Pending Legislation Would Ease Hospital Delivery of Physician Services

Companion bills pending in the New York State Legislature would amend Section 1412 of the Not-For-Profit Corporation Law (NPCL) to allow New York general hospitals to offer services through not-for-profit practice corporations. Hospitals associated with medical schools are currently able to provide physician services through University Faculty Practice Corporations (UFPCs). The proposed legislation would provide physicians who are members of the medical staff of a general hospital the same opportunity to create faculty practice groups.

Currently, New York Public Health Law (PHL) prohibits the establishment or expansion of hospitals without the written approval of the Department of Health’s Public Health and Health Planning Council (PHHPC). Opening a physician office off the hospital’s established campus is considered an expansion.

In order to establish new facilities or services, or effect changes to existing services or facilities, a hospital “must demonstrate a need for the facility, the character and competence of the proposed operators, and financial feasibility of the plan” through a Certificate of Need (CON) application process, consisting of 23 potential schedules. For example, hospitals must have CON approval to initiate construction projects or convert hospital beds to different care categories.

While CON requirements apply to all hospital services, private physician practices—including faculty practice groups affiliated with hospitals associated with a medical school—are not subject to similar Department of Health (“DOH”) oversight. The DOH acknowledges that “this may permit [private physician practices] advantages over institutional providers…and may further contribute to less desirable outcomes for the overall health system.” For instance, “such dynamics could lead to situations in which the private practice displaces Article 28 providers and adversely impacts access to care for New York’s vulnerable populations.”

New York Assembly Bill 2993 and New York Senate Bill 1815 “Proposed Legislation” would amend NPCL Section 1412 to, among other things, allow physicians on the medical staff of a general hospital to form a tax-exempt UFPC to support the mission of the hospital. Because UFPCs are not “deemed to be establishing or operating a hospital, diagnostic center and/or treatment center,” they do not require CON approval from the PHHPC. Thus, a hospital’s medical staff could form a UFPC to operate an outpatient treatment center with relatively less regulatory red tape.

If the Proposed Legislation is successful, medical staffs in hospitals could forego the expensive and time-consuming CON application process, and form UFPCs that operate under the authority of a licensed hospital, likely using the name of the affiliated hospital with which they are identified. The Proposed Legislation would permit an abbreviated process for hospitals to expand existing services through the formation of UFPCs, reducing regulatory burdens and disparities, and potentially increasing access to care.

William P. Keefer is a partner at Phillips Lytle LLP and the leader of the firm’s Health Care Law Practice Team. Mr. Keefer counsels hospitals, physician groups, payors and other health care clients on a broad array of issues, including fraud and abuse, corporate compliance, transactional arrangements, payer audits, agency actions, and federal and state court litigation. He can be reached at wkeefer@phillipslytle.com.

Michael Borrello is an attorney at Phillips Lytle LLP where he focuses in the areas of health care, corporate and not-for-profit law. He can be reached at mborrello@phillipslytle.com.