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Joseph v. South Carolina Department of Labor, Licensing and Regulation

Supreme Court of South Carolina

September 14, 2016

Kristin Joseph, P.T., Thomas N. Joseph, M.D., and William G. McCarthy, M.D., Appellants,
v.
South Carolina Department of Labor, Licensing and Regulation, South Carolina Board of Physical Therapy, Respondents, and South Carolina Chapter, American Physical Therapy Association, Joseph M. McKowen, PT, Sabrina Queen Bridges, PTA, and Amalia W. Kirby, PTA, Respondents. Appellate Case No. 2014-001115

          Heard February 19, 2015

         Appeal From Richland County The Honorable G. Thomas Cooper, Jr., Circuit Court Judge

          M. Elizabeth Crum, of McNair Law Firm, P.A., of Columbia, for Appellants.

          Monteith P. Todd, of Sowell Gray Stepp & Laffitte, L.L.C., of Columbia, S. Jahue Moore and John C. Bradley, Jr., both of Moore Taylor Law Firm, of West Columbia, N. Thomas Connally, III, of Hogan Lovells U.S. LLP, of McLean, Virginia and John R. Devlin, Jr., of Devlin & Parkinson, P.A., of Greenville, for Respondents.

          TOAL ACTING JUSTICE

         This is the latest in a longstanding disagreement regarding how the practice of physical therapy should be regulated in South Carolina. The South Carolina Board of Physical Therapy (the Board) has sided with members of the profession who desire to prevent physical therapists (PTs) from providing treatment as direct employees of physicians. The Board has long sought to require PTs to provide their services directly to patients or through a practice group of PTs. However, other licensed healthcare professionals in South Carolina, such as occupational therapists, speech pathologists, and nurse practitioners may be employed by physicians. Thus, the PTs stand alone in South Carolina. Physicians' offices may not provide PT services by employing licensed PTs, and PTs may not provide services while employed by a physician or physicians' practice group.

         With this background in mind, Kristin Joseph, a PT, and two orthopedic surgeons, Doctors Thomas N. Joseph and William G. McCarthy (collectively, Appellants) appeal the circuit court's order dismissing their claims challenging a 2011 position statement from the Board, which opined that within a group practice, if a PT or physical therapist assistant (PTA) provides services to a patient-at the request of another PT or PTA employed within the same practice-the act does not constitute a "referral" under section 40-45-110(A)(1) of the South Carolina Code, as construed in Sloan v. South Carolina Board of Physical Therapy Examiners, 370 S.C. 452, 636 S.E.2d 598 (2006). We overrule our decision in Sloan, and reverse the circuit court's order in this case.

         Facts/Procedural History

         This case arises from a 2011 position statement in which the Board interpreted the fee for referral prohibition contained in section 40-45-110(A)(1) of the South Carolina Code as being inapplicable to individual PTs' or associated PT groups' employment of other PTs or PTAs. Section 40-45-110(A)(1) allows the Board to take disciplinary action against a PT who

requests, receives, participates, or engages directly or indirectly in the dividing, transferring, assigning, rebating, or refunding of fees received for professional services or profits by means of a credit or other valuable consideration including, but not limited to, wages, an unearned commission, discount, or gratuity with a person who referred a patient, or with a relative or business associate of the referring person.

S.C. Code Ann. § 40-45-110(A)(1) (2011).

         The 2011 Position Statement was the Board's second position statement interpreting section 40-45-110(A)(1). The Board first issued a position statement in 2004 (2004 Position Statement), endorsing an opinion of the South Carolina Attorney General, which concluded that a PT would violate section 40-45-110(A)(1) if he or she was employed by a physician or physician groups, and accepted wages for treatment of patients referred by the employing physician or group. See S.C. Atty. Gen. Op. dated March 30, 2004 (2004 WL 736934). Specifically, the Attorney General's opinion addressed two questions concerning the use of the word "person" in section 40-45-110(A)(1) as it relates to physicians. See id. It opined first that physicians were persons within the meaning of the statute, and that PTs could not be employed by physicians or physician groups and receive wages to treat patients referred by the physician or group for physical therapy services. Id.

         Subsequent to the 2004 Position Statement, Dr. Allen Sloan, along with other physicians, PTs, and other medical professional associations, brought an action in circuit court seeking a declaratory judgment that a physician may lawfully employ a PT and refer patients to that PT. Sloan, 370 S.C. at 466, 636 S.E.2d at 605. Ultimately, the circuit court dismissed the plaintiffs' causes of actions. Id. On appeal, this Court affirmed the circuit court's ruling in a 3-2 decision. Id. at 485-86, 636 S.E.2d at 616.

         The majority held that the circuit court correctly interpreted section 40-45-110(A)(1) as prohibiting in-practice referrals from a physician to a PT. Id. at 473, 636 S.E.2d at 609. The majority further found that the Board's formal endorsement of the Attorney General's opinion did not constitute improper rulemaking in violation of the Administrative Procedures Act (APA) because it was "nothing more than a policy or guidance statement which does not have the force or effect of law in any individual case." Id. at 474, 636 S.E.2d at 610.

         The majority rejected appellants' constitutional challenges to section 40-45-110(A)(1). Id. at 476-86, 636 S.E.2d at 611-16. The majority held that section 40-45-110(A)(1) did not violate the equal protection rights of PTs who wish to be employed by physicians who refer patients to them, because the Legislature had "a rational basis for defining the pertinent classification in this instance as the class of physical therapists [which was to avoid] overuse of physical therapy services and actual and potential conflicts of interest stemming from a physician's financial interest in the provision of therapy services." Id. at 481-82, 636 S.E.2d at 613-14. The majority further held that "[t]he statute prohibiting employment relationships between physicians and physical therapists bears a reasonable relationship to a legitimate interest of government, and the Legislature has not engaged in an arbitrary or wrongful act in enacting the statute." Id. at 484, 636 S.E.2d at 615. Finally, the majority found no procedural due process violation, as: (1) the hearing at issue was a regularly scheduled meeting during which the appellants' representatives were present to offer comments regarding their respective positions; (2) the Board voted in open session to adopt the Attorney General's opinion; and (3) the Board began enforcing the statute following a ninety-day grace period. Id. at 485, 636 S.E.2d at 615.

         The dissent, however, would have held that the plain language of section 40-45-110(A)(1) does not prohibit all employee-employer relationships between a physician and PT. Id. at 486, 636 S.E.2d at 616 (Toal, C.J., dissenting). Although the dissent agreed that there had been no violation of the appellants' procedural due process rights, in the dissent's view, the majority's interpretation of the statute would result in a violation of the plaintiffs' rights to equal protection and due process. Id. (Toal, C.J., dissenting). Finally, the dissent would have found that the Board failed to comply with the APA in adopting the Attorney General's opinion, thereby promulgating an invalid regulation. Id. (Toal, C.J., dissenting).[1]

         On May 3, 2011, Robert Carpenter, a practicing PT, wrote a letter to the Board requesting that it issue a position statement addressing whether section 40-45-110(A)(1) prohibits: (1) a physical therapist from working for pay for another PT, PTA, or group of PTs when the PT or PTA refers a patient to another PT or PTA for physical therapy services; and (2) a PT or PTA from working for pay for a professional corporation owned by one or more licensed PTs when a PT owner or employee of the corporation refers a patient to the PT for physical therapy services.

         On June 2, 2011, Marilyn Swygert, the Chairman of the Board responded with a letter entitled: "Application of S.C. Code Ann. Sec. 40-45-110(A)(1) to Intra-Professional Interactions." In the letter, Swygert stated that in her view, the answer to both of Carpenter's questions was "no." During a regularly scheduled meeting on August 17, 2011, the Board voted to adopt the position stated in Swygert's letter. The Board subsequently posted a position statement (2011 Position Statement) on its website. The 2011 Position Statement provided, in pertinent part:

In a group practice, a [PT] or [PTA] providing services to a patient of that practice should not fall within this definition of a "referral." The [PT] or [PTA] seeing a patient at the request of another [PT] in the same group does not constitute a "referral, " but is rather a [PT] or [PTA] providing coverage either within the 30-day window or pursuant to the same referral from a physician or other member of the group.

         Shortly thereafter, Appellants filed a declaratory judgment action against the Board and the South Carolina Department of Labor, Licensing, and Regulation (collectively, Respondents). In Appellants' first six causes of action, they challenged the 2011 Position Statement on the grounds that it: (1) is contrary to the plain language of section 40-45-110(A)(1) given that there is no distinction between a "referral" from a physician to a PT and "coverage" between PTs; (2) exceeds the agency's authority under the APA; and (3) is in violation of Appellants' state and federal constitutional rights to due process and equal protection.[2] In the alternative, Appellants argued that if the "coverage" exception is a proper interpretation of section 40-45-110(A)(1), it should be applied equally to physician and physician owned practices. Appellants' seventh through ninth causes of action sought to argue against the precedent in Sloan, contending that the Court in Sloan incorrectly interpreted section 40-45-110(A)(1) to prohibit a physician or physician group from employing a PT and referring a patient to the PT for physical therapy services.

         Respondents moved to dismiss the case, arguing: there was no justiciable controversy; Appellants lacked standing; the complaint failed to state a claim as to the seventh through ninth causes of action; the complaint stated no claim upon which relief could be granted; and Appellants' claims were not ripe for review. After a hearing, the circuit court granted Respondents' motion in part. In so ruling, the court converted Respondents' motion to one for partial summary judgment with respect to Appellants' seventh through ninth causes of action, finding that it was "bound by the Supreme Court's decision in Sloan" and that it had no authority to overrule Sloan. The circuit court denied Respondents' motion as to Appellants' causes of action one through six. The circuit court further found that Appellants had standing to bring their claims because Appellants' injury is "the infringement on their abilities to practice their chosen profession and the disparate treatment under the 2011 Position Statement in allowing PTs or PT groups to refer patients for PT services to PTs under the guise of 'coverage' and not allowing physicians or physician groups to refer patients for PT services to employed PTs under the guise of 'coverage.'" In addition, the circuit court ruled that standing could be conferred on appellants as the procedural and substantive implications of the 2011 Position Statement constituted an issue of public importance.

         Subsequently, Appellants moved for summary judgment on their first through sixth causes of action, and Respondents filed cross-motions for summary judgment. The circuit court held a hearing on January 1, 2014, and on April 22, 2014, entered an order granting Respondents' motions for summary judgment and denying Appellants' motion for summary judgment.

         In upholding the 2011 Position Statement, the circuit court found that the transition in treatment of patients from one PT to another PT or PTA within a group physical therapy practice was not a "referral" prohibited by section 40-45-110(A)(1), as interpreted by Sloan. According to the circuit court, "referrals" targeted by section 40-45-110(A)(1) are limited to "referrals of gatekeeping physicians, " and not the "transition of patients from one PT to another PT within a group practice [that] normally occurs as a simple function of scheduling and patient request or convenience." The court also concluded that "a PT sending or directing a patient to another PT (or PTA) for treatment within a group practice does not implicate the potential abuse that the Legislature sought to curtail in enacting the prohibition on self-interested 'referrals' in [section] 40-45-110(A)(1), namely overuse of physical therapy services." The court further stated that prohibiting the transition of patients from one PT to another would effectively ban the group practice of physical therapy, as PTs would be "forced to operate as solo practitioners in order to continue their practice."

         The circuit court rejected Appellants' alternative argument that, even if the 2011 Position Statement properly interpreted section 40-45-110(A)(1), PTs should be able to work for referring physicians because their treatment of referred patients would merely be "coverage" for the referring physician. The court refused to "create a backdoor around Sloan, " determining that Appellants' requested "coverage" exception would impermissibly "declare conduct lawful that Sloan declared unlawful." As for Appellants' argument with regard to the APA, the circuit court found that the 2011 Position Statement did not violate the APA because-similar to the 2004 Position Statement in Sloan-it is "not a regulation or the equivalent of a regulation."

         Finally, the circuit court disagreed with Appellants' claim that the 2011 Position Statement violated their equal protection and due process rights. After noting that these claims were "foreclosed by the [this] Court's decision in Sloan, " it stated that "both Sloan and the 2011 Position Statement treat all physicians the same as all other physicians, and all PTs the same as all other PTs." The court also found that the 2011 Position Statement "does not prohibit [Appellants] from doing anything, and thus does not deprive them of any property right, with or without due process."

         Following the circuit court's denial of their motion to reconsider pursuant to Rule 59(e), SCRCP, Appellants appealed the circuit court's order to the court of appeals. This Court granted Appellants' motion to certify the appeal pursuant to Rule 204(b), SCACR. Subsequently, the Court granted Appellants' motion to argue against Sloan pursuant to Rule 217, SCACR.

         Standard of Review

         On review of an order granting summary judgment, the appellate court applies the same standard as that used by the trial court pursuant to Rule 56(c), SCRCP. Turner v. Milliman, 392 S.C. 116, 122, 708 S.E.2d 766, 769 (2011); see Rule 56(c), SCRCP. Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Rule 56(c), SCRCP; Turner, 392 S.C. at 766, 708 S.E.2d at 769. In an appeal from an order granting summary judgment, the appellate court will review all ambiguities, conclusions, and inferences arising in and from the evidence in the light most favorable to the non-moving party. Willis v. Wu, 362 S.C. 146, 151, 607 S.E.2d 63, 65 (2004).

         Analysis

         I. Standing

         As an initial matter, we address Respondents' contention that Appellants lack standing to challenge the 2011 Position Statement, and hold that Appellants have standing to bring their claims.

         A fundamental prerequisite to institute an action is the requirement that the plaintiff have standing. Blandon v. Coleman, 285 S.C. 472, 330 S.E.2d 298 (1985). Standing is defined as "a personal stake in the subject matter of a lawsuit." Sea Pines Ass'n for the Prot. Of Wildlife, Inc. v. S.C. Dep't of Natural Res., 345 S.C. 594, 600, 550 S.E.2d 287, 291 (2001) (citing Charleston Cnty. Sch. Dist. v. Charleston Cnty. Election Comm'n, 336 S.C. 174, 519 S.E.2d 567 (1999)). The United States Supreme Court has set forth the "irreducible constitutional minimum of standing, " which consists of three elements: (1) the plaintiff must have suffered an "injury in fact;" (2) there must be a causal connection between the injury and the conduct complained of; and (3) it must be likely, as opposed to merely speculative, that the injury will be "redressed by a favorable decision." Sea Pines Ass'n for Prot. of Wildlife, Inc., 345 S.C. at 601, 550 S.E.2d at 291 (internal citations omitted) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-61 (1992)). A party seeking to establish standing carries the burden of demonstrating each element. Id. (citing Lujan, 504 U.S. at 561).

         This declaratory judgment action was initiated by a physical therapist and two orthopedic surgeons. It is difficult to conceive of individuals more impacted by this Court's decision in Sloan and the 2011 Position Statement from the South Carolina Board of Physical Therapy. PT Joseph has been injured by the infringement on her ability to practice her chosen profession and by the adoption of a regulation that requires she and other PTs be treated differently from other health care professionals who may be employed by doctors. By extension, Drs. Joseph and McCarthy have been injured because they have an interest in how the PT system works and in their ability to employ PTs. Further, a causal connection exists between Appellants' injury and the Board's challenged actions, including the 2011 Position Statement, and there is a likelihood that their injuries would be redressed by a favorable decision. See id. at 601, 550 S.E.2d at 291.

         The dissent supports its position that Appellants lack standing, in part, on the fact that "PT Joseph will not be punished or disciplined as a result of the 2011 Position Statement." Thus, under the dissent's analysis no party could ever achieve the requisite standing to challenge Sloan unless a party consciously disregarded the opinion and willfully violated the law. The only ...


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