Forming a medical practice is a process that is handled differently than the formation of any other type of business. There are stringent regulations that must be followed. These laws are specified only to the medical industry. Failing to comply with all the practice formation rules and regulations can lead to serious problems including claims of fraud which can prove to be very costly. Therefore, physicians who are contemplating to set up a new practice should be ready and plan carefully. It is important to strictly follow all the rules and put serious thought into the medical practice set up to avoid problems later on.

A Professional Corporation or PC should only be owned by medical experts such as medical doctors and doctors of osteopathy. The first step to forming a medical practice is determining which type of entity you want for your practice. Your choice will influence the other steps you take in the creation process. In New York you can choose between a professional limited liability partnership or LLP, a general partnership, a sole proprietorship, a professional service corporation or PC, and a professional limited liability company or LLC. Each entity can only be owned by a Licensed New York physician. The New York Education Laws in Section 6512 state that it is a felony for an unlicensed individual to practice medicine. In section 6513, it is made clear that an unauthorized practice of medicine a serious crime.

The different types of entities have different setup processes and they must comply with the laws that govern the practice. The type of entity will also determine the organization and how it will be taxed. This makes it important to have an experienced healthcare attorney to offer sound advice as well as to assist you in weighing other options and make up your mind on the best decision.

During the formation process, you will need an experienced medical practice formation lawyer to assist you in the creation of the articles of incorporation and bylaws. A professional lawyer will also assist you in filling all the necessary documents and ensure that the stocks and shares have been appropriately addressed as stipulated in the law. Consult your lawyer before you decide on whether to include physicians, nurses, and other members of the staff as independent contractors or employees. This is a critical decision because you need an option that is safe for you from a liability perspective and one that can provide you with the best financial gains.

Physicians are always considered to be liable for neglect or wrongful acts for individuals who are under their supervision. However, in some entities there can be a difference in determining who is liable for wrongful acts and negligence. In a case of a wrongful act by another service provider or in a situation where a business is liable, a corporation or a limited liability entity can shield itself from personal liability, but a general partnership or sole proprietorship cannot protect itself from such an accusation.

Once you have decided the type of entity you want, proceed to draw the governing agreement. This document will contain many key provisions on how the practice is run. These provisions are meant to address and control the management of the practice, allocation of losses and profits, rules governing the practice, restrictions on any transfers of interest in the practice, and provisions on any required professional activities that are not related in any way to the practice, for example, moonlighting. When drafting the business agreement, you need to bear in mind the rules, laws, and regulations that are meant to govern the conduct of a physician. The most important laws are those that pertain to unauthorized practices and those that govern the wrongdoings of a physician.

To complete the setup process of your practice you need to indicate the process of contracting managed care and physicians, renting a working space, and hiring of other employees. The New York laws dictate that a healthcare practice should ensure that none of the contracts violate the regulations that govern the conduct of physicians. To be on the safe side when hiring or contracting physicians, provide for all the disclosure documents that are deemed to be necessary. They can include any changes in the credentialing, any circumstance that can affect the physicians’ ability to perform their duties effectively, and any inquiries by the government or other professional bodies. In case your practice fails to make any effort to protect its entity against any potential eventualities, the actions of your employees or physicians can result in serious allegations and your entity could risk being prosecuted.

It is important for a physician to have a malpractice insurance. A medical malpractice may occur in case a physician performs a task in an improper manner while in his or her profession. The physician being a hired or contracted member of the limited liability business cannot shield them from the liability of malpractice. This is because the limited liability that a practice enjoys is related to different liabilities. For example, in a case when a patient slips and falls down on a wet floor while inside the office of the doctor. This is determined as a case of negligence. In such a case, the business will be liable to pay for damages and not the physician. This means that the limited liability is to pay for damages that the organization is being sued for and not the members. Therefore, members are safe from lawsuits that may affect the business.

Setting up a healthcare practice should be done in a way that minimizes chances of breaching the laws and regulations. Therefore, ensure that you comply with all practice formation laws by contacting a healthcare attorney in New York.

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Legal Scenario: What Would You Do?

Scenario

A group of three physicians wants to leave their hospital positions and establish a joint medical practice in New York, but they are unsure whether to form a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC). They are also concerned about compliance with corporate practice of medicine restrictions and whether non-physician investors can hold ownership stakes in their new practice.

What legal structure should we use for our new medical practice in New York, and can we bring in non-physician investors to help fund the startup costs?

Attorney's Answer

Under New York Business Corporation Law Article 15 and Education Law Section 6507, physicians forming a medical practice must establish either a Professional Corporation (PC) or a Professional Limited Liability Company (PLLC), and all shareholders or members must be licensed physicians authorized to practice in New York. Non-physician investors cannot hold ownership interests in a medical practice due to New York's strict corporate practice of medicine doctrine, which prohibits lay ownership or control over medical decision-making. However, you can explore alternative funding arrangements such as management services organizations (MSOs) or traditional business loans that do not convey ownership rights. Our firm can guide you through the formation process, ensure compliance with the New York State Education Department and Department of Health regulations, and structure any outside funding arrangements to avoid violations that could jeopardize your medical licenses.

This is general information only. Contact us for advice specific to your situation.

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