The Corporate Practice of Medicine (CPOM) is a legal doctrine that restricts corporations or non-physicians from owning or controlling medical practices. Its goal is to ensure that only licensed healthcare professionals make medical decisions.
With over 25 years of experience, our attorneys at Cohen Healthcare Law Group specialize in the Corporate Practice of Medicine (CPOM) compliance and healthcare business formation. Contact us today if you need help understanding CPOM doctrine.
This post will explain what the Corporate Practice of Medicine (CPOM) is and why it matters in today’s healthcare environment. It will also explore how healthcare businesses can stay compliant and avoid legal pitfalls when structuring their operations.
What Is the Corporate Practice of Medicine Doctrine?
The Corporate Practice of Medicine (CPOM) doctrine is rooted in the idea that the practice of medicine must remain in the hands of licensed physicians. This doctrine is intended to prevent commercial interests from overriding medical ethics or interfering with the physician–patient relationship.
The origin of the doctrine can be traced back to early 20th-century rulings, particularly from state medical boards and state attorney general opinions. In some states, CPOM is enforced primarily through common law, while in others, it is codified in statutory authority, such as state medical board regulations and corporate law. For instance, California law has long emphasized the separation between professional clinical decisions and business interests, requiring physicians to form professional service corporations or professional associations to deliver care.
The rationale behind the doctrine centers on preserving physician independence, ensuring that clinical decisions are not compromised by outside business pressures. This is vital for patient-centered care, especially in complex cases where nuanced medical judgment is essential. By preventing lay interference in medical decisions, the CPOM doctrine aims to reduce the risk of unprofessional conduct, ineffective control, and the unlicensed practice of medicine.
How Does the Corporate Practice of Medicine Affect Healthcare Providers?
The CPOM doctrine significantly influences how physicians and healthcare organizations structure their operations. In states with strict CPOM enforcement, a general corporation cannot simply employ a physician or offer medical services unless the legal structure complies with CPOM laws. This is typically through a professional corporation or management services agreement with a licensed physician, which creates operational challenges.
Generally, physicians and entrepreneurs must carefully navigate employment and management agreements, ensuring they do not grant non-physician entities undue influence over medical care. Such agreements must avoid giving a corporation’s board or non-licensed owners authority over medical decisions, treatment protocols, or compensation tied directly to clinical outcomes. State agencies closely monitor these agreements to enforce compliance and prevent improper control over patient care.
From a broader perspective, CPOM can impact patient care and healthcare delivery. While the doctrine protects professional judgment, it can also introduce barriers to scaling medical practices across multiple states, slow down innovation in telemedicine, and create confusion in mergers involving healthcare organizations. However, when properly managed, CPOM structures such as management agreements with a flexible approach can still support the growth of compliant, ethical, and effective healthcare provider networks.
Corporate Practice of Medicine States: Where It’s Prohibited and Allowed
Some states strictly prohibit corporations from engaging in the practice of medicine, while others limit this ability with defined structures like professional corporations or management services organizations (MSOs) that support, but do not control, the provision of medical care.
States that Enforce Strict Prohibition:
- California – Requires the practice of medicine to be conducted by a professional medical corporation owned solely by licensed physicians; physician assistants may have limited ownership but cannot control operations.
- Texas – Prohibits non-physician entities from practicing medicine or controlling a physician’s clinical judgment.
- New York – Enforces a robust CPOM doctrine through the State Education Department and Office of the Professions.
- Illinois – Limits the practice of medicine to licensed professionals and restricts corporate ownership to professional service corporations.
States with more Lenient or no Doctrine:
- Florida – Has no express CPOM prohibition and allows corporate entities more flexibility, provided there’s no interference with clinical decisions.
- Georgia – Offers a more flexible approach, allowing corporations to employ physicians under certain conditions.
- Pennsylvania – Permits corporate ownership but maintains regulations to prevent interference in medical judgment.
The variation in CPOM enforcement across states stems from different interpretations of what constitutes the practice of medicine and the role of corporations in healthcare. These differences influence how professional services are delivered, who can employ physicians, and how legal structures must be crafted to ensure compliance.
What are the Implications of Violating CPOM Laws?
Violating the Corporate Practice of Medicine (CPOM) laws can lead to serious legal consequences for healthcare providers and the corporate entities involved. In many states, enforcement actions can include hefty fines, the suspension or revocation of a physician’s medical license, and even criminal charges in cases of egregious misconduct or unlicensed practice. Regulatory agencies such as state medical boards, attorneys general, or state agencies may also take action against non-physician business owners or companies found to be unlawfully exercising control over medical decisions.
Beyond legal penalties, the reputational risks can be devastating. Healthcare providers found in violation may face public scrutiny, loss of patient trust, and damage to professional relationships. For large healthcare organizations or private equity-backed practices, negative press and regulatory scrutiny can disrupt investor confidence and result in contract terminations, lawsuits, and long-term brand damage.
To ensure compliance and avoid costly missteps, healthcare entities must carefully structure employment agreements, management agreements, and corporate ownership to align with CPOM laws. This is especially necessary in states with stringent restrictions like California, Texas, and New York.
How the Corporate Practice of Medicine Affects Business Structures
In states that enforce CPOM laws, only licensed physicians (and in some cases, certain licensed professionals like physician assistants) are permitted to own or control an entity that provides medical services. This means that laypersons, corporations, and other non-physician entities are generally prohibited from employing physicians or making decisions that affect medical care, including staffing, clinical protocols, and physician compensation tied to patient volume or procedures.
To operate within the boundaries of CPOM laws, many healthcare businesses use common workarounds that allow non-clinicians to participate in the business side of healthcare without violating the prohibition against unlicensed individuals controlling the practice of medicine. One such workaround is the use of a Management Services Organization (MSO). An MSO handles the non-clinical, administrative aspects of a healthcare business, such as billing, human resources, IT, and marketing, while the clinical side remains under the control of a Professional Corporation (PC) or Professional Association (PA) owned by licensed physicians.
Another widely used workaround is the Friendly PC model, where a licensed physician nominally owns the professional corporation but signs employment agreements or management agreements that give substantial control to the business partner or MSO. States like California, New York, and Texas commonly use this model, but it requires meticulous structuring. If the agreements go too far, like giving a corporate entity effective control over medical decisions, compensation structures, or day-to-day operations, it may be considered a sham, resulting in CPOM violations.
How to Stay Compliant with Corporate Practice of Medicine Laws
Staying compliant with Corporate Practice of Medicine (CPOM) laws requires careful planning, smart legal structuring, and close attention to the relationship between business entities and clinical professionals. For entrepreneurs, investors, and anyone looking to enter the healthcare space, involving an experienced healthcare attorney early in the business formation process is essential. A seasoned legal advisor can help you understand the CPOM principle in your state, draft compliant employment agreements and management agreements, and ensure that your corporate structure aligns with state laws regarding the practice of medicine.
Another key to compliance is getting the licensing and contracts right. For example, only licensed physicians can own or control entities that deliver medical services in CPOM states, and any involvement from a non-physician entity must be limited to administrative or business functions. That means contracts must clearly reflect that clinical decisions are under the exclusive control of the physician or professional medical corporation, not the business partner or investor.
When drafting or reviewing contracts, there are several key provisions to watch. For example, non-compete clauses, if too broad, may raise ethical and legal concerns. Similarly, revenue-sharing arrangements must be structured carefully to avoid prohibited fee-splitting. Any control clauses that allow a non-physician to influence medical decisions, dictate compensation tied to procedures, or overstep into treatment protocols could trigger CPOM violations. Agreements should always reflect an arm’s-length relationship between the clinical and non-clinical sides of the business.
Need Legal Guidance on CPOM?
The Corporate Practice of Medicine (CPOM) doctrine is designed to protect the integrity of medical care. But it can present complex legal challenges for entrepreneurs, investors, and providers seeking to grow responsibly. Navigating these challenges requires not only a sound business strategy but also a deep understanding of healthcare law, state regulations, and the fine line between clinical independence and corporate involvement.
If you’re structuring a new healthcare venture or expanding your medical business, you should not leave compliance to chance. Our experienced legal team at Cohen Healthcare Law Group specializes in CPOM compliance, management services agreements, and the legal frameworks that support sustainable, legally sound healthcare operations. Schedule a consultation today or visit us to get the legal guidance your healthcare business needs to thrive.
FAQ
The Corporate Practice of Medicine (CPOM) doctrine can be complex, especially when it intersects with other healthcare regulations like fee-splitting and state-specific laws. These quick answers clarify common concerns for healthcare entrepreneurs, providers, and investors.
What Are The Key Differences between the Corporate Practice of Medicine and Fee-Splitting?
CPOM restricts non-physicians or corporate entities from owning or controlling medical practices, while fee-splitting refers to the unlawful sharing of medical fees between licensed professionals and unlicensed individuals. Both aim to protect patient care from commercial interference but are governed by different legal principles.
What States Prohibit Corporate Practice of Medicine?
States with strict CPOM enforcement include California, Texas, New York, and Illinois, where only licensed professionals can own and control medical practices. Other states, like Florida and Georgia, take a more relaxed or undefined approach.
What Is the Corporate Practice of Medicine Ban?
The CPOM ban is a legal doctrine that prevents non-physician individuals or corporations from owning or influencing medical practices to ensure that only licensed professionals make clinical decisions.
What Are the Violations of the Corporate Practice of Medicine?
Violations can include non-physicians controlling medical decisions, improper employment of physicians by corporations, or financial arrangements that undermine physician independence.
Can a Non-physician Own a Medical Practice in California?
No, under California law, only licensed physicians can own a medical practice or deliver professional medical services.
Can Medical Offices Go Corporate?
Medical offices can adopt a corporate structure if they are owned by licensed professionals or structured as Professional Corporations (PCs). However, general corporations cannot control or employ physicians in CPOM states.
What Happens if a Company Violates the Corporate Practice Doctrine?
Consequences may include civil fines, criminal liability, loss of licensure for involved physicians, and dissolution of the illegal business structure.
Contact Us
