Corporate Practice of Medicine for DPC¶

Quick Summary: Many states prohibit corporations from practicing medicine or employing physicians. These rules affect how you structure your practice, take on investors, or partner with non-physicians. Understanding CPOM is essential before structuring your DPC entity.

[!CAUTION] Corporate practice of medicine (CPOM) rules vary dramatically by state. Some states have strict prohibitions, others have exceptions, and some have no restrictions. This guide covers general concepts—verify specific rules with a healthcare attorney in your state.

What Is CPOM?¶

The Core Principle¶

Corporate practice of medicine doctrine: Only licensed physicians can practice medicine, and corporations (owned by non-physicians) cannot employ physicians to practice medicine.

The concern: Non-physicians making medical decisions for profit, compromising patient care.

What It Prevents¶

In strict CPOM states, non-physician owned entities typically cannot: - Employ physicians directly - Control medical decision-making - Share in professional fee revenue - Exercise control over how medicine is practiced

Why It Matters for DPC¶

You might think: "I'm just a solo doc, why does this matter?"

It matters if: - You take investment from non-physicians - You partner with businesspeople - You want to sell your practice to a non-physician - You merge with a corporate entity - You provide services through a management company

State-by-State Variation¶

Strict CPOM States¶

States with strong CPOM doctrine (examples): - California - New York - Texas - Illinois - Ohio - Florida

In these states: - Physicians must own the medical practice - Non-physicians cannot employ physicians - Management services arrangements require careful structuring - Workarounds exist but need legal expertise

No CPOM States¶

States without CPOM restrictions: - Some states permit corporate employment of physicians - Check your specific state

Limited CPOM States¶

Some states have exceptions: - Hospital exception - HMO exception - Non-profit exception - Specific practice type exceptions

Structuring Your DPC Practice¶

Solo Physician Practice¶

Simplest structure: - You own 100% of the practice - No CPOM issues - Full autonomy - Standard LLC or PC structure

CPOM impact: None—you're a physician owning your own practice.

Physician Partnerships¶

Multiple physician owners: - All owners must be licensed physicians (in strict states) - Operating agreement governs relationship - No CPOM issues with physician-only ownership

Mixed partnerships (physician + non-physician): - Problematic in CPOM states - Requires creative structuring - May need separate entities (medical PC + management company)

Taking Outside Investment¶

If you want non-physician investment:

In CPOM states, you typically CANNOT: - Give ownership stake to non-physician investors - Let investors share in professional fee revenue - Give investors control over medical decisions

Workarounds (legal but complex): - Management Services Organization (MSO) - Franchise models - Service agreements - Loans (not equity)

Selling Your Practice¶

To a non-physician buyer (in CPOM state): - Cannot sell the medical practice itself - Can sell assets (equipment, goodwill, patient list) - Buyer would start new physician-owned PC - Structure as asset sale + MSO arrangement

Management Services Organizations (MSOs)¶

What Is an MSO?¶

A separate company that provides non-clinical services to a medical practice. Can be owned by non-physicians.

Services an MSO can provide: - Office space and equipment - Administrative staff - Billing and collections - Marketing - IT services - Supplies - Business management

What MSO cannot control: - Medical decision-making - Clinical staff direction - Treatment protocols - Patient selection - Any aspect of medical practice

MSO Structure for DPC¶

┌─────────────────────────────────────────┐
│           Non-Physician Investors        │
│                    │                     │
│              [MSO - LLC]                 │
│      (Administrative Services Only)      │
│                    │                     │
│         Management Services Agreement    │
│                    │                     │
│             [Medical PC/PLLC]            │
│          (100% Physician Owned)          │
│                    │                     │
│           Patient Care / Revenue         │
└─────────────────────────────────────────┘

MSO Requirements in CPOM States¶

The MSO arrangement must: 1. Have fair market value compensation (not profit-sharing) 2. Leave medical decisions to physicians 3. Keep clinical control with the medical practice 4. Be structured properly in writing 5. Pass regulatory scrutiny

Red flags that indicate CPOM violation: - MSO fee based on percentage of revenue - MSO directs clinical operations - Physician has no real independence - MSO controls hiring/firing of physicians - Sham arrangement

Fee Splitting Prohibitions¶

Many states prohibit: - Sharing professional fees with non-physicians - Kickbacks for referrals - Paying for patient referrals

What's NOT fee splitting: - Paying fair market value for services - Fixed management fees - Percentage-based fees for non-professional services (sometimes)

How This Affects DPC¶

Legitimate arrangements: - Paying EMR vendor flat fee - Paying management company fixed monthly fee - Commission to sales reps for non-clinical services

Problematic arrangements: - Giving non-physician portion of membership fees - Paying marketer per patient enrolled (in some states) - Sharing revenue with business partner

Common DPC Scenarios¶

Scenario 1: Spouse Handles Business Side¶

Question: Can my non-physician spouse help run the practice and share in income?

Answer: - Spouse can be employed by the practice - Community property may allow income sharing - Spouse generally cannot be an owner in strict CPOM states - Consult attorney for your specific situation

Scenario 2: Business Partner Wants Equity¶

Question: An experienced healthcare administrator wants to invest and take equity.

Answer (in CPOM state): - Cannot give them medical practice equity - Can set up MSO they own - Medical practice pays MSO for services - Structure carefully with attorney

Scenario 3: Private Equity Interest¶

Question: A PE firm wants to acquire my practice.

Answer: - Direct acquisition not possible in CPOM states - MSO model is common for PE in healthcare - You maintain (nominal) medical practice ownership - PE owns management company - Complex arrangements—need experienced healthcare M&A attorney

Scenario 4: Franchise/License Model¶

Question: Can I franchise my DPC practice concept?

Answer: - You can license brand, systems, processes - Each location needs physician owner - Cannot share in clinical revenue - Can charge franchise/license fees - Legal structure is complex

The Bootstrap Perspective¶

Why This Usually Doesn't Matter at Start¶

For most bootstrap DPC practices: - You own 100% of your practice - No outside investors - No non-physician partners - No MSO needed - CPOM is not an issue

When CPOM becomes relevant: - Taking outside investment - Selling the practice - Complex partnerships - Significant scaling

Keep It Simple¶

Bootstrap approach: 1. Form simple physician-owned LLC or PC 2. Don't take non-physician investors 3. Keep 100% ownership 4. Avoid complex structures 5. Consult attorney if complexity needed

Cost of keeping it simple: $0 extra Cost of MSO structures: $5,000-20,000+ legal fees

When to Get Legal Help¶

Definitely Consult Healthcare Attorney If:¶

Taking any outside investment
Adding non-physician partner
Selling practice (especially to non-physician)
Setting up MSO structure
Multi-physician practice with profit sharing
Any arrangement that seems "creative"

Questions for Your Attorney¶

Does CPOM apply in our state?
What structures are permitted?
Can this arrangement withstand scrutiny?
What documentation is needed?
Are there fee-splitting concerns?

CPOM Violations: Consequences¶

What Can Happen¶

For the physician: - Medical board discipline - License suspension/revocation - Professional liability - Contract voidability

For the corporation: - Corporate practice of medicine violation - Potential criminal liability - Contract unenforceability - Regulatory action

Why Compliance Matters¶

You cannot contract around CPOM. If your structure violates CPOM, the entire arrangement may be: - Void from the start - Subject to unwinding - Evidence of professional misconduct

States Quick Reference¶

[!NOTE] This is a general guide only. Laws change and interpretations vary. Always verify with an attorney.

State	CPOM?	Notes
California	Strict	Strong doctrine, MSO common
Texas	Strict	Exceptions for some entities
New York	Strict	Complex regulations
Florida	Moderate	Some exceptions
Illinois	Strict	Well-established doctrine
Ohio	Strict	Medical corporation requirements
Colorado	Limited	More permissive
Arizona	Limited	Less restrictive

For your specific state: Check state guides in the States section and consult local counsel.

[!CAUTION] CPOM violations can result in loss of license and voided contracts. Do not rely on this guide for legal decisions. Consult a healthcare attorney in your state for any arrangement involving non-physicians.

For most bootstrap DPC practices, CPOM is a non-issue—you own your practice, you're the physician, end of story. But if you ever take investment, add partners, or sell, these rules will matter. Know they exist, and get help when needed.