SDCL 36-4-8.1 begins where most corporate practice statutes begin: except as provided in chapter 47-11, it is the public policy of this state that a corporation may not practise medicine or osteopathy. Then it does something unusual and genuinely useful. It tells you exactly what an employment agreement must avoid.
A corporation is not engaged in the practice of medicine, and is not in violation of § 36-4-8, by entering into an employment agreement with a licensed physician if the agreement, or the relationship it creates, does not do three things.
The three conditions
- (1) In any manner, directly or indirectly, supplant, diminish or regulate the physician’s independent judgment concerning the practice of medicine or the diagnosis and treatment of any patient.
- (2) Result in profit to the corporation from the practice of medicine itself — such as by charging a greater fee for the physician’s services than they would otherwise reasonably charge as an independent practitioner — except that the corporation may make additional charges reasonably associated with the services rendered, such as facility, equipment or administrative charges.
- (3) Remain effective for a period of more than three years, after which it may be renewed by both parties annually.
Condition three is the one that catches people
A five-year physician employment agreement, or an evergreen one, is standard practice in most states and does not satisfy this section. South Dakota caps the initial term at three years and then requires an annual, bilateral renewal.
That is a real constraint on deal structure. It limits how long a buyer can lock in the clinical talent, and it hands the physician an annual decision point. If you are acquiring or building in South Dakota, it belongs in the model, not in the legal review at the end.
Condition two is a pricing rule, not just an ownership rule
Most corporate practice analysis asks who owns the shares. South Dakota asks what the corporation charges. A corporation may not profit from the practice of medicine itself — but it may charge for the facility, the equipment and the administration.
That is close to a statutory description of a defensible management fee, and it is worth aligning your MSO fee schedule to those categories explicitly.
The alternative route: a chapter 47-11 medical corporation
SDCL 47-11-1 permits persons licensed under the Medical Practice Act to form a corporation to own, operate and maintain an establishment for the study, diagnosis and treatment of human ailments, with treatment, consultation or advice given by employees only if they are licensed under that Act. One or more persons may act as sole stockholder, director or officer.
SDCL 47-11-3 tightens it: all officers, directors and shareholders must at all times be licensed under the Medical Practice Act, no unlicensed person may have any part in ownership or control, and no proxy to vote shares may be given to an unlicensed person. That last clause closes a workaround other states leave open.
And the naming rule
SDCL 47-11-2 requires the corporate name to end with “chartered”, “limited”, “Ltd.”, “professional association”, “P.C.” or “PC”. Small, but it is the kind of thing that gets a filing rejected.
Related reading
Frequently asked questions
May a corporation employ a physician in South Dakota?
Yes, if the agreement meets all three conditions in SDCL 36-4-8.1.
How long may the agreement run?
No more than three years initially, after which both parties may renew it annually.
Can the corporation charge a facility fee?
Yes. SDCL 36-4-8.1 expressly permits additional charges reasonably associated with the services rendered, such as facility, equipment or administrative charges.
Who may own a chapter 47-11 medical corporation?
All officers, directors and shareholders must at all times be licensed under the Medical Practice Act, and no proxy to vote shares may be given to an unlicensed person.
General information about South Dakota law, not legal advice. Confirm your obligations with counsel licensed in South Dakota.