1. Clinic Ownership Requires Eligible Owners and Genuine Control
Ownership records do not reveal who runs a practice. Voting rights and daily decisions may tell a different story.
Ownership Requirements for Professional Corporations and Pllcs
Business Corporation Law §§ 1507–1508 restrict professional corporation shareholders, directors, and officers to qualifying licensed professionals. For a medical professional limited liability company (PLLC), Limited Liability Company Law § 1207(b) requires each member to hold a license to practice medicine in the state.
Section 1207(c) bars transferring voting authority to ineligible persons. Ordinary LLC registration does not authorize medical practice. Entity selection is covered in healthcare entity formation.
Investor Rights That May Constitute Actual Control
An investor may lack shares yet gain control through bank access, leases, appointments, or vetoes. Examine clinical staffing, spending, and patient-care authority. Financial oversight alone does not establish unlawful control.
In Andrew Carothers, M.D., P.C. v. Progressive Insurance Co., 33 N.Y.3d 389 (2019), the Court of Appeals upheld a finding of improper nonphysician control despite nominal physician ownership. The no-fault reimbursement case illustrates why post-formation control matters.
2. Management Agreements Must Respect Professional Independence
A management services organization (MSO) may provide support, but healthcare compliance depends on retaining professional decision-making authority.
Administrative Support and Clinical Decision-Making
An MSO may provide payroll, scheduling, equipment, and IT support. Diagnosis, treatment, and clinical supervision remain professional responsibilities.
Staff scheduling differs from selecting treating physicians or altering clinical protocols for profit. Compare actual practices with contracts. Related issues appear under healthcare management solutions.
Management Fees and Fee-Splitting Restrictions
Education Law § 6530(18) addresses payments for referrals or in connection with professional services. Section 6530(19) restricts sharing professional fees, including certain charges for space, equipment, facilities, or personnel based on practice income or receipts. Statutory exceptions, including provisions concerning certain licensed facilities, require separate review.
A fixed fee does not excuse transferred medical control or disguised referral payments. Separately, the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), regulates remuneration intended to induce federal program referrals, subject to applicable exceptions and safe harbors.
3. Provider Contracts Must Match the Practice's Governance
Provider agreements may contradict ownership documents. Compare their terms against the management agreement.
Clinical Staffing and Professional Authority
Identify who selects clinicians, supervises care, and sets protocols. Recruiting assistance does not authorize an outside manager to direct treatment.
If physicians bear treatment responsibility while investors can override their decisions, examine who actually exercises that power.
Compensation, Referrals, and Exit Provisions
Examine physician pay, management fees, equipment leases, and referral incentives. Revenue-based charges require different analysis from documented administrative fees. Federal-program referrals warrant separate review.
Termination terms should address access to records, systems, premises, and equipment. An MSO's departure should not leave essential practice operations under its unilateral control.
4. Facility Classification Determines State Approval Requirements
Private offices and Article 28 facilities face different licensing rules. Actual operations determine classification.
Private Practices and Article 28 Facilities
Under 10 NYCRR § 600.8, factors distinguishing private practice from a regulated facility include patient contact, practitioner selection, records, and billing arrangements. Describing a business as a “clinic” can constitute prima facie evidence of facility operation, but it is not the only consideration.
Section 751.1 excludes individual or group private medical practice from its diagnostic and treatment center definition. Formation documents alone therefore cannot establish whether a facility operating certificate is required.
Establishment, Operating Certificates, and Outside Managers
For covered Article 28 facilities, Public Health Law § 2801-a generally requires establishment approval, and § 2805 requires an operating certificate. Section 2802 governs certain construction approvals. These requirements do not automatically apply to an ordinary physician office. See New York Public Health Law for the broader framework.
Under 10 NYCRR § 600.9, facility operators face separate restrictions on delegating management. When an Article 28 LLC appoints a manager who is not a member, Department of Health guidance requires an approved written agreement preserving specified member authority. Submission is generally due 60 days before the intended effective date, subject to a written exception for extraordinary circumstances.
5. Medical Business Transactions Require Document-Based Review
An investment must work legally in practice. Check control documents before signing or closing.
Records That Show Who Holds Each Power
Review documents establishing ownership and actual authority:
- Formation documents, ownership registers, licenses, and operating agreements.
- Voting proxies, investor vetoes, financing terms, and bank authorizations.
- MSO contracts, leases, and provider compensation schedules.
- Operating certificates, approvals, and regulatory correspondence.
Compare documents with daily operations; a compliance clause cannot cure improper control.
Closing Conditions and Continuing Compliance
Identify approvals and filings needed before closing or beginning operations. Public Health Law §§ 4550 and 4552 require at least 30 days' advance notice for qualifying material health care transactions. The definition excludes certain transactions, including those increasing gross in-state revenue by less than $25 million and transactions already covered by specified approval regimes.
Transaction notices differ from facility approvals. A health care lawyer can review filing deadlines, contract revisions, and post-closing duties. Healthcare private equity covers broader investment considerations; this review focuses on who may own, manage, and exercise clinical judgment.
29 Apr, 2026
