What Is the Corporate Practice of Medicine?

The corporate practice of medicine (CPOM) doctrine holds that only licensed physicians can own and control a medical practice. The doctrine exists to protect the physician-patient relationship from commercial interference — the idea being that business interests should never override clinical judgment.

In practical terms, CPOM means that in most states, a non-physician cannot own a medical practice, employ physicians, or control clinical decisions. This affects every healthcare entrepreneur, investor, and non-physician operator who wants to build a medical business.

The doctrine is not federal law — it is a state-by-state patchwork of statutes, regulations, and case law. Some states enforce it strictly (California, New York, Texas). Others have broad exceptions or limited enforcement. A few states have effectively eliminated CPOM barriers for certain practice types or provider categories.

The PC/MSO Model: How It Works

The PC/MSO structure is the standard legal solution to CPOM in states that require physician ownership. It separates the clinical and business functions of a medical practice into two distinct entities:

The Professional Corporation (PC) is owned by a licensed physician. It employs clinical staff, holds the medical licenses, bills insurance, and controls all clinical decisions. The physician-owner is legally responsible for the quality of care delivered.

The Management Services Organization (MSO) is a separate business entity — typically an LLC — that handles non-clinical operations: billing administration, marketing, HR, technology, facilities, and business development. The MSO can be owned by non-physicians, investors, or the physician themselves.

The two entities are connected by an MSO Agreement — a contract that defines the services the MSO provides to the PC and the management fee the PC pays in return. The fee must reflect fair market value to comply with the Anti-Kickback Statute and Stark Law.

Why This Structure Matters for Healthcare Entrepreneurs

If you are building a telehealth company, med spa, weight loss clinic, IV therapy business, or any other healthcare venture, you need to understand CPOM before you incorporate anything.

Non-physician entrepreneurs who want to build healthcare businesses typically use the PC/MSO model to:

- Participate in the economics of a medical practice without violating CPOM - Attract non-physician investors to a healthcare business - Separate business risk from clinical liability - Scale operations across multiple states with different CPOM rules - Position the business for private equity investment or acquisition

The MSO captures the business value — brand, technology, operations, and growth — while the PC maintains physician control over clinical decisions. This is the structure behind most private equity-backed healthcare companies, telehealth platforms, and multi-site clinic chains.

AJ Pakpour Verified & Preferred Providers

Verified or preferred providers listed here are organizations AJ Pakpour has worked with, reviewed, recommended, or identified as aligned with The Business of Modern Medicine.

Doctor Staffers — For healthcare businesses that need a qualified physician to serve as the PC owner or medical director, Doctor Staffers connects you with board-certified physicians experienced in medical directorship and collaborative practice arrangements. Visit doctorstaffers.com.

Key Compliance Considerations

Anti-Kickback Statute (AKS): The MSO fee must reflect fair market value for the services provided. Inflated management fees that effectively transfer practice revenue to non-physician owners can violate the AKS.

Stark Law: If the PC bills Medicare or Medicaid, the MSO arrangement must comply with Stark Law's applicable exceptions.

State CPOM laws: Verify your state's specific CPOM rules before finalizing your structure. Some states require the physician to hold a majority ownership interest. Others require the physician to be the sole owner.

Licensing: The PC must hold all required medical licenses, DEA registrations, and payer contracts. These cannot be held by the MSO.

Corporate formalities: Maintain strict separation between the PC and MSO. Commingled finances or blurred operational boundaries can pierce the corporate veil.

• ✓MSO fee reflects fair market value — documented with FMV analysis
• ✓PC holds all medical licenses, DEA registrations, and payer contracts
• ✓Separate bank accounts and financial records for PC and MSO
• ✓Written MSO Agreement reviewed by healthcare attorney
• ✓State-specific CPOM requirements verified with local counsel
• ✓Corporate formalities maintained for both entities

Common Mistakes

Using a generic LLC instead of a PC: In CPOM states, a non-physician-owned LLC cannot employ physicians or bill for medical services.

No MSO agreement: Operating without a written MSO agreement leaves both entities exposed. The agreement defines the relationship, the fee, and — critically — the separation of clinical authority.

Unreasonable management fees: Fees that are too high or too low create regulatory risk. Document the fair market value basis for your fee structure.

Physician in name only: A physician who signs paperwork but has no real involvement in clinical oversight creates liability for everyone. The physician-owner must actually fulfill their clinical responsibilities.

Ignoring state-specific rules: CPOM is a state law issue. What works in Florida may not work in California. Always verify your structure with a state-specific healthcare attorney.