Navigating the Minefield: Corporate Practice of Medicine and the MSO Model in 2025-2026

By Shannon Smith, DNP, APRN, FNP-C, PMHNP-BC, PMHNP-C · 2026-04-17

The Corporate Practice of Medicine (CPOM) doctrine continues to be a formidable challenge for healthcare businesses, particularly those leveraging telehealth and the Management Service Organization (MSO) model. As regulatory scrutiny intensifies, understanding the nuances of CPOM across varying state landscapes is no longer optional—it's foundational for sustainable growth and mitigating severe legal risks.

The healthcare landscape is undergoing a profound transformation, driven by technological innovation, evolving patient expectations, and an influx of non-traditional capital. Yet, beneath this dynamic surface lies a bedrock of regulatory principles, chief among them the Corporate Practice of Medicine (CPOM) doctrine. For telehealth founders, multi-state practice owners, and healthcare investors, navigating CPOM, especially through the prevalent Management Service Organization (MSO) model, is not merely a legal formality—it is a strategic imperative that dictates business viability and operational compliance in 2025 and beyond.

> For more on this topic, see our analysis: [The Shifting Sands of Telehealth Controlled Substance Prescribing: Navigating DEA Requirements in 2025-2026](/blog/telehealth-controlled-substance-prescribing-dea-2025-mo2i8syh).

CPOM laws, which broadly prohibit corporations and other non-licensed entities from practicing medicine or employing physicians, are designed to protect the integrity of the physician-patient relationship from commercial interference. While seemingly straightforward, their application varies dramatically across states, creating a complex patchwork of requirements that can ensnare even the most well-intentioned enterprises.

The Enduring Relevance of CPOM in a Modern Healthcare Economy

In an era where venture capital fuels direct-to-consumer (DTC) telehealth platforms and private equity acquires physician practices, the tension between business innovation and CPOM is palpable. States like Iowa and Kentucky maintain strict CPOM doctrines, explicitly prohibiting non-licensed entities from employing physicians or controlling medical decision-making. This contrasts with states that have either abolished CPOM, never adopted it, or have statutory exceptions for certain types of entities or services.

Why is this critical now? Enforcement actions are on the rise. Regulatory bodies, including state medical boards and Attorneys General, are increasingly scrutinizing business models that appear to circumvent CPOM. The recent focus on Michigan's medical board enforcement trends, for instance, highlights a broader regulatory appetite for ensuring proper licensure, scope of practice, and supervision—all areas intrinsically linked to CPOM principles. The DOJ's intensified enforcement against telehealth controlled substance prescribing violations further underscores the regulatory environment's heightened sensitivity to practices that may compromise clinical independence or patient safety.

Deconstructing the Management Service Organization (MSO) Model

The MSO model has emerged as the prevailing strategy for non-clinical entities to partner with professional medical practices while adhering to CPOM. In essence, an MSO is a separate, non-clinical entity that provides administrative, technical, and non-medical support services (e.g., billing, marketing, IT, real estate, HR) to a professional medical corporation (PC) or professional limited liability company (PLLC) owned by licensed healthcare providers. The PC/PLLC is the entity that directly employs the licensed clinicians and delivers medical services.

Key Principles of a Compliant MSO Structure:

1. Clinical Independence: The professional entity (PC/PLLC) must retain absolute control over all clinical decisions, patient care, and professional judgments. The MSO cannot dictate treatment protocols, patient intake criteria, or hiring/firing of clinical staff based on clinical performance. 2. Professional Ownership: The PC/PLLC must be owned by licensed healthcare professionals (e.g., physicians, dentists, chiropractors) in accordance with state-specific professional corporation laws. For example, in states like Iowa, the professional entity must be owned by Iowa-licensed professionals. 3. Fair Market Value (FMV): All financial arrangements between the MSO and the PC/PLLC, particularly the management fee, must be structured at fair market value for the services provided. This is crucial to avoid allegations of illegal fee-splitting or kickbacks, which are often intertwined with CPOM violations. The fee cannot be tied to patient volume, revenue generation from medical services, or the value of referrals. 4. No Fee-Splitting: The MSO cannot directly receive payment for medical services rendered by the professional entity. All professional fees must flow directly to the PC/PLLC, which then pays the MSO for its administrative services. 5. Clear Delineation of Services: The MSO agreement must meticulously define the scope of services provided by the MSO and explicitly state that the MSO has no control over clinical matters. This includes marketing materials, which must clearly represent that medical services are provided by the independent professional entity.

State-Specific Nuances: A Patchwork of Regulations

The most significant challenge in CPOM compliance is the lack of federal uniformity. Each state interprets and enforces CPOM differently. This necessitates a granular, state-by-state analysis for any multi-state operation.

Strict Enforcement States (e.g., Iowa, California, New York, Texas, Illinois, Pennsylvania): These states generally prohibit non-licensed entities from employing physicians or controlling medical practices. The MSO model is often the only viable path, requiring rigorous adherence to the principles of clinical independence and FMV. For DTC telehealth weight loss brands, this means meticulously structuring relationships to ensure that the corporate brand provides only administrative support, while the medical care is delivered by an independent, professionally owned entity.
Moderate Enforcement States (e.g., Kentucky, Ohio, Michigan): While recognizing CPOM, these states may have specific statutory exceptions or common practices that allow for certain compliant structures. However, the underlying principle of protecting clinical independence remains strong. Michigan's increased scrutiny of telehealth and medspa operations, for instance, underscores the need for robust compliance frameworks, particularly concerning proper supervision and scope of practice, which are often implicated in CPOM violations.
Permissive States (e.g., Colorado, Florida, Georgia): Some states have either largely abolished CPOM or have broad exceptions that allow for corporate employment of physicians. Even in these states, however, anti-kickback laws, fee-splitting prohibitions, and professional independence requirements still apply.

Practical Implications for Telehealth and Medspas:

Telehealth Brands: Must ensure that the entity providing medical services in each state is a professionally owned and controlled entity. This often means forming a separate professional corporation in each state where services are rendered, owned by a licensed practitioner in that state, and then contracting with the national telehealth platform (the MSO) for administrative services. The platform cannot dictate prescribing practices or clinical protocols.
Medspas: Any service requiring a medical license (e.g., injectables, laser treatments) must be performed under the supervision of a licensed physician, APRN, or PA operating within a compliant professional structure. Non-physician ownership of the medical side of a medspa is highly problematic in CPOM states. The medical director must be genuinely engaged, not a mere figurehead, and the MSO agreement must clearly separate clinical and administrative functions.
Dental and Chiropractic Practices: While often having specific professional corporation statutes, these practices are not immune. Any arrangements with third-party management companies must preserve the clinical independence of the licensed practitioners and avoid fee-splitting. For chiropractic practices leveraging telehealth, state board regulations define permissible services and documentation standards, reinforcing the need for professional oversight.

Navigating the Regulatory Minefield: A Compliance Checklist

To mitigate the significant risks associated with CPOM violations—including license revocation, corporate dissolution, civil penalties, and even criminal charges—healthcare businesses must adopt a proactive and robust compliance strategy.

For MSO Structuring and Operations:

Legal Counsel: Engage legal counsel with deep expertise in state-specific CPOM laws and MSO structuring. This is non-negotiable.
Professional Entity Formation: Ensure the medical services entity (PC/PLLC) is properly formed and owned by licensed professionals in each state of operation, adhering to specific state requirements (e.g., physician-owned, dental-owned).
MSO Agreement Review: Meticulously review and regularly update MSO agreements to ensure clear delineation of responsibilities, explicit prohibitions on MSO clinical control, and FMV compensation structures. Avoid any language that suggests the MSO dictates medical judgment or shares in professional fees.
Financial Transparency: Maintain clear separation of finances. All professional fees for medical services must flow to the PC/PLLC. The MSO's compensation must be for administrative services only, at FMV, and not tied to the volume or value of medical services.
Marketing & Branding: Ensure all marketing materials accurately represent the legal structure. Clearly state that medical services are provided by an independent professional entity, not the MSO or corporate brand.
Clinical Governance: Establish robust clinical governance structures within the professional entity, ensuring physicians maintain ultimate authority over patient care, prescribing, and clinical protocols.

For Multi-State Operations:

State-Specific Legal Opinions: Obtain legal opinions for each state where you operate, confirming your proposed structure complies with local CPOM and related laws.
Licensure & Credentialing: Verify that all practitioners are appropriately licensed in the patient's state of residence and that the professional entity is properly registered or formed in that state.
Telehealth Modality Compliance: Adhere to state-specific requirements for establishing a valid provider-patient relationship via telehealth (e.g., real-time audio-visual in DC), which can impact the permissibility of initial consultations and prescribing.
Controlled Substances: For controlled substance prescribing, be acutely aware of DEA requirements (e.g., Ryan Haight Act, proposed rules) and state-specific regulations. The DOJ's increased enforcement highlights the critical need for a legitimate medical purpose for every prescription, regardless of the MSO structure.

Looking Ahead: What This Means For Your Practice

As regulatory bodies become more sophisticated in their understanding of complex healthcare business models, the margin for error in CPOM compliance will shrink. The trend is towards increased scrutiny, not less. For telehealth brands, medspas, dental practices, chiropractic offices, and healthcare investors, this means:

1. Proactive Compliance is Non-Negotiable: Waiting for an enforcement action is a recipe for disaster. Regular internal audits, ongoing legal review, and continuous staff training on CPOM principles are essential. 2. Robust Documentation: Meticulous documentation of MSO services, financial arrangements, and clinical independence is paramount. If it's not documented, it didn't happen. 3. Ethical Leadership: A strong compliance culture starts at the top. Leaders must prioritize ethical practice and regulatory adherence over aggressive growth targets that might compromise clinical integrity. 4. Adaptability: The regulatory landscape is dynamic. Stay abreast of proposed rules (e.g., DEA's telehealth prescribing rules), state board guidance, and enforcement trends. Your compliance strategy must be agile enough to adapt to these changes.

The Corporate Practice of Medicine doctrine, while rooted in historical concerns, remains a powerful force shaping the modern healthcare delivery system. By understanding its intricacies and meticulously structuring operations, healthcare businesses can not only mitigate significant legal risks but also build sustainable, compliant models that prioritize patient safety and professional integrity. TrueEval stands ready to help you navigate these complexities, ensuring your growth is built on a foundation of unassailable compliance.