Introduction
Healthcare is changing rapidly, particularly with the growth of new healthcare entrepreneurs and telehealth since the COVID-19 pandemic. This shift has not only broadened access to care, but has also led to a wave of new both clinic-based as well as virtual-first care delivery companies. Some of these new, modern healthcare companies have been founded by entrepreneurs with past careers as operators, business leaders, nurses, or engineers—not physicians.
With this new breed of healthcare entrepreneurs, it’s more important to understand the nuances of Corporate Practice of Medicine (CPOM) compliance. These state-level regulations are important in guiding how healthcare and telehealth providers can form and operate (particularly as a new wave of entrepreneurs enter healthcare, often with ambitions to practice across multiple states, if not all 50 states).
This overview outlines state CPOM laws, the friendly Professional Corporation (PC) model, the role of "friendly" physician PC owners, and how Management Services Organizations (MSOs) ensure compliance for both clinic-based groups and telehealth companies alike.
What are Corporate Practice of Medicine (CPOM) Laws?
CPOM laws are regulations that prohibit standard corporations (or other non-physician entities) from practicing medicine or employing practicing physicians. The primary goal of these laws is to ensure that medical decisions are made solely based on patient care and not influenced by corporate interests. These laws vary by state, but they generally aim to protect the physician-patient relationship from commercial influence.
While the focus is often on physicians and medical care, the CPOM family of laws typically apply to a wide range of licensed professional healthcare providers, including psychologists, speech therapists, physical therapists, occupational therapists, mid-level providers (nurse practitioners and physician assistants), dentists, podiatrists, chiropractors, optometrists, and many others licensed healthcare professionals. The goal of CPOM laws is typically shared across these professions: ensure clinical decisions aren’t influenced by corporate pressures.
Who Do These CPOM Laws Apply To?
A state’s CPOM restrictions typically apply to lay corporate entity that is not owned by a licensed professional and that seeks to provide medical or licensed healthcare services. This typically includes non-physician-owned corporations, limited liability companies (LLCs), and other business entities. For an entity to comply with CPOM laws and practice medicine, it typically must be:
- 100% (or majority) owned by a physician (or physicians) licensed to practice medicine in that state, and
- Formed as a special type of physician-owned professional legal entity: a Professional Corporation (“PC” for short). In some states, a Professional Limited Liability Company (“PLLC”) is also permitted. Some states use the term Professional Association (or "PA"), which functions the same as a Professional Corporation.
Most states with CPOM laws only permit the corporate practice of medicine through these physician-owned PCs or PLLCs.
What’s a PC in Healthcare?
As discussed above, a physician-owned Professional Corporation (PC) is a legal entity owned exclusively by licensed physicians to provide medical services. It is not sufficient for a PC owner to be licensed to practice medicine elsewhere: To own a state's PC, they must be licensed to practice medicine in that specific state.
In most states with CPOM laws, depending on the details, a physician-owned Professional Corporation can be sufficient for employing other types of healthcare providers (e.g. psychologists, occupational therapists, nurses, and so forth). The reverse typically does not apply (e.g. a therapist cannot own a PC that employs physicians and deliver physicians’ services). For this reason, many behavioral health companies organize their practices as physician-owned PCs. (They also often intend to add on other forms of care—like psychiatry or medication management—that eventually will require physicians.)
What is an MSO in healthcare?
A Management Services Organization (MSO) is a separate entity that provides non-clinical business services to the PC, such as billing, staffing, and marketing. It typically employs all non-clinical staff (think software engineers, operations managers, admin staff, the founders).
If a healthcare company is seeking venture capital or private equity funding, its MSO will typically be structured as a Delaware C-corporation and accept this outside investment. The company founders and employees will have their ownership stake and equity in the MSO, not in the PC (whose ownership must exclusively be licensed doctors). Investors cannot hold a stake in the PC entity itself for the same reason.
Creating a PC-MSO structure is a way for non-physician founders to start a healthcare company (in which they and their employees have an ownership stake). It also allows them to take outside investment compliantly with Corporate Practice of Medicine laws.
What is an MSA (Management Services Agreement)?
A MSA, or Management Services Agreement, is a contract between a PC and an MSO. It outlines how the MSO services the PC, how payment is structured, and how both parties will maintain compliance with CPOM laws. It's the keystone agreement that formalizes the PC-MSO structure, though there are several other friendly PC-MSO legal agreements involved.
Importantly, the Management Services Agreement defines a fee that the PC pays the MSO for its management services. This fee is intended to be set as the “fair market value” for the services the MSO is providing the PC. In practice, for healthcare founders, it helps ensure their MSO can ultimately earn the revenues that the PC has brought in, while reducing compliance exposure.
What is a Friendly PC Model?
In a friendly PC model, business leadership (e.g. company founders and the MSO management) is given the right to choose the physician PC owner and replace them as needed. Because of the ability to influence who is the physician PC owner, the MSO can often find a collaborative physician who is motivated to enable the business where possible and compliant. (An uncollaborative physician, for example, can be replaced.) The physician owner in this model is thus called a “friendly PC owner.”
Do You Need a Friendly PC?
In states with CPOM laws, all of your licensed physicians must practice through a PC entity. It can take time and money to form a friendly PC-MSO structure. One alternative is to plug into an existing 50-state friendly PC network and clinically practice under its auspices. This involves executing a Management Services Agreement between your company and an existing PC network, and then hiring your clinicians as contractors of the PC network (under the direction of its physician leadership), so their clinical practice is complaint. (Permit offers this type of 50-state friendly PC network as a service.)
What are the consequences of breaching CPOM laws?
Breaching state corporate practice of medicine (CPOM) laws in the U.S. can lead to significant consequences. Violators may face legal actions and steep fines for non-compliance. Criminal charges may also arise, especially in cases involving fraud or bad intent. Healthcare professionals may risk losing their medical licenses, impacting their careers. Contracts violating CPOM laws, like those between physicians and non-compliant companies, can be declared unenforceable. Additionally, malpractice or liability insurances might not cover activities performed in violation of these laws. If there are third-party payers and insurance companies involved, they may seek to claw back claims paid to a group that didn't comply with CPOM and was "fraudulently organized." Compliance with CPOM laws can be esoteric for founders newer to healthcare, but it's worth taking seriously.
What is a Friendly PC Owner?
A friendly PC owner is a licensed physician who owns and controls the Professional Corporation. This individual is responsible for providing medical oversight and consulting to ensure the practice complies with CPOM laws and regulations. The term "friendly" typically refers to their collaborative relationship with the MSO.
What are the Roles and Responsibilities of a Friendly PC Owner?
A friendly PC owner has several key responsibilities, including providing medical oversight and consultation to healthcare businesses. Their work helps ensure compliance with state medical laws and regulations, particularly Corporate Practice of Medicine (CPOM) laws discussed above. The friendly PC owner must be licensed to practice medicine in all CPOM states in which the practice operates. This is one reason a 50-state-licensed friendly PC owner is often sought by telehealth companies. It’s also possible to have multiple friendly PC owners for distinct PC legal entities (e.g. one who owns a PC operating in 10 states, while another who owns the set of PCs operating in the other 40 states), though this can introduce some additional administrative work. (Each PC entity needs its own bank account and income tax filing, for example.)
Depending on the arrange, the friendly PC owner might be a clinical leader in the organization. Or there might be separate licensed clinical leadership hires who provide deeper day-to-day clinical guidance and management of the employed physicians. On the administrative side, the MSO’s employees handle the non-clinical aspects of managing the practice (e.g. accounting, payer contracting, technology, operations, and more).
Why Would You Want a 50-State Licensed Physician As PC Owner?
A physician PC owner must be licensed to practice medicine in all states in which the PC operates. Many telehealth providers have the ambition to operate in all 50 states and DC, even if they start with only a subset of those states. By working with a 50-state-licensed physician as PC owner, these telemedicine companies can ensure they’ll be able to scale nationally with the same physician PC owner (and stay compliant with CPOM laws), while reducing the operational complexity of scaling.
How Much Does It Cost To Get a Physician Licensed In All 50 States?
A new healthcare businesses or startup may need to decide between:
- Finding a friendly PC owner with existing medical licenses in 50 states, or
- Nationally licensing a doctor they’re already currently working with (e.g. an advisor or employee).
One important consideration here is cost. The total cost to get a physician licensed in all 50 states can be over $90,000, which includes state fees, vendor service fees, license verifications, as well as additional costs (FCVS profile submissions, NBME transcripts, NPDB reports, AMA reports, notarizations, fingerprinting, etc.).
In addition to the initial licensing fees to get all 50 states, there are renewal fees. Most states require medical license renewal every 1-2 years. On average, these 50-state medical license renewals can be close to $24,000 when managed through a vendor (a combination of state license fees as well as vendor fees). There’s also the additional overhead of managing CMEs (Continuing Medical Education requirements) and tracking states’ rules.
An additional consideration is time. It can take 12-18+ months for a doctor to get licensed in all 50 states, with some outlier states taking longer. Most companies report that it takes longer than expected at various different steps (even when working through the Interstate Medical Licensure Compact, or IMLC). This time delay can be a blocker if expanding to other states is important.
Because of the high cost of getting licenses and their annual renewals (in both money and time), it’s common for telehealth companies to seek to partner with a physician PC owner who’s already widely licensed. (Depending on the compensation structure, this can be a more affordable option.)
How many Friendly PC healthcare entities do I need?
At a minimum, healthcare counsel often recommends 4-to-5 PC entities to serve all 50 states and DC. It would be burdensome for a telehealth company to need 51 distinct PC entities to serve the entire country. Thankfully, that's typically not needed. The most common model is to choose a starting state in which to form what's called a "Mega PC" or "Super PC." The "Mega PC" or "Super PC" then can be foreign-qualified in the ~46 states which allow foreign professional corporations, without a distinct new PC entity being formed. It's most common for Florida or Delaware to be the initial state for the Mega PC (for regulatory and other reason), but other states are used as well. That said, three states require (or are ideally served by) a local, distinct PC entity (New Jersey, California, and Kansas). While New York doesn't strictly require a distinct PC entity, it's typically not covered through the Mega PC, to avoid burdening the Mega PC with New York's greater regulartory restrictions. So at a minimum, one would typically have 4-to-5 PC entities to serve all 50 states and DC.
Which States Have Corporate Practice of Medicine Laws?
CPOM laws are not uniform across the United States. States like California, Texas, New York, North Carolina, Nevada and others have strict CPOM laws, while some states have more relaxed regulations.
As of 2024, the following 34 states do have some form of Corporate Practice of Medicine (CPOM laws):
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- D.C.
- Georgia
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Montana
- Nevada
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Washington
- West Virginia
- Wisconsin
For states with CPOM laws, the laws vary meaningfully per state. It's important for healthcare companies to understand and comply with the laws specific to each state they operate in. Also note that the list above applies only to the practice of medicine. Other disciplines (e.g. speech therapy, psychological services) have different corporate practice of the professions laws that may include a different mix of states. Even when a state doesn't have formal CPOM laws, it can still be helpful to have a friendly PC-MSO structure, to minimize regulatory scrutiny and compliance risk. If your primary lay entity is a corporation (not an LLC), it can also help you with preserving QSBS ("Qualified Small Business Stock") tax status.
So, Can I Own a Medical Practice if I am Not a Doctor?
In most US states: No, you cannot own a medical practice if you are not a doctor licensed in that state. This is true for the 34 states that have a Corporate Practice of Medicine prohibition. That said, you can create a PC-MSO structure to comply with these laws, while still starting your medical business. Here, Permit can help.
Conclusion
Understanding and navigating the CPOM laws and the friendly PC-MSO model is crucial for healthcare organizations aiming to operate legally and ethically. By ensuring that medical decisions are made by licensed physicians and separating clinical from administrative functions, healthcare providers can maintain compliance while innovating to expand access to high-quality patient care. Permit Health works with top healthcare attorneys to help groups form compliant, rigorous PC-MSO structures that are affordable and meet strict timeline needs. If you have questions or if you’d like to chat about anything here further, just drop us a line at hello@permithealth.com.
