Every week, somewhere in the United States, a capable founder with capital, technology, and a real clinical idea discovers the sentence that reshapes their entire business plan: in most states, only a licensed physician can own a medical practice.
This is the corporate practice of medicine doctrine — CPOM — and it exists in some form in the majority of U.S. states. Its purpose is straightforward: clinical decisions should be made by clinicians, not by shareholders. Its practical effect is that a technology entrepreneur, a private equity fund, or a non-physician operator cannot simply incorporate a company, hire doctors, and deliver medical care.
The healthcare industry's answer to this constraint is the MSO/PC model — and understanding it properly is the difference between a structure that scales across states and one that unravels under its first serious review.
The Two-Entity Architecture
The model separates a healthcare business into two legal entities with two distinct jobs.
The Professional Corporation (PC) — sometimes a professional association or professional LLC, depending on the state — is owned by one or more licensed physicians. The PC employs or contracts the clinicians, holds the clinical relationships, and owns every decision that touches patient care: diagnosis, treatment, prescribing, clinical protocols, and professional judgment.
The Management Services Organization (MSO) is the business entity — and it can be owned by anyone. Founders, investors, and non-physician operators hold their equity here. The MSO provides everything the practice needs that is not the practice of medicine: technology platforms, marketing, billing and collections support, human resources for non-clinical staff, real estate, equipment, compliance administration, and operational management.
Connecting the two is the Management Services Agreement (MSA) — the contract under which the PC pays the MSO for those services. The MSA is the load-bearing wall of the entire structure. It defines what the MSO does, what it is paid, and — just as importantly — what it can never touch.
The one-sentence version: the PC practices medicine; the MSO runs everything around the medicine; the MSA is the boundary between them, in writing.
Where Structures Go Wrong
On paper, thousands of companies have this architecture. What distinguishes the well-built ones is not the diagram — it is the discipline inside it. Regulators and payers reviewing an MSO/PC arrangement consistently focus on the same questions:
- Who actually controls clinical decisions? If the MSO sets treatment protocols, directs prescribing patterns, establishes quotas for clinical encounters, or hires and fires clinicians based on business metrics, the structure describes one thing while the operation does another. Substance governs over form — always.
- Is the management fee defensible? MSA compensation should reflect fair market value for the services actually provided. Fee arrangements that function as profit-siphoning — sweeping every dollar above a token physician salary to the MSO — invite recharacterization of the entire relationship.
- Does the physician owner genuinely function as an owner? Arrangements where a licensed physician holds equity in name only, with side agreements ceding all control to the MSO, are the pattern enforcement actions are built on.
- Does the paperwork match reality? Governance documents, the MSA, employment agreements, and day-to-day workflows should tell one consistent story. Discrepancies between documents and operations are the first thing a reviewer finds.
The Multi-State Layer
For telehealth companies, the model multiplies. CPOM rules, physician ownership requirements, and fee-splitting restrictions vary state by state — which typically means a PC (or a network of them) structured for each state where patients are located, all supported by a single MSO. The design questions compound: which states require distinct entities, how physician ownership is held across the network, how the MSA terms flex to satisfy the strictest state you operate in, and how new states are added without rebuilding the foundation each time.
This is where structure and operations must be designed together. An entity diagram drawn without an operational blueprint produces a company that is technically formed and practically ungovernable.
Why This Matters More Right Now
State-level attention to MSO/PC arrangements has intensified meaningfully, with legislatures and regulators examining the boundaries of management relationships in healthcare. The direction of travel is clear: arrangements will be judged on how they operate, not just how they were drafted. Companies building now have an advantage the retrofit generation does not — the opportunity to build the discipline in from day one.
Building It Right the First Time
A durable MSO/PC structure is the product of decisions made in sequence: the corporate architecture matched to your target states; a management services framework with defensible economics; operational separation that holds up in practice, not just on paper; and documentation — policies, workflows, governance records — that demonstrates the discipline continuously.
Retrofitting that discipline after launch is expensive. Building it before launch is simply good operations.