S 8442: Prohibits non-physician organizations or their representatives to hold majority shares in or serve as directors of professional corporations organized to practice medicine.

  
  STATE OF NEW YORK ________________________________________________________________________ 8442 2025-2026 Regular Sessions  IN SENATE June 18, 2025 ___________ Introduced by Sen. MAY -- read twice and ordered printed, and when printed to be committed to the Committee on Rules AN ACT to amend the not-for-profit corporation law, the business corpo- ration law and the public health law, in relation to prohibiting non- physician management services organizations or their representatives to hold majority shares in or serve as directors of professional corporations organized to practice medicine The People of the State of New York, represented in Senate and Assem- bly, do enact as follows: 1 Section 1. The not-for-profit corporation law is amended by adding two 2 new sections 1406-a and 1406-b to read as follows: 3 § 1406-a. Professional corporations; medicine. 4 (a) As used in this section, the following terms shall have the 5 following meanings: 6 (1) "Professional corporation" means a professional corporation organ- 7 ized for the purpose of practicing medicine. 8 (2) "Practice of medicine", "practicing medicine" or any variation of 9 such term shall have the same meaning as the term "practice of medicine" 10 is defined by section sixty-five hundred twenty-two of the education 11 law. 12 (b) (1) In a professional corporation: (i) physicians who are licensed 13 in this state to practice medicine shall hold the majority of each class 14 of shares which are entitled to vote; 15 (ii) physicians who are licensed in this state to practice medicine 16 shall be a majority of the directors; and 17 (iii) all officers, except the secretary and treasurer, if any, shall 18 be physicians who are licensed in this state to practice medicine. The 19 same person may hold any two or more offices. 20 (2) Except as otherwise provided by law, the department of health may 21 require that physicians who are licensed in this state to practice medi- EXPLANATION--Matter in italics (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD13396-02-5 
 S. 8442 2 1 cine hold more than a majority of each class of shares that is entitled 2 to vote. 3 (3) Except as otherwise provided by law, the department of health may 4 require that physicians who are licensed in this state to practice medi- 5 cine be more than a majority of the directors. 6 (c) A corporation which is not organized for the purpose of practicing 7 medicine may be a shareholder of a professional corporation solely for 8 the purpose of effecting a reorganization as defined by 26 USC 368. 9 (d)(1) Except as provided in subparagraph (2) of this paragraph, a 10 professional corporation shall not provide in such professional corpo- 11 ration's articles of incorporation or bylaws, or by means of a contract 12 or other agreement or arrangement, for removing a director, appointed in 13 accordance with subparagraph (1) of paragraph (b) of this section, from 14 such professional corporation's board of directors, or an officer, 15 appointed in accordance with subparagraph (1) of paragraph (b) of this 16 section, from such person's position in such professional corporation, 17 except by a majority vote of the shareholders or, as appropriate, a 18 majority vote of the directors. 19 (2) A professional corporation may remove a director or officer by 20 means other than a majority vote of the shareholders or a majority vote 21 of the directors if such director or officer that is subject to removal: 22 (i) violated a duty of care, a duty of loyalty, or another fiduciary 23 duty to such professional corporation; 24 (ii) was the subject of a disciplinary proceeding by the department of 25 health, the department of education, or the state board for medicine, in 26 this state, or such equivalent entity in another state, in which such 27 director or officer's license to practice medicine in this or another 28 state was suspended or revoked; 29 (iii) engaged in fraud, misfeasance, or malfeasance with respect to 30 the director or officer's performance of duties for or on behalf of such 31 professional corporation; 32 (iv) resigned, separated, or was terminated from employment with such 33 professional corporation; or 34 (v) failed to meet standards or criteria such professional corporation 35 established for a position as a director or officer. 36 (e) A professional corporation may relinquish or transfer control over 37 such professional corporation's administrative, business, or clinical 38 operations only if such professional corporation executes a shareholder 39 agreement exclusively between or among and for the benefit of a majority 40 of shareholders who are physicians licensed in this state to practice 41 medicine and such shareholder agreement complies with the provisions of 42 article six of the business corporation law. 43 (f)(1) The provisions of this section shall not apply to: 44 (i) a nonprofit corporation that is organized under the laws of this 45 state to provide medical services to migrant, rural, homeless or other 46 medically underserved populations under 42 USC 254b or 254c, as in 47 effect on the effective date of this section; 48 (ii) a federally-qualified health center, as defined by 42 USC 49 1396d(I), as in effect on the effective date of this section, that oper- 50 ates in compliance with other applicable state or federal law; or 51 (iii) except as provided in subparagraph (2) of this paragraph, a 52 for-profit or nonprofit business entity that is incorporated or organ- 53 ized under the laws of this state, that provides the entirety of the 54 business entity's medical services through one or more rural health 55 clinics, as defined in 42 USC 1395x, as in effect on the effective date 
 S. 8442 3 1 of this section, and that operates in compliance with state and federal 2 laws that apply to rural health clinics. 3 (2) A business entity is exempt under this paragraph for a period of 4 up to one year after the business entity establishes a rural health 5 clinic, even though the rural health clinic that the business entity 6 establishes does not meet all of the elements of the definition set 7 forth in 42 USC 1395x, as in effect on the effective date of this 8 section, if during such one-year period an applicable certification for 9 such rural health clinic is pending. 10 (g) A professional corporation or medical services corporation shall 11 not take any retaliatory action, as defined by section seven hundred 12 forty of the labor law, against a medical licensee as retaliation for, 13 or as a consequence of, such medical licensee's violation of a nondis- 14 closure agreement or non-disparagement agreement or because such medical 15 licensee, in good faith, disclosed or reported information that such 16 medical licensee believes is evidence of a violation of a federal or 17 state law, rule or regulation to: 18 (1) the management services organization; 19 (2) a hospital, as defined in section twenty-eight hundred one of the 20 public health law; or 21 (3) a state or federal authority. 22 § 1406-b. Professional corporations; health care services. 23 (a) As used in this section, the following terms shall have the 24 following meanings: 25 (1) "Licensee" means an individual who has a license as a physician or 26 a license as a physician associate from the state board for medicine or 27 the department of education or who has a license as a nurse practitioner 28 from the state board for nursing or the department of education. 29 (2) "Professional corporation" means a professional corporation that 30 is organized for the purpose of enabling physicians, physician associ- 31 ates and nurse practitioners to jointly render professional health care 32 services. 33 (b) In a professional corporation, licensees shall: 34 (1) hold a majority of each class of shares of such professional 35 corporation that is entitled to vote; and 36 (2) be a majority of the directors of such professional corporation. 37 (c) An individual whom a professional corporation employs, or an indi- 38 vidual who owns an interest in such professional corporation, shall not 39 direct or control the professional judgment of a licensee who is prac- 40 ticing within such professional corporation and within the scope of 41 practice permitted under such licensee's license. 42 (d) A licensee whom a professional corporation employs, or a licensee 43 who owns an interest in such professional corporation, shall not direct 44 or control the services of another licensee who is practicing within 45 such professional corporation unless such other licensee is also prac- 46 ticing within the scope of practice permitted under such licensee's 47 license. 48 (e)(1) Except as provided in subparagraph (2) of this paragraph, a 49 professional corporation shall not provide in such professional corpo- 50 ration's articles of incorporation or bylaws, or by means of a contract 51 or other agreement or arrangement, for removing a director from such 52 professional corporation's board of directors, except by a majority vote 53 of the shareholders or, as appropriate, a majority vote of the direc- 54 tors. 
 S. 8442 4 1 (2) A professional corporation may remove a director by means other 2 than a majority vote of the shareholders or a majority vote of the 3 directors if the director that is subject to removal: 4 (i) violated a duty of care, a duty of loyalty, or another fiduciary 5 duty to such professional corporation; 6 (ii) was the subject of a disciplinary proceeding by the department of 7 health, the department of education, or the state board for medicine, in 8 this state, or such equivalent entity in another state, in which such 9 director or officer's license to practice medicine in this or another 10 state was suspended or revoked; 11 (iii) engaged in fraud, misfeasance, or malfeasance with respect to 12 such director's performance of duties for or on behalf of such profes- 13 sional corporation; 14 (iv) resigned, separated, or was terminated from employment with such 15 professional corporation; or 16 (v) failed to meet standards or criteria such professional corporation 17 established for a position as a director. 18 (f) A professional corporation may relinquish or transfer control over 19 such professional corporation's administrative, business, or clinical 20 operations only if such professional corporation executes a shareholder 21 agreement exclusively between or among and for the benefit of a majority 22 of shareholders and such shareholder agreement complies with the 23 provisions of article six of the business corporation law. 24 (g) A professional corporation which is subject to section fourteen 25 hundred six-a of this article may elect to become subject to this 26 section by amending such professional corporation's articles of incorpo- 27 ration or bylaws. 28 (h) A professional corporation or medical services corporation shall 29 not take any retaliatory action, as defined by section seven hundred 30 forty of the labor law, against a medical licensee as retaliation for, 31 or as a consequence of, such medical licensee's violation of a non-dis- 32 closure agreement or non-disparagement agreement or because such medical 33 licensee, in good faith, disclosed or reported information that such 34 medical licensee believes is evidence of a violation of a federal or 35 state law, rule or regulation to: 36 (1) the management services organization; 37 (2) a hospital, as defined in section twenty-eight hundred one of the 38 public health law; or 39 (3) a state or federal authority. 40 § 2. The business corporation law is amended by adding two new 41 sections 1517 and 1518 to read as follows: 42 § 1517. Professional corporations; medicine. 43 (a) As used in this section, the following terms shall have the 44 following meanings: 45 (1) "Professional corporation" means a professional corporation organ- 46 ized for the purpose of practicing medicine. 47 (2) "Practice of medicine", "practicing medicine" or any variation of 48 such term shall have the same meaning as the term "practice of medicine" 49 is defined by section sixty-five hundred twenty-two of the education 50 law. 51 (b) (1) In a professional corporation: 52 (i) physicians who are licensed in this state to practice medicine 53 shall hold the majority of each class of shares that are entitled to 54 vote; 55 (ii) physicians who are licensed in this state to practice medicine 56 shall be a majority of the directors; and 
 S. 8442 5 1 (iii) all officers, except the secretary and treasurer, if any, shall 2 be physicians who are licensed in this state to practice medicine. The 3 same person may hold any two or more offices. 4 (2) Except as otherwise provided by law, the department of health may 5 expressly require that physicians who are licensed in this state to 6 practice medicine hold more than a majority of each class of shares that 7 is entitled to vote. 8 (3) Except as otherwise provided by law, the department of health may 9 expressly require that physicians who are licensed in this state to 10 practice medicine be more than a majority of the directors. 11 (c) A corporation which is not organized for the purpose of practicing 12 medicine may be a shareholder of a professional corporation solely for 13 the purpose of effecting a reorganization as defined by 26 USC 368. 14 (d)(1) Except as provided in subparagraph (2) of this paragraph, a 15 professional corporation shall not provide in such professional corpo- 16 ration's articles of incorporation or bylaws, or by means of a contract 17 or other agreement or arrangement, for removing a director, appointed in 18 accordance with subparagraph (1) of paragraph (b) of this section, from 19 such professional corporation's board of directors, or an officer, 20 appointed in accordance with subparagraph (1) of paragraph (b) of this 21 section, from an office of such professional corporation, except by a 22 majority vote of the shareholders or, as appropriate, a majority vote of 23 the directors. 24 (2) A professional corporation may remove a director or officer by 25 means other than a majority vote of the shareholders or a majority vote 26 of the directors if such director or officer which is subject to 27 removal: 28 (i) violated a duty of care, a duty of loyalty, or another fiduciary 29 duty to such professional corporation; 30 (ii) was the subject of a disciplinary proceeding by the department of 31 health, the department of education, or the state board for medicine, in 32 this state, or such equivalent entity in another state, in which such 33 director or officer's license to practice medicine in this or another 34 state was suspended or revoked; 35 (iii) engaged in fraud, misfeasance, or malfeasance with respect to 36 such director or officer's performance of duties for or on behalf of 37 such professional corporation; 38 (iv) resigned, separated, or was terminated from employment with such 39 professional corporation; or 40 (v) failed to meet standards or criteria such professional corporation 41 established for a position as a director or officer. 42 (e) A professional corporation may relinquish or transfer control over 43 such professional corporation's administrative, business, or clinical 44 operations only if such professional corporation executes a shareholder 45 agreement exclusively between or among and for the benefit of a majority 46 of shareholders who are physicians licensed in this state to practice 47 medicine and the shareholder agreement complies with the provisions of 48 article six of this chapter. 49 (f)(1) The provisions of this section shall not apply to: 50 (i) a nonprofit corporation which is organized under the laws of this 51 state to provide medical services to migrant, rural, homeless, or other 52 medically underserved populations under 42 USC 254b or 254c, as in 53 effect on the effective date of this section; 54 (ii) a federally-qualified health center, as defined by 42 USC 55 1396d(I), as in effect on the effective date of this section, which 56 operates in compliance with other applicable state or federal law; or 
 S. 8442 6 1 (iii) except as provided in subparagraph (2) of this paragraph, a 2 for-profit or nonprofit business entity which is incorporated or organ- 3 ized under the laws of this state, which provides the entirety of such 4 business entity's medical services through one or more rural health 5 clinics, as defined in 42 USC 1395x, as in effect on the effective date 6 of this section, and which operates in compliance with state and federal 7 laws that apply to rural health clinics. 8 (2) A business entity is exempt under this subsection for a period of 9 up to one year after such business entity establishes a rural health 10 clinic, even though such rural health clinic which such business entity 11 establishes does not meet all of the elements of the definition set 12 forth in 42 USC 1395x, as in effect on the effective date of this 13 section, if during such one-year period an applicable certification for 14 such rural health clinic is pending. 15 (g) A professional corporation or medical services corporation shall 16 not take any retaliatory action, as defined by section seven hundred 17 forty of the labor law, against a medical licensee as retaliation for, 18 or as a consequence of, such medical licensee's violation of a nondis- 19 closure agreement or non-disparagement agreement or because such medical 20 licensee, in good faith, disclosed or reported information that such 21 medical licensee believes is evidence of a violation of a federal or 22 state law, rule or regulation to: 23 (1) the management services organization; 24 (2) a hospital, as defined in section twenty-eight hundred one of the 25 public health law; or 26 (3) a state or federal authority. 27 § 1518. Professional corporations; health care services. 28 (a) As used in this section, the following terms shall have the 29 following meanings: 30 (1) "Licensee" means an individual who has a license as a physician or 31 a license as a physician associate from the state board for medicine or 32 the department of education or who has a license as a nurse practitioner 33 from the state board for nursing or the department of education. 34 (2) "Professional corporation" means a professional corporation that 35 is organized for the purpose of enabling physicians, physician associ- 36 ates and nurse practitioners to jointly render professional health care 37 services. 38 (b) In a professional corporation, licensees shall: 39 (1) hold a majority of each class of shares of such professional 40 corporation which is entitled to vote; and 41 (2) be a majority of the directors of such professional corporation. 42 (c) An individual whom a professional corporation employs, or an indi- 43 vidual who owns an interest in such professional corporation, shall not 44 direct or control the professional judgment of a licensee who is prac- 45 ticing within such professional corporation and within the scope of 46 practice permitted under such licensee's license. 47 (d) A licensee whom a professional corporation employs, or a licensee 48 who owns an interest in such professional corporation, shall not direct 49 or control the services of another licensee who is practicing within 50 such professional corporation unless the other licensee is also practic- 51 ing within the scope of practice permitted under such licensee's 52 license. 53 (e)(1) Except as provided in subparagraph (2) of this paragraph, a 54 professional corporation shall not provide in such professional corpo- 55 ration's articles of incorporation or bylaws, or by means of a contract 56 or other agreement or arrangement, for removing a director from such 
 S. 8442 7 1 professional corporation's board of directors, except by a majority vote 2 of the shareholders or, as appropriate, a majority vote of the direc- 3 tors. 4 (2) A professional corporation may remove a director by means other 5 than a majority vote of the shareholders or a majority vote of the 6 directors if such director that is subject to removal: 7 (i) violated a duty of care, a duty of loyalty, or another fiduciary 8 duty to such professional corporation; 9 (ii) was the subject of a disciplinary proceeding by the department of 10 health, the department of education, or the state board for medicine, in 11 this state, or such equivalent entity in another state, in which such 12 director or officer's license to practice medicine in this or another 13 state was suspended or revoked; 14 (iii) engaged in fraud, misfeasance, or malfeasance with respect to 15 such director's performance of duties for or on behalf of such profes- 16 sional corporation; 17 (iv) resigned, separated, or was terminated from employment with such 18 professional corporation; or 19 (v) failed to meet standards or criteria such professional corporation 20 established for a position as a director. 21 (f) A professional corporation may relinquish or transfer control over 22 such professional corporation's administrative, business, or clinical 23 operations only if such professional corporation executes a shareholder 24 agreement exclusively between or among and for the benefit of a majority 25 of shareholders and such shareholder agreement complies with the 26 provisions of article six of this chapter. 27 (g) A professional corporation which is subject to section fifteen 28 hundred seventeen of this article may elect to become subject to this 29 section by amending such professional corporation's articles of incorpo- 30 ration or bylaws. 31 (h) A professional corporation or medical services corporation shall 32 not take any retaliatory action, as defined by section seven hundred 33 forty of the labor law, against a medical licensee as retaliation for, 34 or as a consequence of, such medical licensee's violation of a nondis- 35 closure agreement or non-disparagement agreement or because such medical 36 licensee, in good faith, disclosed or reported information that such 37 medical licensee believes is evidence of a violation of a federal or 38 state law, rule or regulation to: 39 (1) the management services organization; 40 (2) a hospital, as defined in section twenty-eight hundred one of the 41 public health law; or 42 (3) a state or federal authority. 43 § 3. Section 1508 of the business corporation law is amended by adding 44 a new paragraph (d) to read as follows: 45 (d) The directors and officers of any professional corporation estab- 46 lished for the purpose of practicing medicine may include individuals 47 who are not licensed to practice medicine in any state, provided however 48 that at least a simple majority of each class of shares which are enti- 49 tled to voting rights of such corporation, as well as the president, the 50 chairperson of the board of directors, and the chief executive officer 51 or officers, except the secretary or treasurer, if any, are authorized 52 by law to practice medicine in this state, and are either shareholders 53 of such corporation or engaged in the practice of medicine in such 54 corporation. 55 § 4. Section 2801 of the public health law is amended by adding a new 56 subdivision 15 to read as follows: 
 S. 8442 8 1 15. "Professional corporation" means a professional corporation or 2 partnership organized for the purpose of practicing medicine. 3 § 5. Subdivision 4 of section 2801-a of the public health law is 4 amended by adding a new paragraph (e-1) to read as follows: 5 (e-1) (i) No hospital shall be approved for establishment which would 6 be operated by a professional corporation unless: 7 (A) physicians who are licensed in this state to practice medicine 8 hold the majority of each class of shares which are entitled to vote; 9 (B) physicians who are licensed in this state to practice medicine 10 constitute a majority of the directors; and 11 (C) all officers, except the secretary and treasurer, if any, are 12 physicians who are licensed in this state to practice medicine. The same 13 person may hold any two or more offices. 14 (ii) Except as otherwise provided by law, the department may expressly 15 require that physicians who are licensed in this state to practice medi- 16 cine hold more than a majority of each class of shares that is entitled 17 to vote. 18 (iii) Except as otherwise provided by law, the department may express- 19 ly require that physicians who are licensed in this state to practice 20 medicine be more than a majority of the directors. 21 § 6. This act shall take effect immediately.