Franchising in Healthcare: Opportunity or Compliance Minefield?
Franchising is increasingly popular, even in healthcare. National brands or investors offer new resources, recognizable names, and much more. In New York, however, there are strict corporate practice of medicine (CPOM) rules and other regulations that make things a little less simple. While franchising can still be an incredible opportunity, there is a compliance minefield you have to navigate. Luckily, with the right attorney, you can make the most of the opportunity and avoid the mines along the way.
The medical transaction attorneys at Daniels, Porco & Lusardi, LLP are highly-skilled compliance attorneys who look out for you. We help you structure and complete healthcare acquisitions and private equity investments to ensure compliance and financial return.
Why Healthcare Franchising Is Growing
Healthcare franchising continues to expand because it offers:
- Established branding and marketing systems
- Standardized clinical and operational protocols
- Centralized training and support
- Economies of scale for supplies, technology, and administrative services
- Faster market entry for new practices
For clinicians, franchising can reduce the burden of building a practice from scratch. For investors, it provides a scalable model with predictable systems. But in New York, these benefits must be balanced against strict rules governing who can own, control, and profit from medical services.
The CPOM Barrier: Why New York Is Different
New York’s CPOM doctrine prohibits non-physicians, including corporations, investors, and franchise companies, from owning or controlling a medical practice. Only licensed professionals may own shares in a professional corporation (PC) or professional limited liability company (PLLC).
This creates immediate challenges for healthcare franchising:
- A franchise company cannot own a medical practice in New York
- A franchise cannot dictate clinical decisions
- Franchise fees cannot be tied to medical revenue
- Operational control must remain with licensed professionals
Any franchising model that gives the franchisor too much influence over clinical operations risks violating CPOM.
Where Franchising Models Run Into Trouble
1. Control Over Clinical Operations
Franchisors often require strict adherence to brand standards, protocols, and workflows. In healthcare, these requirements can cross the line into clinical control.
Risk areas include:
- Mandated treatment protocols
- Required use of specific medical devices or products
- Oversight of clinical staffing
- Performance metrics tied to clinical outcomes
2. Fee-Splitting and Royalty Structures
Traditional franchise models rely on royalties based on gross revenue. In healthcare, this can be interpreted as unlawful fee-splitting if the revenue includes medical fees.
To comply with New York law, franchise fees must be structured around:
- Flat fees
- Fixed monthly payments
- Fair market value (FMV) charges for non-clinical services
Any percentage-based fee tied to medical revenue is a red flag.
3. Branding and Use of Trade Names
New York restricts the use of trade names for professional entities. A medical practice cannot simply operate under a franchisor’s brand name unless the name complies with state professional naming rules.
This creates challenges for:
- National franchise branding
- Uniform signage
- Marketing materials
- Online listings
4. Management Services Organization (MSO) Structures
To navigate CPOM restrictions, many healthcare franchises use an MSO model. The MSO provides non-clinical services while a physician-owned PC or PLLC handles clinical care.
However, MSO arrangements must be carefully designed to avoid:
- Excessive control over clinical operations
- Improper influence on staffing or scheduling
- Non-compliant management fees
- Blurred lines between clinical and administrative functions
Opportunities Still Exist—With the Right Structure
Despite the challenges, healthcare franchising in New York is not impossible. Many successful models operate legally by:
- Separating clinical and non-clinical functions
- Using compliant MSO structures
- Ensuring physicians retain full clinical control
- Structuring franchise fees around FMV administrative services
- Adapting branding to meet professional naming rules
- Conducting thorough compliance reviews before launch
Franchising can still offer significant advantages, but only when the model is tailored to New York’s regulatory landscape.
Avoid the Mines and Reap the Rewards: Work with a Skilled Healthcare Compliance Attorney in New York
Yes, healthcare transactions in New York are especially complicated when it comes to compliance. That doesn’t mean you should ignore the opportunity, just be well-prepared for the challenge. The right healthcare transactions attorney guides you every step of the way to ensure compliance with healthcare laws and regulations.
The attorneys at Daniels, Porco & Lusardi, LLP are ready to help. Contact us today for a consultation.