NEW YORK - PROFESSIONAL PRACTICE STRUCTURE

January 1, 2008

New York state laws and regulations that affect your medical practice

1. Under what business structures are physicians permitted to practice?

Physicians may practice in the following manner:

A. Sole Proprietorship

A sole proprietorship is not recognized as a separate legal entity from the individual practitioner. This business model has the advantage of being easy to form, but the disadvantage of affording no protection from personal liability for acts performed in the course of the proprietorship's business.

B. General Partnership

A partnership is an association of two or more persons carrying on a business for profit. A physician may practice in a partnership, but such entity shall be composed solely of licensed healthcare professionals. A physician who is a member of a partnership is personally responsible for his own negligence and wrongful acts as well as the acts of any partner, and the acts of any other person under his or her direct supervision and control.

(Partnership Law § 10 and 26)

C. Professional Service Corporation ("P.C.")

A physician may practice as an owner or employee of a PC. A PC which engages in the practice of medicine may be owned only by physicians. Shareholders of PCs enjoy limited liability and a shareholder's risk, other than for his own wrongful acts, is generally limited to the value of his or her stock.

(Business Corporations Law § 1501, 1503, 628 and 1513)

D. Limited Liability Partnership

A physician may practice in a Limited Liability Partnership ("LLP."). The entity may be owned solely by licensed health care professionals. An LLP is comprised of two or more partners, having one or more general partners and one or more limited partners.

A general partner of an LLP has similar rights, control, liability, taxation and duties of a partner in a general partnership. A limited partner, or a special partner, has limited rights, control, liability and duties.

(Partnership Law § 121-101)

E. Professional Limited Liability Company

A physician may practice in a Limited Liability Company ("LLC."), but such entity shall be owned solely by licensed health care professionals. An LLC is an unincorporated association of one or more persons having limited liability that is formed for any lawful business purpose.

An LLC may be owned by a sole practitioner, a PC, an LLP or other LLC. Owners of an LLC are called "members."

Members of an LLC enjoy not only the limited liability status held by shareholders in a corporation, but also the pass-through taxation status enjoyed by members of a partnership.

(Limited Liability Company Law § 102, 201, 1203; 16 NY Jur 2d § 2003)

F. Associational Relationship with Other Physician or Professional Entity

A physician may be employed within the scope of the physician's licensed practice and in circumstances where the quality control of the employee's professional practice can be and is lawfully supervised and evaluated by the employing physician.

Physicians with plenary licenses, therefore, are prohibited from employment by a professional with a limited scope of license. In other words, a physician with a plenary license may be employed by another plenary-licensed physician; however, an M.D. or a D.O. may not be employed by a podiatrist (D.P.M.) or chiropractor (D.C.) or midwife or certified nurse midwife (R.M., C.N.M.).

(Education Law § 6521, 6522, and 6530 (11) and (19))

G. Shareholder or Employee of Professional Corporation

Physicians may offer health care services as employees of a general business corporation in one of the following settings (each setting must have a designated medical director who is regularly on the premises to oversee the provision of medical services):

1. A corporation licensed as a health maintenance organization, hospital, long- or short-term care facility, ambulatory care facility or other type of health care facility (such as a diagnostic imaging facility).

(Public Health Law § 4405)

2. The corporation is not in the business of offering treatment services but maintains a medical clinic for the purpose of providing first aid to customers or employees and/or for monitoring the health environment of employees.

3. The corporation is a non-profit corporation sponsored by a union, social or religious or fraternal-type organization that provides health care services to members only.

4. The corporation is an accredited educational institution which maintains a medical clinic for health care service to students and faculty.

(Education Law § 6531 and 6530 (19)

5. The corporation is licensed by the State Department of Insurance as an insurance carrier offering coverage for medical treatment and the licensee is employed to perform quality assurance services for the insurance carrier.

(Insurance Law § 4804)

H. Equity or Employment Interest in a Professional Practice

A physician may have an equity or employment interest in a professional practice which is a limited partner to and has a contractual agreement with a general business corporation, in the following circumstances only:

1. The general business corporation may contract to provide the professional practice with services that are exclusively non-professional, such as routine office management, hiring of non-professional staff, provision of office space or equipment and billing services.

(Education Law § 6512, 6522 and 6530 (9))

2. The physician shall be responsible to assure that an appropriate licensed health care professional determines and carries out all services and medical care policies, including establishment of patient fees and modification of fees in an individual case.

(Education Law § 6550 (25))

3. The physician shall assure that the general business corporation makes no representations to the public of offering health care services which require licensure.

(Education Law § 6512 and 6530 (11))

4. A physician shall terminate an equity or employment interest upon personal knowledge that the entity regularly fails to provide or observe the quality/assurance mechanisms listed above and refuses, upon request, to implement such mechanisms.

(Education Law § 6530 (11))

Note: A physician is prohibited from practicing medicine as a General Business Corporation ("Inc.").

(Education Law § 6531 and 6530 (19))

I. Managed Health Care Plans

A physician may participate in organized managed health care plans including, but not limited to, those involving wholly or partially pre-paid medical services. This includes health maintenance organizations, preferred provider organizations, competitive medical plans, individual practice associations, or other similar designations. A physician may participate in any such plan which complies with the following requirements:

1. The physician retains authority at all times to exercise professional judgment within accepted standards of practice regarding care, skill and diligence in examinations, diagnosis and treatment of each patient.

2. The physician retains authority at all times to inform the patient of appropriate referrals to any other health care providers - whether or not those persons are provider-members of the plan and whether or not the plan covers the cost of service by such non-member providers to the patient.

3. Plan patients are informed that they may be personally responsible for the cost of treatment by a provider who is not a member-provider within the plan, or for treatment not having the approval of plan administration.

4. Provisions for remuneration to the physician shall not be inconsistent with the New York Anti-Kickback Statutes. (See "Referrals")

(Education Law § 6531; Public Health Law § 4406-c; Education Law § 6522)

2. What requirements must be met for a practitioner to engage in professional practice in New York?

The DOE requires the following:

A. A practitioner may engage in professional practice only when in possession of a current biennial registration issued by the DOE.

B. The name of the professional practice entity shall be composed of the actual last names of one or more of the owning licensees, partners or shareholders OR composed of a phrase or words reasonably descriptive of the type of professional practice.

C. Regardless of the business form, policies and procedures with respect to professional licensed personnel must be established. Topics to be addressed in the policies and procedures should include, but are not limited to, the following:

1. The responsibility of a licensed physician to review and approve the hiring of professional staff; the timely demand and verification of current licensing credentials and any other educational credentials required by law or pertinent agency rule;

2. Medical policies at the office setting where services will be rendered;

3. Maintenance policies (including cleanliness) of the premises;

4. Maintenance, registration and inspection of professional equipment as necessary;

5. Standards for recordkeeping as to patient medical records, billing records, and such other records as may be required by law or rule including Controlled Dangerous Substance inventories, as applicable;

6. Security procedures, including drug storage, prescription pad control, confidentiality of patient records;

7. Policies on the periodic audit of patient records and of professional services to assure quality professional care;

8. Policies on the responsibility for the professional propriety of billing and of advertising and any other such representations including disclosure of financial interest in health care services offered to the public; and

9. Policies regarding notice of current fee schedules for standard services and provision of fees to patients on request.

D. Physicians must post a conspicuous notice in the waiting rooms of all offices stating: "INFORMATION ON PROFESSIONAL FEES IS AVAILABLE TO YOU ON REQUEST."

E. Physicians must post notices in their offices and on their bills disclosing their policies on balance billing Medicare patients.

3. Are there any restrictions on real estate and medical equipment arrangements?

Yes, the following restrictions address real estate and medical equipment arrangements:

A. Physicians may be owners or investors in real estate or medical equipment as long as it is utilized for the provision of a health care service and provided that rent, dividends or any other forms of remuneration are received solely on the basis of the investment or fair market value.

B. Physicians may also lease professional space from a commercial (non-professional) entity on any arrangements consistent with standard business practice in the community, provided that the arrangement does not affect the physician's professional discretion in matters including choice of patients, professional services offered or fees.

C. Physicians may also lease space or medical equipment to or from another licensed health care practitioner to whom patients are referred, but only where a fixed fee is set in advance and determined by fair market value and is for a regular term, not for the sporadic use of the space or equipment.

(See chapter on "Referrals.")

Copyright Kern Augustine Conroy and Schoppmann, P.C. Used with permission.