New York Governor Kathy Hochul has proposed some additions to the Public Health Law (PHL) that would dramatically impact New York physician practices and management services organizations (MSOs), bringing them both within the regulatory crosshairs of the New York State Dept. of Health (DOH).
As summarized in the Governor’s accompanying Memo in Support, proposed new Article 45-A to the PHL (Part M, beginning on page 261) would establish DOH oversight over “material transactions” involving “health care entities,” which are broadly defined to include MSOs, health insurance plans, or any other type of health care entity providing services in the State, including physician practices. Neither physician practices nor MSOs had previously been regulated by DOH.
This legislation will materially impact a physician practice’s ability to allow nonphysician investors such as private equity firms to invest in MSO business entities that support the nonmedical aspects of its practice. New York’s corporate practice of profession doctrine continues to restrict New York physician and dental practice ownership by requiring that such practices be limited to the ownership and control of only professionals licensed to practice in New York.
The most significant aspects of the proposed legislation would require transactions between e.g., physician practices and MSOs to be reported to DOH at least 30 days prior to the anticipated closing date of such transactions (deemed granted if DOH does not respond within such timeframe). The relevant parties to such a transaction would be required to submit a description of the proposed transaction, an assessment of the impact of such transaction on cost, quality, access, health equity, and competition in the health care service market. Other information to be submitted and approved by DOH are the names of the parties, service locations, current revenue of the practice and/or MSO, financial condition and character/competence of the parties and sources of funds for the transaction.
The legislative intent of these provisions specifically singles out “investor-backed” health care transactions by private equity firms, but such legislation will potentially impact many, if not most, physician practices, bringing most operators in this space under the watchful eye of DOH. Indeed, DOH will have a say in whether prospective MSO/physician practice arrangements will ultimately be consummated and whether the owners of MSOs will even be allowed to own and operate such entities based on character and competence standards that will be set forth in DOH regulations. While these provisions are designed to apply to prospective transactions, it is likely that even current arrangements could be impacted when material changes to such arrangements are contemplated.
This proposed legislation follows similar regulatory review legislation enacted in Washington, Oregon and California and, if passed and signed into law, would ensure that New York State continues to be one of the most highly regulated states in the nation for health care providers and related entities. We continue to monitor the progress of this proposed legislation as the budget is negotiated in Albany between the Governor and the Legislature and finalized around April; we will report on any further developments.