpose of providing health services," so it fails the permit statute.

Doesn't federal methadone law override the state rule?
No. The AG concluded 21 U.S.C. section 903 shows Congress did not intend to occupy the field and displaces state law only on a "positive conflict," which did not exist; a state may impose a stricter permit requirement on top of federal registration.

Background and statutory framework

The request from the Rusk County Attorney concerned V.T.C.S. article 4476-11, which authorizes permits to prescribe and administer synthetic narcotic drugs to drug-dependent persons. Section 4(a) provides that any physician licensed by the Texas State Board of Medical Examiners, or any institution, public or private, organized and operated under the laws of this state for the purpose of providing health services, may apply to the department for such a permit, and that the department shall issue a permit to applicants qualified under its rules. The question was whether a corporation formed by non-physicians that employs physicians to render the medical services could hold that permit.

The AG explained that such arrangements have consistently been held to constitute both the unlawful practice of medicine by the corporation and a violation by the employed physician of the Medical Practice Act, V.T.C.S. article 4495b: section 3.08(12) bars a physician from permitting another to use his license to practice medicine, and section 3.08(15) bars aiding or abetting the practice of medicine by any person or corporation not licensed to practice. The AG cited Garcia v. Texas State Bd. of Medical Examiners, 384 F. Supp. 434 (W.D. Tex. 1974), aff'd, 421 U.S. 995 (1975); Flynn Bros., Inc. v. First Medical Assoc., 715 S.W.2d 782 (Tex. App.—Dallas 1986, writ ref'd n.r.e.); Watt v. Texas State Bd. of Medical Examiners, 303 S.W.2d 884 (Tex. Civ. App.—Dallas 1957, error ref'd), cert. denied, 356 U.S. 912 (1958); F. W. B. Rockett, M.D. v. Texas State Bd. of Medical Examiners, 287 S.W.2d 190 (Tex. Civ. App.—San Antonio 1956, writ ref'd n.r.e.); and Attorney General Opinion WW-278 (1957). The Garcia court had articulated the policy behind the corporate-practice-of-medicine restrictions, asking, among other things, to whom a doctor owes a first duty (patient or corporation), who preserves the confidential doctor-patient relationship, and where budget considerations end and patient care begins.

A letter-brief argued that the "institution" language of article 4476-11 showed a legislative intent to give the Health Department this authority notwithstanding the Medical Practice Act. The AG disagreed. Statutes in pari materia are read together as parts of one law and harmonized so as to give effect to both. See 53 Tex. Jur. 2d Statutes § 186; Gov't Code §§ 311.025, 311.026. Reading section 4(a) of article 4476-11 together with the Medical Practice Act's restrictions on the provision of health services by corporations, an institution not in compliance with the Medical Practice Act, because it is formed by non-physicians and employs physicians to render medical services to its clients, is not an institution "organized and operated under the laws of this state for the purpose of providing health services" within the meaning of article 4476-11, and is thus not eligible for a permit.

The letter-brief also pointed to federal Food and Drug Administration and Drug Enforcement Administration rules at 21 C.F.R. section 291.505, which implement 21 U.S.C. section 823(g) (requiring practitioners who dispense narcotic drugs for maintenance or detoxification treatment to obtain separate federal registration). Those rules provide that an individual listed as program sponsor for a methadone treatment program need not personally be a licensed practitioner but must employ a licensed physician as medical director. The AG concluded this federal standard does not preempt the more restrictive state permitting requirement. Title 21 U.S.C. section 903 provides that no provision of the subchapter is to be construed as an intent by Congress to occupy the field to the exclusion of state law on the same subject, unless there is a positive conflict such that the two cannot consistently stand together. Finding no positive conflict between the federal registration requirement and the separate state permit requirement as limited by the Medical Practice Act, the AG concluded the federal standard would not preempt or invalidate more restrictive state law. See Nichols v. Board of Pharmacy, 657 P.2d 216, 219 (Or. Ct. App. 1983, pet. denied) (section 903 "expressly permits additional state regulation"); 21 C.F.R. section 291.505(c)(5) (approved treatment programs must conform to all state requirements).

Citations

Cases:

• Garcia v. Texas State Bd. of Medical Examiners, 384 F. Supp. 434 (W.D. Tex. 1974), aff'd, 421 U.S. 995 (1975) (corporate practice of medicine; policy considerations)
• Flynn Bros., Inc. v. First Medical Assoc., 715 S.W.2d 782 (Tex. App.—Dallas 1986, writ ref'd n.r.e.) (quoting Garcia with approval)
• Watt v. Texas State Bd. of Medical Examiners, 303 S.W.2d 884 (Tex. Civ. App.—Dallas 1957, error ref'd), cert. denied, 356 U.S. 912 (1958)
• F. W. B. Rockett, M.D. v. Texas State Bd. of Medical Examiners, 287 S.W.2d 190 (Tex. Civ. App.—San Antonio 1956, writ ref'd n.r.e.)
• Nichols v. Board of Pharmacy, 657 P.2d 216 (Or. Ct. App. 1983, pet. denied) (federal law permits additional state regulation)

Statutory and regulatory authority:

• V.T.C.S. art. 4476-11, § 4(a) (permit to prescribe and administer synthetic narcotics to drug-dependent persons)
• Medical Practice Act, V.T.C.S. art. 4495b, §§ 3.06(12), 3.07(f), 3.08(12), 3.08(15)
• Gov't Code §§ 311.025, 311.026 (harmonization of statutory provisions)
• 21 U.S.C. § 823(g) (federal registration for narcotic maintenance/detoxification treatment)
• 21 U.S.C. § 903 (no field preemption absent a positive conflict)
• 21 C.F.R. § 291.505 (formerly § 310.505) (federal narcotic-treatment program rules)
• 25 T.A.C. § 229.141 (state rules adopting the federal program rules by reference)

Prior Attorney General opinion:

• Attorney General Opinion WW-278 (1957)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1042
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1989/jm1042.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; garbled case names have been corrected against the cited reporters; the linked PDF is authoritative.

THE ATTORNEY GENERAL OF TEXAS

April 24, 1989

Honorable William L. Ferguson
County and District Attorney
Rusk County Courthouse
Henderson, Texas 75652

Opinion No. JM-1042

Re: Authority of the Texas Department of Health to issue to a non-physician a permit to dispense synthetic narcotics (RQ-1621)

Dear Mr. Ferguson:

You ask whether the Department of Health is authorized to issue permits for prescribing and administering synthetic narcotic drugs to drug dependent persons under V.T.C.S. article 4476-11 to corporations formed by non-physicians which employ physicians to perform the medical services rendered to the corporations' clients. We conclude that the Department of Health does not have such authority.

Section 4(a) of article 4476-11 provides in relevant part:

Any physician licensed by the Texas State Board of Medical Examiners or any institution, public or private, organized and operated under the laws of this state for the purpose of providing health services may apply to the department on forms approved by the department for a permit to prescribe and administer synthetic narcotic drugs to drug-dependent persons. The department shall issue a permit to applicants qualified according to its rules, regulations, and standards.

Arrangements by which a corporation formed by non-physicians employs physicians to render medical services to the corporation's clients consistently have been held to constitute both the unlawful practice of medicine by the corporation and a violation by the employee physician of the prohibitions in section 3.08(12) of the Medical Practice Act, V.T.C.S. article 4495b, on a physician's "permitting or allowing another to use his license or certificate to practice medicine in this state," and in section 3.08(15) on "aiding or abetting, directly or indirectly, the practice of medicine by any person, partnership, association, or corporation not duly licensed to practice medicine."[1] See Garcia v. Texas State Bd. of Medical Examiners, 384 F. Supp. 434 (W.D. Tex. 1974), aff'd, 421 U.S. 995 (1975); Flynn Bros., Inc. v. First Medical Assoc., 715 S.W.2d 782 (Tex. App. - Dallas 1986, writ ref'd n.r.e.); Watt v. Texas State Bd. of Medical Examiners, 303 S.W.2d 884 (Tex. Civ. App. - Dallas 1957, error ref'd), cert. denied, 356 U.S. 912 (1958); F. W. B. Rockett, M.D. v. Texas State Bd. of Medical Examiners, 287 S.W.2d 190 (Tex. Civ. App. - San Antonio 1956, writ ref'd n.r.e.); Attorney General Opinion WW-278 (1957).[2]

The Garcia court articulated the policy considerations underlying these restrictions on the "corporate practice of medicine" as follows:

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 corporation? Who is to preserve the confidential nature of the doctor-patient relationship? What is to prevent or who is to control a private corporation from engaging in mass media advertising in the exaggerated fashion so familiar to every American? Who is to dictate the medical and administrative procedures to be followed? Where do budget considerations end and patient care begin?

Garcia, at 440. See also the discussion in Flynn Brothers quoting with approval the above language from Garcia, at 785.

A letter-brief submitted in response to your request suggests that the above-quoted language of article 4476-11 "provides a clear indication of the Legislature's intent to provide the Health Department with this authority, provisions of the Medical Practice Act of Texas notwithstanding." We disagree. Acts in pari materia are to be read together as though they were parts of one and the same law, and their provisions harmonized if possible so as to give effect to both. See 53 Tex. Jur. 2d Statutes § 186, and authorities cited there. See also Gov't Code §§ 311.025, 311.026 (providing for the harmonization, if possible, of different statutory provisions). We think that the provisions of section 4(a) of article 4476-11 for the issuance by the Department of Health of a permit to "any institution, public or private, organized and operated under the laws of this state for the purpose of providing health services," must be read together with the restrictions in the Medical Practice Act on the provision of health services by corporations. An institution not in compliance with the Medical Practice Act, because it is formed by non-physicians and employs physicians to render medical services to its clients, is not "an institution organized and operated under the laws of this state for the purpose of providing health services" within the meaning of article 4476-11 and is thus not eligible to be issued a permit under that article by the Department of Health.

The letter-brief submitted in response to your request also points to rules adopted by the Federal Food and Drug Administration and Drug Enforcement Administration. See 21 C.F.R. § 291.505. Those rules implement the provisions of the United States Code, volume 21, section 823(g), which requires "practitioners who dispense narcotic drugs to individuals for maintenance treatment or detoxification treatment" to obtain separate registration from the U.S. Attorney General under standards established by the Secretary of the Department of Health and Human Services and the Attorney General. Subsection (c) of section 291.505 of the Code of Federal Regulations provides in part with regard to applicants for registration that:

An individual listed as program sponsor for a treatment program using methadone need not personally be a licensed practitioner but shall employ a licensed physician for the position of medical director.

Section 291.505 was "adopted by reference" in rules promulgated by the Department of Health at 25 T.A.C. section 229.141 among rules adopted to implement article 4476-11,[3] V.T.C.S.

The letter-brief suggests that

even if it were determined that the prohibition of the corporate practice of medicine under state law must be applied to physicians who are employed by nonphysician permit-holders under Article 4476-11, the Supremacy Clause of the U. S. Constitution would seem to require that a Texas statute which frustrates or conflicts with the lawful objective of a federal statute may not be enforced.

Again, we disagree. The United States Code, volume 21, section 903, provides with respect to the provisions of subchapter I, chapter 13, title 21, of which the above referenced section 823(g) is a part, as follows:

No provision of this subchapter shall be construed as indicating an intent on the part of the Congress to occupy the field in which that provision operates, including criminal penalties, to the exclusion of any State law on the same subject matter which would otherwise be within the authority of the State, unless there is a positive conflict between that provision of this subchapter and that State law so that the two cannot consistently stand together.

We find no "positive conflict" between the federal registration requirement of section 823(g) as implemented by, inter alia, 21 C.F.R. section 291.505(c), and the separate state permitting requirements of article 4476-11 as limited by the provisions of the Medical Practice Act. We think that section 903 indicates that the federal standard for federal registration of applicants would not preempt or otherwise invalidate more restrictive state law governing a state's issuance of a separately required state permit. See Nichols v. Board of Pharmacy, 657 P.2d 216 (Or. Ct. App. 1983, pet. denied), (section 903 "expressly permits additional state regulation," at 219). See also 21 C.F.R. § 291.505(c)(5) (providing that treatment programs to be approved for federal purposes "must conform to all State requirements" for conducting such programs).

SUMMARY

The Department of Health has no authority to issue permits to prescribe and administer synthetic narcotic drugs to drug dependent persons under V.T.C.S. article 4476-11, to corporations formed by non-physicians which employ physicians to render the medical services in question.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General

Footnotes

1. Section 3.08 makes such conduct grounds for the board's refusal to admit a person to its examinations or to issue a license or renewal license to practice medicine. Section 3.07(f) provides that conduct described in inter alia subsections (12) and (15) of section 3.08 is unlawful.

2. We note that section 3.06(12) authorizes the board to exempt certain activities from the application of the Medical Practice Act. We find no indication that the board has exempted the activities of such corporations as you refer to in your request.

3. Section 229.141 refers to 21 C.F.R. § 310.505. That regulation was redesignated as 21 C.F.R. § 291.505 in 1977. See 42 Fed. Reg. 46698.