Introduction
If you’re managing or scaling a clinic, medspa, or nurse-led business, understanding the Corporate Practice of Medicine (CPOM) doctrine is essential. CPOM exists to ensure that medical decisions are made by licensed physicians—protecting patient care from undue business influence. However, CPOM enforcement varies significantly across states.
In this guide, we’ll comprehensively cover:
- What CPOM is and why it exists
- How different states enforce CPOM
- The role of the PC/MSO model in compliance
- Avoiding “strawman” structures with real regulatory citations
- Key state-specific nuances (California, New York, Texas, North Carolina, etc.)
- Step-by-step compliance setup
- Why non-CPOM states still benefit from PC/MSO
- FAQs and practical compliance guidance
TL;DR
- What it is: CPOM laws stop corporations and non-physicians from controlling medical decisions.
- Why it exists: To protect patients by keeping care decisions in the hands of licensed providers.
- How states differ: Some (CA, NY, TX, NC) are strict; others (like FL) are permissive but still regulate fee-splitting.
- PC/MSO model: The standard compliance structure where the physician-owned PC controls medicine, and the MSO handles business.
- Fee structures: Fixed or cost-plus fees are safest. Percentage-based fees are risky (allowed in CA, banned in NY).
- Avoid strawman setups: Ensure real medical oversight, chart reviews, and proper money flow (patient → PC → MSO).
- Why it matters everywhere: Even in non-CPOM states, PC/MSO models make scaling, selling, and compliance easier.
- Bottom line: A correct CPOM setup isn’t just compliance — it’s the foundation for scalability, investment, and long-term success.
What Is CPOM—and Why It Exists
The Corporate Practice of Medicine (CPOM) is a legal doctrine that prevents corporations and businesspeople from practicing medicine or controlling the way physicians treat patients.
In simple terms, CPOM makes sure that healthcare decisions are made by doctors, not business executives.
Why That Matters in Practice
Imagine if a large corporation decided to open clinics and the CEO was allowed to tell doctors like Dr. Seitz which medications to prescribe or which treatments to withhold because it would save money or increase profits. A physician might know that a certain therapy is the best choice for a patient, but if their corporate boss forced them to do something cheaper (and potentially riskier), the patient’s health would be put in jeopardy.
That’s exactly the kind of conflict of interest CPOM is designed to prevent.
Other real-world examples:
- Prescription pressure: Without corporate practice of medicine, a CEO could tell physicians to prescribe a certain drug because the company has a deal with the manufacturer—even if a different drug is safer or more effective for the patient.
- Treatment limits: A corporation might pressure doctors to see more patients in less time, cut corners on chart reviews, or deny more expensive procedures—even when medically necessary.
- Profit over care: In worst-case scenarios, business executives could directly influence whether patients receive certain therapies, based not on medical need but on financial return.
The Core Principle
At its core, CPOM exists so that:
- Medical judgment stays with licensed providers.
- Patients’ best interests come before profit margins.
- Physicians remain accountable for the quality and safety of care.
This doesn’t mean healthcare businesses can’t exist—it just means they have to be structured correctly (through models like PC/MSO, which we’ll cover below) so that doctors are always the ones making clinical decisions.
Corporate Practice of Medicine by State: How Different States Enforce the Doctrine
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- Strict CPOM States (California, New York, Texas, Colorado): Very protective of physician independence. They prohibit non-physician ownership and monitor how management companies interact with practices.
- Moderate States: Rules exist, but there are carve-outs for nurse practitioners or specific practice types.
- Permissive States (e.g., Florida): No explicit CPOM laws, but related rules like fee-splitting or fraud statutes still apply.
Simply Put: CPOM states are like highways. Some have law enforcement strategically placed to enforce speed limits and other traffic laws, and some don’t. In either casehowever, the rules ultimately still apply.
The PC/MSO Model: How Compliance Works in Practice
To operate legally, clinics in CPOM states often use a PC/MSO model:
- PC (Professional Corporation/PLLC): Physician-owned entity that employs providers and makes medical decisions.
- MSO (Management Services Organization): Non-physician-owned entity that runs the business side—marketing, scheduling, payroll, software, HR.
- MSA (Management Services Agreement): Contract between the two, defining services and fees.
Why It Matters
This setup allows:
- Physicians and other licensed providers to focus on patients, without distraction from payroll or marketing.
- Entrepreneurs/investors to scale the business, without interfering in medical decisions.
Simply Put: Think of the PC as the pilot flying the plane, and the MSO as the ground crew. The pilot decides how to fly safely; the ground crew makes sure the plane has fuel, luggage loaded, and a flight path filed. Both are essential, but only the pilot can fly.
Avoiding Strawman Arrangements
Some clinics try to cut corners by setting up strawman structures — where the physician is just a figurehead and the MSO really runs everything.
North Carolina’s Medical Board has warned against this exact problem, noting that strawman setups undermine patient safety and break the law.
Red Flags of a Strawman Arrangement
- All patient money goes straight to the MSO, skipping the PC.
- The MSO hires and fires providers without physician input.
- The doctor doesn’t review charts, sign off on protocols, or have any meaningful involvement.
What a Compliant Setup Looks Like
- Revenue flow: Patient money → PC → MSO (under a valid MSA).
- Fee structure:
- Fixed fees (safest everywhere).
- Percentage-based (allowed in CA, prohibited in NY).
- Real oversight: Doctors must review charts, establish protocols, and stay involved in clinical decisions.
CPOM and Fee-Splitting: Structuring MSO Fees Safely
One of the biggest compliance questions in the PC/MSO model is how the MSO gets paid. Regulators look very closely at fee structures, because money flow can be the difference between a compliant arrangement and an illegal “strawman” setup.
Here are the common models explained in plain terms:
Fixed Fees (Safest Choice)
- How it works: The MSO charges the PC a set monthly or annual fee for services like billing, HR, scheduling, or marketing.
- Why it’s safe: This is the most defensible structure because it avoids any appearance of “sharing” in the medical revenue. As long as the fee is tied to Fair Market Value (FMV) — meaning it reflects what similar services would reasonably cost — regulators are comfortable.
- Example: A medspa’s MSO charges $10,000 per month for administrative support. Whether the clinic makes $100,000 or $1 million that month, the MSO still gets $10,000.
Cost-Plus Models (Permissible with Caution)
- How it works: The MSO bills the PC for the actual cost of services (e.g., salaries, software, rent), plus a reasonable markup for profit.
- Why it can work: As long as the markup is modest and supported by an independent valuation, this model is generally allowed.
- Example: If payroll and overhead cost $50,000, the MSO might charge $55,000 — covering costs plus a 10% administrative margin.
- Risk: If the markup is too high or not well-documented, regulators may argue it’s just a disguised way of taking a cut of medical revenue.
Percentage-Based Models (Highest Risk)
- How it works: The MSO takes a percentage of the PC’s revenue instead of a fixed fee. For example, 5% of all patient revenue collected.
- Why it’s risky: Many states interpret this as fee-splitting — which is illegal, since it looks like a non-physician is sharing in medical profits.
- State differences:
- California: May allow percentage-based fees if they’re commercially reasonable and tied to non-referral, administrative services.
- New York: Explicitly prohibits percentage-based fees. All MSO arrangements must use fixed or cost-plus models.
- Most other states: Either prohibit or heavily discourage revenue percentages, because they create the perception that businesspeople are influencing medical care for financial gain.
- Example: A clinic makes $1 million in revenue, and the MSO takes 6%. That’s $60,000. Regulators may see this as the MSO having a financial stake in how much care is provided — which CPOM was designed to prevent.
Simply Put: Think of MSO fees like paying rent. A flat rent (fixed fee) is predictable and safe. A “rent + 10% of your sales” deal (percentage-based) might make sense in retail, but in healthcare it raises red flags — because it looks like the landlord (the MSO) profits from every prescription or procedure the doctor orders.
State-by-State CPOM Examples
- California:
- Very strict CPOM enforcement.
- Allows percentage-based MSO fees if “commercially reasonable.”
- Physician majority ownership required.
- New York:
- One of the strictest CPOM states.
- MSOs can only be paid fixed fees — percentage-based payments are considered unlawful fee-splitting.
- Texas:
- Prohibits non-physician ownership outright.
- Regulators have penalized businesses where the MSO exerted too much control.
- North Carolina:
- Explicitly warns against strawman arrangements.
- Requires physician ownership and oversight.
- New Jersey:
- Strict CPOM enforcement similar to New York.
- Only licensed physicians may own medical practices.
- Fee-splitting and non-physician influence are prohibited; MSO fees must be fixed or cost-based.
- Florida:
- Doesn’t formally ban corporate practice.
- But fee-splitting and kickback laws still apply — meaning sloppy structures can still land you in hot water.
- Illinois:
- Considered a permissive state without a formal CPOM doctrine.
- Non-physicians may own medical practices under general business entities.
- Boards still regulate fee-splitting, and many operators adopt PC/MSO models for scalability and investor readiness.
Structuring a CPOM-Compliant Practice: Step-by-Step
- Research state CPOM laws: Look for board statements, AG opinions, and case law.
- Form a physician-owned PC/PLLC:Ensures genuine clinical control.
- Establish an MSO:Handles non-clinical operations.
- Draft a compliant MSA:Use FMV-backed fixed or cost-plus fees—the safest.
- Ensure proper money flow: Patient revenue → PC → MSO.
- Document medical oversight:Chart reviews, treatment protocols, record keeping.
- Maintain separateness: Different governance, accounts, and roles prevent strawman setups.
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Why Even Non-CPOM States Use the PC/MSO Model
You might be wondering: If my state doesn’t have strict CPOM rules, why bother with all this structure?
The truth is, even in states without formal corporate practice of medicine prohibitions, savvy clinic owners, medspas, and investors still set up PC/MSO models — and for good reason.
1. Scalability Across States
Many clinics don’t plan to stay small. Once they grow, they often want to expand into neighboring states or even nationwide. If each state requires a different ownership setup, things get messy fast. By adopting the PC/MSO model from the beginning, clinics build a structure that works everywhere — whether in strict states like New York or more permissive ones like Florida.
Example: A medspa in Florida launches with a simple LLC because CPOM rules aren’t enforced there. A year later, they want to open in California and Texas. Suddenly, their structure doesn’t fit the stricter rules, and they’re stuck rebuilding everything. If they had started with PC/MSO, expansion would have been seamless.
2. Building Exit Value
From an investor’s perspective, MSOs are far more attractive than medical practices. Why?
- Medical practices are tied to physician licenses and ownership restrictions.
- MSOs, on the other hand, can be owned and sold like any other business.
Private equity firms, venture capital groups, and strategic buyers almost always prefer acquiring MSOs. That way, they can “plug and play” with physician-owned PCs across different states without having to buy or restructure a medical practice each time.
Analogy: Selling a medical practice is like selling a restaurant where the chef has to stay with the business for it to work. Selling an MSO is like selling the restaurant brand and systems — anyone can hire new chefs and keep the concept running.
3. Future-Proofing Against Regulation
Healthcare regulations rarely get looser over time — they almost always tighten. Even in non-CPOM states today, future laws or board rules could easily add restrictions. Clinics that already use PC/MSO structures are protected and won’t have to scramble to restructure under pressure.
Analogy: You don’t wait until the IRS audits you to start keeping receipts. The smartest operators build compliance into their business model from day one.
The Bottom Line: Even in non-CPOM states, the PC/MSO model isn’t just about legal compliance. It’s about building a business that can scale, attract serious investment, and withstand future regulatory changes.
1. What is the Corporate Practice of Medicine (CPOM)?
CPOM is a legal doctrine that prevents corporations and non-physicians from practicing medicine or controlling how physicians treat patients. It ensures that only licensed medical professionals make clinical decisions, protecting patients from profit-driven influence.
2. What happens if I violate CPOM or fee-splitting laws?
Violating CPOM can result in serious consequences, including:
- Disciplinary action from state medical boards
- Loss or suspension of a professional license
- Civil fines or invalidation of contracts
- In some cases, criminal penalties
3. Can a nurse practitioner (NP) or physician assistant (PA) own a medical practice in my state?
Ownership rules vary by state:
- Strict states (e.g., New York, Texas): Only physicians may own PCs.
- Moderate states (e.g., North Carolina, Arizona): Some allow NPs, PAs, or other licensed professionals to co-own.
- Permissive states (e.g., Florida): More flexible, but medical boards still require oversight and compliance.
Always check state-specific rules before structuring your business.
4. Do I need a PC/MSO structure in a non-CPOM state?
Not legally — but most growing clinics adopt it anyway. A PC/MSO structure:
- Works consistently across all states
- Makes expansion and exit strategies easier
- Protects against future regulatory changes
Even in permissive states, I’ve seen a lot of smart operators build with PC/MSO from day one.
5. How should money flow between the PC and MSO?
All patient revenues must flow into the physician-owned PC first. The PC then pays the MSO according to the terms of the management agreement. If money flows directly to the MSO, regulators may view it as an illegal “strawman” setup.
6. Are percentage-based MSO fees legal?
- California: Sometimes allowed if “commercially reasonable” and tied to non-clinical services.
- New York: Explicitly prohibited.
- Most other states: Either discourage or ban percentage-based fees because they resemble unlawful fee-splitting.
Fixed or cost-plus models are generally the safest. In my experience, regulators rarely push back when clinics use fixed or cost-plus models, because these clearly separate medical revenue from management fees.
7. How do CPOM rules affect selling my business?
Because physician ownership is required, selling the professional corporation (PC) itself is complicated. Instead, most entrepreneurs build value in the MSO, which can be bought and sold like any other business. This structure makes companies more attractive to private equity firms and strategic buyers.
8. Does CPOM apply to telemedicine and online healthcare companies?
Yes. Telehealth providers must comply with CPOM in every state they serve. This often requires setting up multiple physician-owned PCs, all linked to a central MSO. Regulators have closely scrutinized telemedicine companies, making compliant structures especially important in this space.
Conclusion
The Corporate Practice of Medicine doctrine is one of the foundational compliance principles in U.S. healthcare. While it varies state by state, the goal is always the same: protect patients by ensuring medical judgment stays in the hands of licensed providers.
By using a properly structured PC/MSO model, avoiding strawman pitfalls, and maintaining true compliance infrastructure, clinics can grow with confidence — while also building scalable, investor-ready businesses.
At GuardianMD, we don’t just “find you a medical director.” We help you build the entire compliance ecosystem so your business is legally sound, scalable, and positioned for long-term success.
About the Author
Christopher Seitz, MD is the Founder, CEO and Chief Medical Officer of GuardianMD and a national leader in medical oversight, compliance, and corporate practice of medicine structures for nurse practitioners and non-physician-owned clinics. Dr. Seitz is a board-certified Emergency Physician that holds active medical licenses in all 50 U.S. states. He is functional medicine trained as well and serves as a compliance advisor to health entrepreneurs, medical boards, and oversight organizations nationwide.
