New York Reconsidering Private Equity Investment in Health Care Entities

New York State is again considering whether to allow private equity investment in health care facilities after the first proposal to do so was dropped from the 2013-2014 enacted budget due to a lack of support. Gov. Andrew Cuomo’s 2014-2015 budget proposal calls for a two-year pilot program, subject to the Public Health and Health Planning Council’s approval, to establish up to five eligible for-profit corporations as owners or operators of hospitals. To be eligible, the corporations must affiliate with at least one academic medical center or teaching hospital and cannot be publicly traded corporations or private corporations with more than thirty-five stockholders. The purpose behind the pilot program is to “assist in restructuring health care delivery systems by allowing for increased capital investment in health care facilities.”

Pilot Program's Implementation Would Mark a Drastic Change

The implementation of the pilot program allowing private investment in hospitals would mark a drastic change for the health care industry in New York due to the State’s historically strict regulation of the practice of medicine, and of the establishment of hospitals. Current New York law prohibits a business corporation from practicing medicine or employing a physician to provide professional medical services, with some exceptions, unless the entity is “established” as a licensed hospital entity. Historically, other than a few physician-owned hospitals, hospitals in New York have been primarily operated by non-profit entities. This approach has prevented private investment in hospitals in New York.

Proponents of the pilot program argue that hospitals are in desperate need of capital and the reorganization of the health care system is necessary in order to save the facilities that are in danger of closing or going bankrupt. On the other hand, those against private investment in hospitals argue that becoming for-profit would allow owners and investors to cherry-pick certain patients and procedures, forcing the poorest and sickest patients into the already overburdened safety net hospitals. Moreover, prohibitions against the corporate practice of medicine are rooted in the concern that private companies could influence and interfere with medical decision-making. 

The 2014-2015 budget is expected to be resolved in early April so a decision on private investment in health care facilities is certainly on the horizon. While the pilot program has the potential to provide an opportunity for struggling health care facilities, its adoption faces many hurdles, which proved to be the case in 2013.