After ECJ ruling: Financial investors still have no direct access to medical care centers

To date, financial investors cannot be directly involved as shareholders in a medical care center. Only an indirect participation is possible, for example, through a privately owned hospital that participates in a medical care center as a shareholder.

Following the recent confirmation of the prohibition of third-party participation in law firms by the ECJ in its decision of December 19, 2024 regarding the independence of the legal profession (decision of December 19, 2024 - C-295/23), a liberalization of the existing legal regulations on the prohibition of third-party participation in other liberal professions – including the regulations on the permissible group of shareholders of a medical care center – is not to be expected either. 

Financial investors can be indirect shareholders of medical care centers

The liberal professions (i.e., doctors, lawyers, tax advisors, etc.) are subject to similar statutory regulations in Germany, which do not allow financial investors to hold an equity interest in professional practice associations of the liberal professions. Therefore, only those persons who actually work in the company (e.g., as doctors or lawyers) may be shareholders in a company that serves several liberal professionals for the joint practice of their profession. Therefore, only doctors who work in a medical practice can be shareholders of that practice. In addition, the number of employed doctors that a medical practice may employ is limited by law.

In addition to (i) doctors in private practice, the permissible group of a medical care center’s shareholders also includes (ii) hospitals, (iii) providers of non-medical dialysis services, (iv) non-profit organizations that participate in the medical care of the statutory health insurance or (v) municipalities. Therefore, financial investors can also be indirect shareholders of a medical care center, for example, as shareholders of a hospital. Medical care centers therefore already represent an exception to the prohibition of third-party participation by allowing the participation of certain types of shareholders who do not (or cannot) work as doctors in the respective medical care center. Thus, private equity investors are increasingly participating indirectly in medical care center structures.

Ban on third-party participation is intended to protect the independence of the liberal professions

The medical care centers introduced by the legislator in 2003 are still criticized by the public today, mainly because of their deviation from the ban on third-party participation. At the same time, however, they have been able to make a contribution to improving medical care and offer jobs to numerous salaried doctors, because a medical care center, unlike a doctor’s practice, can employ any number of salaried doctors.

The prohibition of third-party participation protects the independence of the liberal professions. Anyone being subject to the interests of financial investors could not act independently, according to the ECJ in its decision discussed here.

Lawyers saw inadmissible restriction of fundamental European freedoms

The decision was preceded by an order for reference from the Bavarian Bar Court (AGH) due to concerns about the ban on third-party participation by lawyers. In 2021, a lawyer had transferred the majority of his shares in his professional practice association to a non-lawyer Austrian company. As a result, the Munich Bar Association revoked the professional practice association’s license to practice as a lawyer pursuant to Art. 59e (1) sentence 1 and Art. 59h (3) sentence 1 of the German Federal Lawyers’ Act (BRAO).

In its action against the revocation, the professional practice association argued that the ban on third-party participation for law firms was not tenable under constitutional and European law.

The advocate general of the ECJ followed this view and saw the prohibition of third-party participation as an inadmissible restriction of fundamental European freedoms. Although he conceded that a ban on third-party participation was possible and necessary to protect the common good, the provisions of the BRAO were unsuitable for this purpose due to their incoherence. 

Compelling reasons in the public interest: prohibition of third-party participation effective according to the ECJ

The advocate general of the ECJ objected, among other things, to the existing requirement that shareholders actually work as lawyers in the company of the professional practice association, whereas mere membership to the Bar is not sufficient.

The advocate general of the ECJ also compared the work of a lawyer with that of a doctor. In structural terms, the legal advice to be provided by a lawyer on his own responsibility corresponded to the work of a doctor, as the latter is also solely responsible for the treatment of the patient. This parallel also makes the ECJ’s decision interesting for the healthcare sector, especially for medical care centers.

Contrary to the advocate general’s opinion, however, the ECJ deemed the German ban on third-party participation in law firms to be effective. According to the ECJ, the interference with the freedom of establishment through the prohibition of third-party participation is justified by overriding reasons in the public interest, as otherwise the independence of lawyers would be at risk. However, a lawyer could not exercise his profession independently and in compliance with his professional and ethical duties if he belonged to a company whose shareholders are (also) pure financial investors who do not themselves practice law.

Parallels with the healthcare sector – implications for investments in medical care centers

Even if not explicitly addressed by the ECJ, the parallel drawn by the advocate general of the ECJ with the healthcare sector and the similar professional obligations of doctors means that the decision can also be applied to the prohibition of third-party participation for doctors and the permissible group of a medical care center’s shareholders.

The medical counterpart to Art. 59e and 59h BRAO can be found in Art. 95 (1a) SGB V (German Social Code). Such article prohibits third parties from investing in or operating medical practices or outpatient medical facilities. This is intended to ensure the independence of doctors and the quality of medical care. The possible influence of financial investors could shift the focus from patient care to profit maximization.

For the same reasons, a medical care center’s group of shareholders of is also limited by law, but at least allows other players from the healthcare sector, such as hospitals, to participate in addition to doctors.

Ban on third-party participation in medical practices compatible with European law

Nevertheless, due to the strong demand for medical services and the high cost increases in the healthcare sector (among other things due to the ageing of society), the ban on third-party participation, including the restriction of a medical care center’s group of shareholders, must also be seen as an obstacle to innovation and investment.

Following the ECJ ruling described above, it is now clear that the restriction of a medical care center’s permissible group of shareholders, together with the general ban on third-party participation in medical practices, is also compatible with European law. Even if the decision emphasizes the important protection of medical independence and the quality of medical care centers, the fact that the prohibition of third-party participations hinders the development of efficient and modern medical care must be viewed critically.

Independence of doctors vs. investment in healthcare - balance remains open

It therefore remains to be seen how a balance can be struck between the independence of doctors and the need for investment in the healthcare sector. However, it should be noted that indirect shareholdings of financial investors in a medical care center remain possible even after the ECJ’s decision. However, as outlined above, this requires choosing the right structure.