1. Understanding Corporate Practice and Ownership Structures
The corporate practice of medicine doctrine, which exists in various forms across states including New York, restricts certain business entities from providing medical services or employing physicians directly. In practice, these restrictions are rarely as clean as the statute suggests. A physician-owned professional corporation or partnership typically satisfies the doctrine, but hybrid arrangements involving investors, management companies, or ancillary service providers create ambiguity. Courts and state medical boards have increasingly scrutinized arrangements that blur the line between clinical control and business control.
New York'S Professional Corporations and Regulatory Framework
New York permits physician-owned professional corporations and partnerships under Business Corporation Law Article 15. The New York Department of Health and the Office of Professional Medical Conduct enforce these requirements through licensing reviews and complaint investigations. A practice that violates the corporate practice doctrine may face loss of licensure, forced restructuring, or personal liability for the physician-owners. The regulatory pathway is often triggered by a complaint from a competitor, employee, or patient rather than routine inspection, which means many practices operate in violation for years before facing consequences.
2. Management Services Agreements and Operational Control
A Management Services Agreement (MSA) is the primary legal instrument governing how an external management company or investor entity operates a medical practice. The MSA typically specifies which decisions remain with the physician and which transfer to the management entity. Disputes over control, revenue allocation, and termination rights frequently arise when the MSA is drafted too broadly or when operational realities diverge from the written agreement. From a practitioner's perspective, I often advise practices to define decision-making authority with precision: clinical matters must remain under physician control, while billing, human resources, and facility operations may be delegated.
Key Provisions and Common Pitfalls
An MSA should address term length, termination triggers, post-termination obligations, revenue sharing, and indemnification. Many practices sign MSAs without independent legal review and later discover unfavorable non-compete clauses, automatic renewal provisions, or revenue splits that were not negotiated. A termination provision that requires 12 months notice and continued payment obligations during wind-down can trap a practice in an undesirable relationship. The agreement should also clarify who owns patient records, billing systems, and equipment after termination.
| MSA Component | Typical Risk |
| Term and Renewal | Automatic renewal without opt-out mechanism |
| Termination Rights | Lengthy notice period; continued fee obligations |
| Non-Compete | Overly broad geographic or temporal scope |
| Revenue Sharing | Undefined deductions or opaque fee calculations |
| Indemnification | Physician liable for management company negligence |
3. Regulatory Compliance and Licensing Obligations
Medical practice operations are subject to healthcare laws at federal and state levels, including billing regulations, privacy requirements, anti-kickback statutes, and state licensing rules. A practice manager must ensure that billing practices comply with Medicare and insurance carrier requirements, that patient privacy is protected under HIPAA, and that no referral arrangements violate anti-kickback provisions. These compliance obligations do not disappear because a management company is in place; the physician and practice remain liable for violations.
Billing Fraud and Compliance Exposure
Improper billing is the most common source of regulatory investigation and liability in healthcare practice management. Upcoding, billing for services not rendered, or failing to refund overpayments can trigger Medicare audits, state investigations, and qui tam lawsuits. A practice should implement internal compliance monitoring, staff training, and regular billing audits. When a management company handles billing, the physician should require regular reports and spot-check accuracy rather than assuming compliance is the management company's sole responsibility.
4. Physician Employment and Independent Contractor Status
Many practices employ physicians as W-2 employees, while others use independent contractor arrangements. The classification affects tax treatment, benefits, liability, and regulatory obligations. Misclassifying an employee as an independent contractor can trigger back-tax liability, penalties, and employment law claims. New York courts and the Department of Labor apply a multi-factor test focusing on control, investment, and economic dependency rather than the label used in the contract. Real-world outcomes depend heavily on how the judge weighs the facts and what evidence the practice can produce about day-to-day operational control.
Termination and Restrictive Covenants
Employment agreements should specify at-will status or defined term, compensation, benefits, and grounds for termination. Non-compete and non-solicitation clauses are enforceable in New York only if they are reasonable in scope, geography, and duration. A clause prohibiting a physician from practicing within 50 miles for three years may be struck down as unreasonable, leaving the practice without contractual protection. Courts balance the employer's legitimate business interest against the employee's right to practice medicine, and overly broad restrictions often fail.
As you evaluate your practice structure, management arrangements, and employment relationships, focus on three strategic areas: ensure your ownership and control structure complies with state law and the corporate practice doctrine; review any existing MSA for ambiguous termination rights and revenue calculations; and audit your billing and compliance procedures to identify gaps before a regulator does. These steps will reduce your exposure and create a foundation for sustainable practice operations.
03 Feb, 2026
