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What is a ‘Physician Office’ for purposes of the Kentucky CON Exemption?
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In the recent case of Gilbert v. Kentucky Cabinet for Health and Family Services, the Kentucky Court of Appeals ruled that a Kentucky physician and his group practice violated state law by operating three offices providing magnetic resonance imaging (MRI) services without first obtaining a Certificate of Need (CON) from the Cabinet for Health and Family Services (Cabinet). The Court’s ruling helped delineate the boundaries of the Physician Office Exemption under CON law and provides two important lessons for physicians wishing to establish satellite offices where diagnostic procedures may be performed.

First, to qualify as a physician office or clinic under the Physician Office Exemption, the “active participation” of the physician-owner at each satellite office is not required.

As stated by the court, “requiring the physician owner’s personal active participation in the medical practice at each satellite office and, conversely, requiring the treating physician to be an owner of the practice would make the exemption practically unavailable in such circumstances.” Such a requirement would be impractical and would mean that a CON would be necessary to permit treatment of patients at satellite offices simply because the treating physician is an employee rather than an owner.

Thus, according to the court’s decision, a physician-owner does not need to actively practice at each office location in order for that office to qualify for the Physician Office Exemption.

Second, the availability of the Physician Office Exemption, in any case, depends on the kind of activity that actually takes place at the office for which the exemption is sought.

Under this analysis, just because a person owns a satellite office and that person happens to be a physician, the office will not automatically be considered the private office of a physician. Acceptance of such an argument would allow every physician in Kentucky to avoid CON and licensure altogether so long as he or she owned the building containing the health facility or where the health services are provided. To qualify for the exemption, the majority of activities taking place at the office must relate to the rendering of regular physician services to patients who appear at the office. If diagnostic procedures are performed at that office as well, the majority of the procedures performed for diagnosis of patients must be for those patients who are regularly treated by physicians of that practice, not from outside referrals. Thus, the activities taking place at the office cannot bear “all the hallmarks of a diagnostic testing facility” whereby “the only reason these patients presented themselves at the testing facility was that, unlike a patient whose blood or urine or biopsy is tested, these patients could not separate themselves from the biological subject matter of the test - their bodies.”

In conclusion, the issue of “whether a facility owned by a physician is a physician office and is therefore exempt from regulation by the Cabinet . . . depends on the nature of the activity conducted there.” Resolution of this issue will vary from case to case. Availability of the exemption will depend on whether the physician-owner or physician-employee provides regular medical care to patients of the practice at that office location.

The court’s ruling failed to apply, or even discuss, the test for the Physician Office Exemption as set forth in the administrative regulations at 900 KAR 6:050 Section 18(9). Under those regulations, the Physician Office Exemption is met if: (1) each owner of the practice is a physician; (2) the practice primarily (i.e., at least 51% of the time) provides physician services (e.g., evaluation and management codes) rather than services covered by the State Health Plan; (3) services or equipment (4) a physician or physicians licensed to practice in Kentucky are responsible for all decisions regarding the care and treatment provided to patients; (5) patients are treated on an outpatient basis and are not maintained overnight; (6) services or equipment covered by the State Health Plan which are offered by the practice at the office are related to the professional services offered to patients of the practice; and (7) major medical equipment in excess of the regulatory limit is not being utilized without a CON or other statutory or regulatory exemption. There are additional requirements that apply specifically to a practice owned by a radiologist or group of radiologists. The physician and his group practice have requested a rehearing. In part, the physician and his group practice are contending that most of the diagnostics were provided to patients of the practice and that interpreting MRI scans, and providing diagnosis, from a  remote location via teleradiology constitutes the practice of medicine under Kentucky law, thereby entitling the satellite offices to the benefits of the Physician Office Exemption. Thus, we may hear further on this critical CON issue.

  • Partner

    John is a partner in the firm's Estate Planning Department. He focuses his practice on estates, trusts, family business and disability planning, and the administration of estates and trusts. John also has an active health law ...



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