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New York Executive Budget Proposes Corporate Ownership of Retail Clinics, Tax on Not-for-Profit Health Insurance Conversions

Last week, Governor Andrew Cuomo unveiled his proposed $168 billion budget for fiscal year 2019, which proposes several changes to New York’s healthcare landscape.  Among other things, the budget contains amendments that would authorize the provision of certain health services by retail health clinics, and proposes a tax on private health insurance companies and not-for-profit health insurance conversions.

Ownership and Operation of Retail Health Clinics

Currently, retail clinics lease space to providers within their stores but do not actually own them due to corporate practice of medicine (CPOM) rules.  The budget contains amendments to the Public Health Law that would authorize the direct provision of certain healthcare services by “retail practices.” The amendment would define a “retail practice” as an entity located within a retail business that is open to the public, with direct customer access from the retail operation to the practice, which is established and overseen by a “retail practice sponsor.”  A “retail practice sponsor,” in addition to hospitals and other licensed facilities, includes business corporations formed under the laws of New York.

This would not be the state’s first attempt to loosen the CPOM reigns around retail clinics.  There have been multiple efforts to set ownership and operational standards for retail clinics, including a 2016 Senate budget proposal that would have permitted retail clinics to be owned by publicly traded corporations.  It is not clear whether – or why – this proposal will carry the day, but the Governor offered this statement in his executive briefing:

Studies have shown that retail clinics are 40‐80% less expensive than alternate sites of care while providing commensurate quality. Retail practices offer extended hours with no appointment needed, increasing access to primary care services and providing an alternative to emergency room care.

The services offered by retail practices would be limited to, among other things, treatment for “minor acute episodic illnesses or conditions,” immunizations, treatment of minor traumas, and limited behavioral health screenings. It may also include certain laboratory tests, but would not include procedures that require sedation or anesthesia, treatment for children under the age of two and pediatric vaccinations other than flu shots.

Health Insurance Windfall Fee and Not-for-Profit Conversion Tax

The budget proposes an amendment to the state Tax Law that would impose a “healthcare insurance windfall profit fee” – a 14% tax – on the gains of private health insurance companies.  In his budget address, Governor Cuomo explained that the tax is intended to recapture the “windfall” insurance companies will receive as a result of the Federal tax rate reduction from 35% to 21%.  The fees collected by the state will be reinvested in vital healthcare services for New Yorkers.

The Budget also anticipates additional revenue of $500 million annually over four years by taxing transactions that result in not‐for‐profit health insurers converting to corporations organized for pecuniary profit.  If enacted, the revenue received from such transactions would be used to fund a new account designated for health services to New York State residents in an effort to offset the anticipated losses from Federal health care funding cuts.

It will be interesting to see whether either of the two proposals discussed above is passed into law.  New York is a strict corporate practice of medicine state, and passing legislation that in any way undermines CPOM principles will face an uphill battle.  Indeed, legislation addressing the ownership and operation of retail clinics has been included in the budget for the last several years, only to be rejected each time.  Likewise, the windfall and conversion taxes will no doubt face strong opposition from the insurance industry.

The State legislature is now tasked with reaching an agreement on the budget, which must be adopted by March 31, right before the start of the 2018-19 fiscal year. As with all proposed legislation, changes are expected before anything is finalized.  As more information becomes available through the legislative process, updates will follow.

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