Joseph v. S.C. Dept of Labor, Licensing and Regulation — Sept. 2016 (Summary)

PHYSICAL THERAPY

Joseph v. S.C. Dept of Labor, Licensing and Regulation
Appellate Case No. 2014-001115 (S.C. Sept. 14, 2016)

The South Carolina Supreme Court, in a 3-2 decision, reversed the circuit court’s grant of summary judgment and ruled that judicial and regulatory interpretations of Section 40-45-110(A)(1) of the South Carolina Code violated the constitutional rights of physicians and physical therapists by prohibiting physicians from employing and referring patients to physical therapists while allowing physical therapists to employ and refer patients to other physical therapists.  In reaching this result, the court also overruled its 2004 precedent in Sloan v. South Carolina Board of Physical Therapy.  In Sloan, the court prevented physicians from employing and referring patients to physical therapists, while allowing physicians to employ and refer patients to other practitioners, on the assumption that such relationship would create a conflict of interest and lead to overuse of physical therapy services.

A physical therapist and two orthopedic surgeons sought declaratory judgment from a 2011 Position Statement issued by the South Carolina Board of Physical Therapy on the applicability of Section 40-45-110(A)(1) of the South Carolina Code to physician-physical therapist referrals.  The Position Statement, based on a perceived legislative desire to avoid overuse of physical therapy by self-interested referrals, permitted physical therapists to refer patients to other physical therapists, while maintaining the prohibition on physician-physical therapist referrals.  The Position Statement and Sloan, together, allowed practitioners other than physical therapists to provide treatment to referred patients as direct employees of physicians and also permitted physical therapists to employ and refer patients to other physical therapists, but prohibited physicians from employing physical therapists.

The court found that the appellant health care providers had  standing to challenge the 2011 Position Statement because the limitation on collaboration between physicians and physical therapists restricted their respective rights to practice.  The appellants asserted both equal protection and due process violations, claiming that the decision negatively affected both their rights to practice and their legal relationships among other providers.  Regarding the equal protection claim, the court determined that there was no “rational relationship” between the harm that the legislature sought to prevent (conflicts of interest and misuse of health care services) and the means adopted in Sloan to prevent the harm (barring physician-physical therapist referrals).  Because other health care professionals, such as occupational therapists and nurse practitioners, could collaborate with physicians and treat referrals, the court held that Sloan’s prohibition on physician-physical therapist referrals constituted a violation of equal protection and accordingly overruled Sloan.

Regarding the due process claim, the court held that the South Carolina Board of Physical Therapy’s 2011 Position Statement violated the state’s Administrative Procedures Act.  The court found that the Position Statement constituted a regulation-equivalent “binding norm” and, as such, its enactment required that the Board give notice and provide those affected with an opportunity to be heard.  Because the Board did neither of these, it violated the appellant health care providers’ due process rights.  Finally, the court held that Section 40-45-110(A)(1) of the South Carolina Code prohibits only referral-for-pay situations rather than all physician-physical therapist referral relationships.

The concurrence suggested that Sloan and the 2011 Position Statement should be nullified by the court based on the South Carolina Board of Physical Therapy’s failure to adhere to the Administrative Procedures Act in either circumstance despite promulgating position statements that were analogous to regulations in substance and effect.

The dissent contested the majority’s decision on the basis that the appellants did not have standing and, on the merits, pointed to the inaction of the legislature as implicit approbation of the result reached in Sloan.