New York Seeks to Expand Prohibition of the Corporate Practice of Medicine
New York is currently considering Senate Bill S8442, which would extend the state’s strict prohibition on the corporate practice of medicine (CPOM). The bill would bar non-physician-owned Management Services Organizations (MSOs) or private equity firms from holding majority voting shares or controlling the board of directors in professional medical corporations.
The History of the Corporate Practice of Medicine
The roots of New York’s prohibition on CPOM go back over a century. The doctrine is derived from New York’s Education Law (§ 6509-a), which states only licensed physicians can own and control medical practices. Cases like People v. Woodbury Dermatological Institute (1908) and Stern v. Flynn (1936) revealed early concerns about corporations influencing medical decisions and eroding the trust between physicians and patients.
New York’s CPOM prohibition is among the strictest in the nation. Only licensed physicians or physician groups can own medical practices in the form of Professional Service Corporations (PCs), Professional Limited Liability Companies (PLLCs), or Registered Limited Liability Partnerships (RLLPs) in the state.
How New York Might Further Prohibit the Corporate Practice of Medicine
Senate Bill S8442 would close one of the primary loopholes that non-physician-owned businesses have utilized to exert control over medical practices. Currently, physician-owned and physician group-owned practices can employ Management Services Organizations to handle non-medical functions like billing, accounting, or human resources.
MSOs can, in turn, control governance and clinical operations by securing a majority of voting shares or board seats. Non-physicians can occupy officer roles on those boards, leaving open the possibility that MSOs can shape board leadership for their own benefit. Senate Bill S8442 would prohibit this workaround and ensure that medical practices are fully owned by physicians or physician groups.
While New York State’s Education Law (§ 6509-a) does explicitly define professional misconduct in relation to CPOM, there is currently no statutory protection for whistleblowers who report such violations or unethical practices. Senate Bill S8442 would prohibit retaliation against these medical professionals—even if their report violates a nondisclosure or non-disparagement agreement.
Recommendations for Physician Groups That Work with MSOs
New York’s history of strict prohibition of CPOM suggests that this bill is likely to pass. To prepare for this eventuality, physician groups that work with MSOs must:
- Examine their administrative services agreements to ensure MSOs do not cross into “clinical or operational control,” as the new law voids contract provisions that interfere with a physician’s professional autonomy or clinical decision-making.
- Revise their board by-laws and Articles of Incorporation to align with Senate Bill S8442’s provisions on board structure and membership as well as rules governing the ownership of shares.
- Inform health care employees of protection against retaliation for whistleblowing also included in the bill.
To stay compliant with the provisions of this bill and other New York health care laws and regulations, physician groups should contact Bleakley Platt & Schmidt’s extensively experienced health law attorneys today.