Illinois: No corporate certificate, no pay

A column analyzing the impact of recent court decisions on physicians

By Tanya Albert amednews correspondent— Posted Sept. 13, 2004.

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Every physician understands the need to keep his or her medical license up to date. But physicians who are incorporated may want to double-check with their states to make sure any required corporate certificates are also up to snuff.

The certificate, at least in Illinois, may end up carrying more weight than some might think.

A group of Illinois podiatrists are potentially finding themselves in the unfortunate situation of not getting paid after they let their corporate certificate lapse. And depending on how a court case is ultimately resolved, there could be significant implications for MDs and DOs, too.

Illinois law -- similar to laws in other states -- requires that medical professionals who form corporations register with the state's Dept. of Professional Regulation once a year. Doctors fill out a form, pay $50 and receive a certificate.

It's pretty cut and dried.

The rule doesn't carry civil or criminal penalties for noncompliers.

But a state appellate court has given the certificate new importance by ruling that an insurance company doesn't have to pay a group of incorporated podiatrists because the group didn't have the certificate.

Without it, the Appellate Court of Illinois 1st Judicial District Court on June 30 ruled the Chatham Foot Specialists' contract with Blue Cross Blue Shield of Illinois is void.

The eight doctors say they're left with more than $1 million in unpaid bills for care they provided to Blue Cross Blue Shield subscribers.

The court's ruling could leave thousands and thousands of Illinois doctors vulnerable if its unpublished opinion is allowed to stand.

Statistics that the doctors obtained from the state show that 62% of Illinois' 8,750 active professional corporations -- which include MDs, DOs, podiatrists, dentists and other health professionals -- don't have their corporate certificate. About 50% of the 6,087 active medical corporations -- strictly MDs and DOs -- don't have one.

Physicians' attorneys worry that health plans could use the lack of a certificate as a bargaining chip during contract time.

Appeals underway

An appeal to the Illinois Supreme Court is in the works and the case may be prime for the state's highest court to consider. A little more than a week after the 1st Judicial Circuit ruled on this issue, the 2nd Judicial Circuit in Illinois ruled the opposite way in a similar case.

In the first case, Chatham v. Blue Cross Blue Shield of Illinois, both sides agree that they entered into a provider contract on June 1, 2000. On Nov. 26, 2001, Blue Cross Blue Shield of Illinois canceled its agreement with the podiatrists effective Dec. 25, 2001, court records show.

During December 2001, Chatham sued the health plan, alleging that the company breached its June 2000 contract when it began intentionally and systematically withholding payments to the doctors during 2000.

Blue Cross Blue Shield asked the court to dismiss the lawsuit because Chatham didn't have the annual corporate certificate of registration required under the Illinois Medical Corporations Act. Without the certificate, the company argued, the doctors engaged in the unauthorized corporate practice of medicine and didn't have the standing to sue.

The doctors don't deny that they didn't have the certificate when they signed the contract.

Due to a change in the way the state keeps records, it is unclear how long the group's license was lapsed. But after the podiatrists were made aware they didn't have the needed document, they applied for and received it in September 2002, according to court records.

The doctors argued that not having the certificate didn't hurt the public welfare and shouldn't have an impact on the contract they signed with Blue Cross Blue Shield. They also pointed out to the court that their professional medical licenses were in good standing and that Chatham was a validly incorporated professional service corporation with the Illinois Secretary of State.

A lower court agreed with Blue Cross, and the appellate court seconded that decision.

It concluded that the Podiatric Medical Practice Act requires that a corporation practicing podiatry is required to be organized under the Professional Service Corp. Act. Also, the Civil Administrative Code of Illinois states that the "practice of regulated professions" affects "the public health, safety and welfare" and is "subject to regulation and control by the Dept. of Professional Regulation," the court reasoned.

"In cases where the licensing requirements are intended to protect the public, contracts violating statutes governing the licensing of professionals have been held to injure the public welfare and thus to be unenforceable under any legal theory," the court said.

"Further, where licensing is mandatory rather than directory, a party's failure to obtain a license to provide services renders void a contract for those services."

The podiatrists' attorney, John Roberts of Wildman, Harrold, Allen & Dixon in Chicago says that although the podiatrists were in violation of the law requiring them to have the certificate, the punishment far outweighs the crime.

"I don't think shock would even be the right word to describe it when the opinion came out," Roberts said. "It was way out of bounds."

Roberts likened it to getting a parking ticket at an expired meter and having it count against your driver's license.

Blue Cross Blue Shield would not comment on the case, but in court filings it argued that a violation was a violation.

Chatham has asked the Illinois Supreme Court to hear the case. Although the current opinion is unpublished and does not technically set a precedent, other attorneys could use the language from the opinion to try to convince other judges to make similar rulings.

"It's not technically called precedent, but others can cite it," Roberts said. "It's out there."

A different take

Meanwhile, the Illinois 2nd Judicial District Appellate Court had a completely different take on the situation. Its ruling is more favorable to physicians who don't want to see contracts voided using the certification requirement.

In Riggs v. Woman to Woman Obstetrics and Gynecology, obstetrician-gynecologist Mary T. Riggs, DO, left the practice and argued in court records that she was not required to abide by a contractual obligation that included a noncompete clause because Woman to Woman Obstetrics and Gynecology hadn't filed its corporate certificate with the state.

A lower court agreed with Dr. Riggs' argument. But the 2nd District court reversed that ruling and said that a failure to apply for the corporate certificate isn't enough to render an employment agreement void.

Judges didn't believe that the Act requiring the certificate was created to protect the public.

"It is clear, based on a reading of the entire Act, that the function of the Act is primarily permissive, allowing professionals, who would otherwise not be entitled to enjoy the benefits of incorporating, to establish corporate entities for their professional practices," the court said.

Further, the court said. Dr. Riggs enjoyed certain corporate benefits when she was employed at Woman to Woman Obstetrics and Gynecology and it concluded that to excuse her from "contractual obligations due to [her] failure to register would be disproportionate to the wrong committed by [Woman to Woman Obstetrics and Gynecology]."

But attorneys for Dr. Riggs said they believe that interpretation is wrong. Similar to the logic used in the 1st District's opinion, they believe that the certificate is absolutely tied to public safety and welfare. It's required by law to ensure that the physician and everyone employed at the physician corporation, from ultrasound technicians to nurses, are properly licensed, said Patrick M. Ouimet, one of the attorneys who represented Dr. Riggs.

"If it's not important, why would the Legislature have done this?" said Ouimet, who practices in the Woodstock, Ill., office of Sarles & Ouimet.

Dr. Riggs also is asking the Illinois Supreme Court to consider her case.

Check your paperwork

Lawyers involved in both cases say doctors who are incorporated should get those certificates and keep them up to date.

"Professionals should be advised to register no matter which [decision] is upheld," said Woman to Woman Obstetrics and Gynecology's attorney Stuart Gimbel, with Kamensky Rubinstein Hochman & Delott's Lincolnwood, Ill., office.

The Illinois State Medical Society plans to send out educational material to its physician members to remind them to make sure all of their certificates and licenses are up to date, ISMS President Kenneth J. Printen, MD, said.

"In the past this has been overlooked," he said. "We will be telling our folks to make sure they get their houses in order."

No matter what the outcome of the cases, the certificate is required, Roberts added: "You just don't want to give insurance companies any more reasons not to pay you."

Tanya Albert amednews correspondent—

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