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Private investors and NY's strict non-physician ownership laws

Private investors are a big part of the health care market. But how are these entrepreneurs getting into markets that have strict rules against such relationships? In New York, for example, state law prohibits non-physician ownership in a medical practice. Yet, private investors have been able to break into this market.

How have private investors gotten into this market?

One of the tools that has helped private investors work around the laws that prohibit such ownership is the Management Service Organization (MSO). MSO's are generally structured to provide medical practice's with administrative services. The MSO is set up as a non-clinical group separate from the actual medical practice. As such, it has allowed private investors to be an ancillary part of the medical community without violating the non-physician ownership laws.

How does this work?

State law will generally allow this relationship since the MSO is not involved in the practice of medicine.

Although MSO's can prove helpful to medical practices, physicians should enter such relationships carefully. As noted in a recent publication in JD Supra, a news source that focuses on legal news that impacts businesses throughout the country, such relationships must be structured wisely.

Two key considerations to address within the relationship include:

  • Separation. The MSO must be separate from the medical practice. The MSO must not have any say or control in how the physicians practice medicine.
  • Reasonable fee. The fee for the MSO must be reasonable and set at a flat amount. Most importantly, this fee must not fluctuate with the revenue of the practice.

Physicians who are considering such a relationship are wise to mitigate the risk of an illegal agreement by seeking legal counsel to review a proposal from a private investor or MSO before moving forward.

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