Key Terms to Understand Before Signing Healthcare Deal Transactions
Healthcare transactions move quickly in New York. They can be lucrative, but the market is competitive. You may feel pressure to move quickly, but it is essential to understand key terms in any agreement before you sign it. The advice and counsel of a healthcare attorney is critical to protecting your rights and your practice.
The medical transaction attorneys at Daniels, Porco & Lusardi, LLP help you understand the terms of your agreement so you know what you are signing. Your agreement should protect your rights, but must also withstand strict compliance laws in New York. We’re here to help with all of it.
Corporate Practice of Medicine (CPOM)
New York enforces one of the strictest Corporate Practice of Medicine prohibitions in the country. CPOM prevents non‑physicians, including private equity firms, management companies, and general business corporations, from owning or controlling a medical practice. In transactions, this doctrine affects:
- Who can own equity in a professional entity
- How clinical decision‑making must be separated from business functions
- How management fees and service arrangements must be structured
Professional Service Entity (PC or PLLC)
Because of CPOM, clinical assets in New York must be held by a Professional Corporation (PC)or Professional Limited Liability Company (PLLC) owned exclusively by licensed professionals. These entities:
- Employ clinicians
- Hold patient records
- Bill for clinical services
In many transactions, the PC or PLLC remains physician‑owned even when investors or management companies are involved. Understanding what the professional entity can and cannot do is critical to structuring a compliant deal.
Management Services Organization (MSO)
An MSO is the non‑clinical business entity that provides administrative, operational, and management support to the professional entity. In New York, MSOs commonly handle:
- Billing and collections
- HR and payroll
- Facilities and equipment
- Marketing and scheduling
- IT and compliance support
The MSO cannot control clinical decisions, set clinical policies, or interfere with the physician‑patient relationship. The MSO structure is central to many New York healthcare deals, especially those involving private equity or multi‑site expansion.
Management Services Agreement (MSA)
The MSA is the contract between the MSO and the professional entity. It defines the relationship, allocates responsibilities, and sets the financial terms. Key provisions include:
- Scope of services
- Fee structure (must avoid fee‑splitting)
- Term and termination rights
- Control boundaries to maintain CPOM compliance
Fee‑Splitting
New York prohibits fee‑splitting, which occurs when a non‑physician receives a percentage of clinical revenue. This rule directly affects:
- MSO fee structures
- Marketing arrangements
- Referral relationships
- Joint ventures
To avoid fee‑splitting, MSO fees must be fixed, fair‑market‑value, and not tied to clinical volume or revenue. Any deal involving shared revenue streams must be reviewed carefully.
Change of Control
A change of control in New York healthcare transactions can trigger regulatory filings even when ownership of the professional entity does not change. Examples include:
- New investors entering the MSO
- Shifts in governance rights
- Transfers of management authority
- Indirect ownership changes
Regulatory Approvals and Notices
Depending on the provider type, a transaction may require:
- DOH Certificate of Need (CON) approval
- OMH or OASAS reviewfor behavioral health programs
- Medicare/Medicaid enrollment updates
- Professional licensing board notifications
Failing to obtain required approvals can delay closing or invalidate the transaction.
Indemnification
Indemnification provisions allocate risk between the parties. In healthcare deals, indemnification often covers:
- Billing and coding errors
- HIPAA violations
- Fraud and abuse exposure
- Pre‑closing liabilities
Because healthcare carries heightened regulatory risk, indemnification terms are often heavily negotiated.
Earn‑Outs and Performance‑Based Payments
Earn‑outs tie part of the purchase price to future performance metrics. In New York healthcare deals, earn‑outs must be structured carefully to avoid:
- Fee‑splitting
- CPOM violations
- Incentives that could be viewed as influencing clinical judgment
If earn‑outs are used, they must be tied to non‑clinical metrics or structured through the MSO.
Why These Terms Matter
Understanding these terms before signing a healthcare transaction in New York helps you:
- Avoid regulatory violations
- Structure compliant ownership and management models
- Protect clinical independence
- Reduce post‑closing risk
- Ensure the deal can withstand regulatory scrutiny
Get Help With Your New York Healthcare Transactions
Working with private equity or engaging in other agreements comes with complicated terms that have distinct legal meanings. Understanding each of them is critical to protecting your legal rights and complying with strict New York laws.
The attorneys at Daniels, Porco & Lusardi, LLP are ready to help. Contact us today for a consultation.