Navigating California’s Corporate Practice of Medicine Doctrine

California has some of the strictest regulations on medical practice ownership in the country. Under the Corporate Practice of Medicine (CPOM) Doctrine, only licensed physicians can own and control a medical practice. This law is designed to prevent corporate interference in patient care and protect the integrity of medical decisions.

However, healthcare businesses often need financial backing, administrative support, and business management to run efficiently. This has led to alternative business structures, such as Management Services Organizations (MSOs), to help doctors navigate these restrictions legally.

If you’re a physician, investor, or entrepreneur looking to operate a healthcare business in California, understanding how to comply with CPOM laws is essential. This guide explains California’s CPOM Doctrine, its impact on medical practices, and legal ways to structure healthcare businesses.

1. What Is the Corporate Practice of Medicine Doctrine?

The Corporate Practice of Medicine (CPOM) Doctrine is a legal principle that prohibits non-physicians and corporations from owning or controlling medical practices. This law ensures that:

  • Medical decisions remain in the hands of licensed professionals.
  • Healthcare is patient-focused rather than profit-driven.
  • Physicians are not pressured by corporate entities to make unethical decisions.

Under California Business and Professions Code Section 2052, only licensed physicians can practice medicine, and non-physicians cannot influence medical decisions.

This means:

  • Corporations, investors, or business entities cannot employ doctors to provide medical services.
  • Non-physicians cannot own medical practices or directly profit from medical services.
  • Medical practices must be controlled by licensed physicians.

However, non-physicians can own and operate businesses that provide non-clinical services, such as billing, administration, and marketing—which is where Management Services Organizations (MSOs) come in.

2. Who Is Affected by California’s CPOM Doctrine?

The CPOM Doctrine applies to all licensed healthcare professionals in California, including:

  • Doctors (MDs and DOs)
  • Chiropractors
  • Dentists
  • Optometrists
  • Psychologists
  • Podiatrists

If a healthcare business directly provides patient care, it must be physician-owned and operated.

However, non-physicians can invest in or provide administrative support to medical businesses—as long as they do not interfere with medical decisions.

3. Legal Ways to Structure a Medical Business Under CPOM Laws

To comply with CPOM laws while allowing business support, medical practices often use alternative business models such as:

A. Physician-Owned Professional Corporations

  • Physicians can form a Professional Corporation (PC) to operate their medical practice.
  • Only licensed doctors can be shareholders, directors, and officers.
  • The corporation can hire non-medical staff, but all clinical decisions must be made by licensed physicians.

B. Management Services Organizations (MSOs)

  • An MSO is a separate business entity that provides non-clinical administrative support to medical practices.
  • The MSO can be owned by non-physicians, investors, or private equity groups.
  • The medical practice contracts with the MSO through a Management Services Agreement (MSA) to handle:
    • Billing and revenue cycle management
    • HR and staffing
    • Office leasing and maintenance
    • Marketing and business strategy
    • Technology and IT support

The MSO does not control medical decisions but allows physicians to focus on patient care while outsourcing administrative tasks.

C. Friendly PC Model (Physician-Controlled Entities)

  • In some cases, an investor or corporation may work with a licensed physician to own a medical practice legally.
  • The licensed physician owns the practice, but the investor provides financial backing through an MSO.
  • This model requires careful legal structuring to avoid violations of CPOM laws.

D. Healthcare Joint Ventures

  • A physician-owned medical practice can form a joint venture with an MSO, hospital, or investor group.
  • The physicians control medical decisions, while the business partner handles non-clinical services.
  • These ventures must be structured properly to avoid illegal revenue-sharing or fee-splitting.

Understanding these business models helps doctors and investors navigate CPOM restrictions while maintaining compliance.

4. Common CPOM Violations and Legal Risks

Violating CPOM laws can lead to serious consequences, including:

  • Fines and legal penalties from the California Medical Board.
  • Loss of medical licenses for physicians involved in illegal business structures.
  • Revocation of business licenses for corporations engaging in unlawful ownership of medical practices.
  • Civil lawsuits from patients claiming unethical medical decisions.

Common CPOM Violations Include:

  • A non-physician owning or controlling a medical practice.
  • A physician receiving a salary from a corporate-owned practice.
  • An MSO dictating medical procedures, treatments, or hiring/firing clinical staff.
  • Fee splitting between a physician and a non-physician entity (e.g., revenue-sharing agreements that violate Stark Law).

To avoid CPOM violations, medical businesses must be structured properly with legal oversight.

5. How to Ensure Compliance with CPOM Laws

To operate a legally compliant medical practice in California, follow these guidelines:

  • Ensure that only licensed physicians own and control the medical practice.
  • Structure MSO agreements carefully to separate medical and non-medical services.
  • Use a fair market value (FMV) payment model for MSO services to avoid fee-splitting violations.
  • Clearly define roles in Management Services Agreements (MSAs) to prevent corporate interference in medical decisions.
  • Work with an experienced healthcare attorney to ensure contracts and business models comply with CPOM laws.

Staying compliant protects physicians, investors, and healthcare businesses from legal risks and ensures ethical, patient-centered care.

How We Can Help

At KMSD Law, we specialize in healthcare law and business structuring for medical professionals. Our legal team helps:

  • Physicians set up legally compliant medical practices that meet CPOM requirements.
  • Investors and business owners structure MSOs that support medical practices without violating ownership laws.
  • Draft and review Management Services Agreements (MSAs) to prevent regulatory risks.
  • Ensure compliance with CPOM laws, Stark Law, and anti-kickback statutes.

We offer free case consultations and customized legal solutions for healthcare providers, MSOs, and medical investors.

Contact KMSD Law today to discuss your medical business needs and ensure compliance with California’s Corporate Practice of Medicine Doctrine.