Corporate Practice of Medicine in California: What Every Clinic Owner Needs to Know in 2026

TL;DR – Corporate Practice of Medicine in California

• California has some of the strictest CPOM rules in the U.S. — only licensed physicians can own medical practices.
• PC/MSO models are the compliant structure: physician-owned Professional Corporation (PC) + non-physician-owned Management Services Organization (MSO).
• Fee structures matter: fixed or cost-plus fees are safest; percentage-based fees are risky and scrutinized.
• Avoid strawman arrangements — physicians must retain meaningful oversight of care, not just act as figureheads.
• Bottom line: If you’re running a medspa, clinic, or NP-led business in California, you need a properly structured PC/MSO to stay compliant, attract investment, and scale.

Introduction: Why CPOM Is Strict in California

California is one of the most heavily regulated states when it comes to the Corporate Practice of Medicine (CPOM) doctrine. For entrepreneurs, investors, medspa owners, and nurse practitioners, this means compliance isn’t optional — it’s the foundation of running a legally sound and scalable business.

Unlike permissive states (like Florida or Illinois) where non-physicians can sometimes own or influence medical practices, California law is clear: medical practices must be owned and controlled by physicians. Business professionals may provide support, but they cannot direct patient care or interfere with medical judgment.

That’s why nearly every successful healthcare business in California — from small IV therapy practices to large dermatology networks — relies on the PC/MSO model to separate clinical and business functions.

Protecting Against the Rising Corporate Influence in Healthcare

Private equity and corporate investment in physician practices have surged over the past decade, increasing sixfold and raising concerns about physician autonomy, care quality, and market consolidation.

Research shows these deals can lead to mixed or even harmful impacts on costs and patient outcomes, which is why many states are strengthening CPOM enforcement, increasing transaction-review oversight, and limiting how much control MSOs and investors can exert over clinical operations.

In California, these trends make strict CPOM compliance even more essential — ensuring that clinical judgment stays with licensed physicians while allowing entrepreneurs and investors to participate responsibly through properly structured PC/MSO arrangements.

What CPOM Means in California

The CPOM doctrine in California prevents corporations and non-physicians from:

• Employing doctors or controlling their clinical judgment.
• Directing treatment plans, prescribing protocols, or patient care decisions.
• Sharing directly in medical revenues.

This protects patients by ensuring that licensed physicians always make clinical decisions — free from business or financial pressure.

In practice, this means that:

• Only physicians may own Professional Corporations (PCs) that deliver medical services.
• Non-physicians, investors, and entrepreneurs must operate on the management side, not the clinical side.
• Any arrangement where the MSO appears to control the physician’s clinical authority may be considered illegal.

If you’re a healthcare business owner in California, it’s critical that you review the California Medical Board laws and regulations.

Who Can Own a Medical Practice in California?

Under California law:

• Licensed physicians may own professional medical corporations.
• In some cases, other licensed providers (e.g., podiatrists, psychologists) may co-own limited portions, but physicians must maintain majority control.
• Nurse practitioners (NPs), physician assistants (PAs), and non-licensed entrepreneurs cannot directly own or control a medical practice.

This means that if you’re a nurse practitioner opening a medspa or IV hydration clinic in California, you’ll need a collaborating physician who owns the PC — and you’ll operate through an MSO.

The PC/MSO Model Explained

The Professional Corporation / Management Services Organization (PC/MSO) structure is the gold standard for CPOM compliance in California.

• PC (Professional Corporation): Physician-owned entity responsible for all clinical operations, provider employment, and patient care decisions.
• MSO (Management Services Organization): Non-physician-owned entity that runs business functions like marketing, billing, HR, payroll, and scheduling.
• MSA (Management Services Agreement): Legal contract between the PC and MSO that defines services, responsibilities, and fees.

Analogy: Think of the PC as the pilot flying the plane and the MSO as the ground crew. The pilot decides how to fly; the ground crew ensures the plane is fueled, staffed, and on schedule. Both are essential — but only the pilot can fly.

Fee-Splitting and Percentage-Based Risks in CA

One of the most common compliance pitfalls is how the MSO gets paid. Regulators pay close attention to money flow, because it can reveal whether an arrangement is compliant or a “strawman.”

Safe models in California:

• Fixed Fees: A set monthly or annual fee for management services.
• Cost-Plus Fees: Actual costs of operations (e.g., payroll, rent, software) plus a reasonable markup.

Riskier models:

• Percentage-Based Fees: The MSO takes a percentage of the PC’s revenue. While California sometimes allows these if they’re commercially reasonable and tied to non-referral services, they remain risky and heavily scrutinized.

Best practice: Use fixed or cost-plus fees backed by Fair Market Value (FMV) analysis. Document how fees are calculated to defend your structure if audited.

Avoiding Strawman Arrangements

California regulators are especially watchful for strawman arrangements, where the physician is a figurehead but the MSO actually runs the practice.

Red flags of a strawman setup:

• Patient revenue flows directly into the MSO, bypassing the PC.
• The MSO hires and fires providers without physician input.
• The physician doesn’t review charts, sign protocols, or oversee clinical operations.

Compliant arrangements include:

• Revenue flow: Patient → PC → MSO (under the MSA).
• Physician oversight: Active chart review, protocol development, and clinical supervision.
• Distinct roles: Business functions handled by the MSO, clinical judgment retained by the physician.

Step-by-Step Compliance Setup in California

1. Research CPOM requirements for your specialty and location.
2. Form a physician-owned PC (Professional Corporation or Professional LLC).
3. Create an MSO (Management Services Organization) to handle non-clinical tasks.
4. Draft an MSA (Management Services Agreement) with fixed or cost-plus fees supported by FMV.
5. Ensure proper money flow (all patient revenue into the PC, then paid to the MSO).
6. Document physician involvement (chart reviews, protocols, oversight logs).
7. Maintain separateness between the PC and MSO to avoid strawman risk.

Medical Oversight and CPOM

Ensuring the right physician partner is one of the most important steps in building a compliant PC/MSO structure in California. Your medical director isn’t just a name on a contract—they play a central role in oversight, documentation, chart review, and maintaining the clinical authority required under California’s CPOM rules.

For a deeper look at what to look for in a collaborating physician and how to choose the right partner for your clinic, see “How to Find a Medical Director: What Every Clinic Owner Needs to Know.”

Conclusion: Why California Clinics Benefit from Professional Oversight

For healthcare entrepreneurs in California, understanding and complying with the Corporate Practice of Medicine doctrine isn’t just a legal requirement — it’s a business strategy.

The right PC/MSO structure allows physicians to focus on patient care while entrepreneurs, NPs, and investors manage operations. Done correctly, this model provides:

• Legal protection against board actions and fines.
• Operational stability even during audits or growth transitions.
• Scalability across multiple locations and services.
• Investment readiness for private equity or future buyers.

At GuardianMD, we specialize in helping clinics and medspas navigate California’s strict CPOM rules — with fully compliant PC/MSO structures, physician oversight, and board-ready documentation.

If you’re ready to launch your healthcare business and need a medical director or collaborating physician, reach out to GuardianMD and set up a discovery call. We’re here to help you build safely without the stress.