California CPOM compliance checklist: 12 things your medical practice must get right

What is the corporate practice of medicine doctrine in California?

California is the strictest CPOM state in the country. The doctrine traces back to People v. Pacific Health Corp., 12 Cal.2d 156 (1938), where the California Supreme Court held that a general business corporation cannot lawfully practice medicine through licensed physician employees. The statutory anchor is Business and Professions Code §2400. Section 2052 reinforces the rule by criminalizing unlicensed practice. Together these two sections mean a general C-corp, LLC, partnership, or non-physician individual cannot own, employ, or financially control physicians for the purpose of delivering patient care. The only entity that may employ physicians for clinical work is a Professional Corporation formed and operated under the Moscone-Knox Act.

Which California statutes govern CPOM compliance?

Six provisions do most of the work. Business and Professions Code §2400 bars corporate practice. Business and Professions Code §2052 prohibits unlicensed practice. Business and Professions Code §2056 protects physicians from retaliation for advocating medically appropriate care. Business and Professions Code §2408 requires that all shareholders, directors, and officers of a medical or podiatry PC be licensed (asst. secretary and asst. treasurer are the narrow exceptions). Corporations Code §13401.5 sets the 51-percent physician ownership rule and lists the limited categories of allied health professionals who can hold the minority interest. Corporations Code §17701.04 prohibits LLCs from providing professional services unless a licensing act authorizes it, and the Medical Practice Act does not.

Who can legally own a medical practice in California?

Only California-licensed physicians can hold a majority of a medical Professional Corporation. Under Corporations Code §13401.5, up to 49 percent of the shares of a medical PC may be held by a closed list of allied licensees, including registered nurses, nurse practitioners, physician assistants, psychologists, chiropractors, optometrists, podiatrists, and a few others. The count of allied owners cannot exceed the count of physician owners. Owners must hold active, unrestricted licenses (BPC §2415). Inactive, suspended, or revoked licensees cannot remain shareholders. Non-licensed individuals, investors, and private equity funds cannot own equity in the clinical PC. They can only participate through a separate Management Services Organization that limits itself to non-clinical work.

What are the 12 CPOM compliance requirements for California medical practices?

Use this list as a recurring compliance audit. Every box should be checked, in writing, with documentation in the corporate book.

1. Form the clinical entity as a Professional Corporation under Moscone-Knox, not an LLC, LLP, or general business corporation. LLCs cannot provide medical services in California (Corp. Code §17701.04).
2. Confirm that at least 51 percent of the PC's shares are held by California-licensed physicians and surgeons, with any minority allied ownership matching the categories listed in Corp. Code §13401.5 and capped at 49 percent.
3. Verify that every shareholder, director, and officer (other than assistant secretary or assistant treasurer) holds an active, unrestricted California license, per BPC §2408 and §2415.
4. Adopt the PC name correctly. The corporation must include 'Medical' or the licensee's surname plus 'M.D., A Professional Corporation,' or operate under a Medical Board-issued fictitious name permit under BPC §2415.
5. Draft bylaws that vest clinical authority (diagnosis, treatment, prescribing, hiring or firing of clinical staff, medical record content) exclusively in physician-owners. The Medical Board lists these as non-delegable decisions.
6. Confirm the PC, not the MSO, owns and controls the patient medical records. Record custody is a primary CPOM indicator under Medical Board guidance.
7. If using an MSO, the Management Services Agreement must limit the MSO to non-clinical services: billing, payroll, IT, marketing, real estate, and staffing of non-clinical personnel. No clinical decision rights.
8. Set the MSO management fee at fair market value, supported by a valuation memo. Percentage-of-revenue fees raise fee-splitting concerns under BPC §650 and require careful structuring.
9. Carry medical professional liability insurance on the PC, plus general liability and cyber. General liability alone is not adequate for a medical practice.
10. Display the PC name and at least one supervising physician's name on all advertising, signage, websites, and patient consents. Required under BPC §651 and §2272.
11. Establish written standardized procedures for every nurse-delegated treatment, satisfying 16 CCR §1474. For laser and IPL procedures, a supervising physician must be immediately available, per 16 CCR §1364.50.
12. Conduct a written CPOM compliance audit at least once per calendar year. Document the review, fix any gaps, and refresh the MSA, bylaws, and standardized procedures to reflect current Medical Board guidance and recent enactments.

What are the penalties for CPOM violations in California?

Penalties are layered. Business and Professions Code §2417.5 specifically targets businesses offering outpatient elective cosmetic medical procedures: non-compliance counts as a knowingly false or fraudulent claim under Penal Code §550. Section 550 felony penalties include fines up to $50,000 per occurrence (or twice the value of the fraud) and imprisonment of two, three, or five years. The Medical Board can also revoke or suspend any licensee who aids unlicensed practice under BPC §2264. The Envision Healthcare CPOM litigation (filed in 2021) ended with Envision exiting the California market in 2024 even without a final ruling. Recent legislation effective January 1, 2026 has intensified enforcement. The practical risk is not theoretical.

How does the PC-MSO structure help California practices comply with CPOM?

The compliant structure splits clinical and business operations into two separate entities. The clinical PC, owned by licensed physicians, employs the providers and owns the medical records. The MSO, which can be owned by non-physician investors, owns the equipment, leases the real estate, hires non-clinical staff, runs billing and IT, and contracts with the PC for those services through a Management Services Agreement. The MSO charges the PC a management fee at fair market value. Done correctly, the PC owners can sell the MSO equity to outside investors without violating CPOM, because the investors never touch clinical decisions. Done incorrectly, where the MSO controls firing of physicians, sets clinical protocols, or takes a percentage of clinical revenue without FMV support, the structure collapses into a CPOM violation.

What are the limited exceptions to CPOM in California?

There are four narrow exceptions. Licensed charitable institutions, foundations, and clinics may employ physicians on a salary basis if no patient charges are made for the professional services (BPC §2400 itself contains this carve-out). Certain medical foundations may employ physicians under BPC §2401. Public hospitals and government-operated facilities have statutory authority to employ physicians. Hospital districts and county-operated clinics also fall within recognized exceptions. None of these apply to private medical groups, medical spas, telehealth startups, or private-equity-backed practices. Telehealth companies in particular have been a recent Medical Board enforcement focus. The general rule is that if money flows from patients to a private business and physicians are employees of that business, the structure needs CPOM analysis.

Compliant vs non-compliant structures at a glance

How often should a California medical practice audit its CPOM compliance?

Annually at minimum, and within 60 days of any material change. Material changes include adding or removing a shareholder, executing or amending an MSA, hiring or terminating a medical director, opening a new location, beginning a new service line (especially anything cosmetic, weight loss, hormone therapy, or telehealth), or any inquiry from the Medical Board or DCA. The audit should be a written exercise, signed by counsel, kept in the corporate book. The standardized procedures, bylaws, and MSA all drift over time as the practice evolves. The annual audit catches the drift before it becomes a violation.