By: Natalia R. Beltre and Gregory T. Measer
To safeguard patient care from corporate interference in clinical decisionmaking, New York maintains one of the strictest corporate practice of medicine (“CPOM”) prohibitions in the United States. Under New York law, medical services may be provided only by licensed medical professionals, by professional entities that are owned and controlled exclusively by licensed medical professionals, or by hospitals and other entities expressly authorized under the Public Health Law.
Unlicensed investors typically structure their investments around these restrictions through the management service organization (“MSO”) – friendly professional corporation (“PC”) model. Under this arrangement, a PC contracts with an MSO to handle non-clinical and administrative functions in exchange for a management fee. Because the MSO never delivers clinical care and its fee is not tied to clinical services, investors can profit from the practice without triggering CPOM or fee-splitting prohibitions. Private equity firms have leveraged this model aggressively, investing more than one trillion dollars in healthcare transactions over the past decade.1 This surge of investment has sparked a wave of legislative responses across the country.
Effective this year, California codified its CPOM doctrine and also imposed new reporting obligations on MSOs, private equity groups, and hedge funds involved in material healthcare transactions. Legislators in Illinois, Indiana, Massachusetts, Minnesota, North Carolina, Oregon, Vermont and Washington have either introduced or passed similar bills, seeking to codify
their own CPOM prohibitions, require notification of material transactions, or establish moratoriums on private equity investment in healthcare providers.
New York was ahead of many of these states. In 2023, New York enacted its own Material Transactions Notification Law, requiring certain healthcare entities to notify the New York State Department of Health (the “DOH”) at least thirty days before the closing of any material transaction that would increase its in-state revenue by $25 million or more.
Most recently, New York State Senate Bill S8442 proposes to further codify New York’s CPOM doctrine and, in doing so, reshape the boundary between physician control and outside investment. While the bill’s stated purpose is to safeguard medical decision making from nonphysician interference, its practical effect would be to replace New York’s existing blanket prohibition on non-physician ownership with a statutory framework that, for the first time, permits unlicensed individuals and entities to collectively hold a minority ownership stake in PCs organized to practice medicine.
Under the proposed framework, physicians licensed in New York must hold the majority of each class of voting shares, constitute a majority of the board of directors, and serve in all officer positions except for the secretary and treasurer. These thresholds represent a floor, not a ceiling, as the bill authorizes the DOH to require that physicians hold more than a majority of voting shares and occupy more than a majority of board seats. The bill also amends Section 1508 of the Business Corporation Law to expressly provide that directors and officers of a medical PC “may include individuals who are not licensed to practice medicine in any state,” so long as the majority-physician requirements are satisfied and the president, chairperson of the board, and chief executive officer are licensed physicians.
These ownership concessions, however, come with governance restrictions that would directly affect MSO-PC arrangements. The bill prohibits a PC from transferring control over its “administrative, business, or clinical operations” unless it first executes a
shareholder agreement for the benefit of its majority physician-shareholders. It also limits the removal of directors and officers to a majority vote of shareholders or directors, or termination for cause (including breach of fiduciary duty, license revocation, fraud, or malfeasance). The bill further prohibits retaliation against licensees who report suspected legal violations to an MSO, a hospital, or a government authority, even if the disclosure violates a nondisclosure or non disparagement agreement. It also carves out exceptions for nonprofit corporations serving medically underserved populations, federally qualified health centers, and certain rural health clinics.
If S8442 becomes law, direct minority ownership may reduce investors’ reliance on the MSO model entirely in New York. Existing MSO-PC arrangements may need restructuring to comply with the new governance and shareholder agreement requirements. Ultimately, New York is one of many states confronting the role of private equity in healthcare, underscoring the importance of a state-by-state compliance strategy for medical practices and investors alike.
If you have questions about these developments, please contact Gregory T. Measer (gmeaser@lippes.com), Natalia R. Beltre (nbeltre@lippes.com), or another one of our qualified Health Care Practice Team members at Lippes Mathias LLP.
Source: Michael D. Goldhaber, Private Equity and Healthcare: Balancing Profit with Wellness, New York University’s Stern Center for Business and Human Rights 1, 6 (March 2026), https://bhr.stern.nyu. edu/wp content/uploads/2026/03/N UCBHR- PE-and Healthcare_Mar-10-FINAL-1.pdf