What Is the “Corporate Practice of Medicine?”
In California, as in many other states, the practice of medicine is tightly regulated to ensure that clinical decisions remain in the hands of qualified, licensed professionals—not corporations or non-medical business entities. This foundational principle is known as the “corporate practice of medicine” doctrine. It plays a crucial role in preserving the integrity of healthcare delivery and protecting patients from commercial exploitation. But for physicians, medical groups, and entrepreneurs alike, misunderstanding or violating this doctrine can lead to serious legal consequences—including administrative sanctions, civil penalties, and even criminal prosecution.
At the Law Offices of Art Kalantar, we represent healthcare providers and business owners across California in navigating the legal and regulatory frameworks that govern the practice of medicine. Whether you’re starting a new medical group, structuring a management services organization (MSO), or defending against an investigation, understanding the corporate practice of medicine doctrine is essential. Read more below, and contact us for personalized advice and assistance from a skilled and knowledgeable California healthcare regulatory compliance attorney.
Understanding the CPOM Doctrine
At its core, the corporate practice of medicine (CPOM) doctrine prohibits corporations and other unlicensed entities from practicing medicine or employing physicians to provide clinical care. This rule is based on the idea that only individuals who are licensed by the Medical Board of California should be making medical decisions or exercising control over how medical services are provided.
In practical terms, this means that a non-physician entity—such as a corporation, investor group, or hospital—cannot legally control or direct a physician’s professional judgment. The doctrine is meant to prevent conflicts of interest, ensure independent clinical decision-making, and safeguard patient welfare. It applies broadly across healthcare professions but is most commonly associated with the regulation of physicians and surgeons.
How CPOM Affects Business Structures in Healthcare
The doctrine has significant implications for how healthcare businesses are structured in California. For example, a corporation owned by non-physicians cannot directly hire a doctor to see patients or operate a medical clinic. Instead, a common workaround is the “friendly PC” model, where a medical practice is legally owned by a licensed physician, and a separate management company—typically owned by non-physicians—handles the non-clinical business operations.
Under this model, the physician-owned professional corporation (PC) contracts with a management services organization (MSO) to provide administrative support, including staffing, billing, office space, and IT services. However, even under this arrangement, the MSO must not interfere with medical decision-making. Any arrangement that effectively gives the MSO control over the medical practice’s clinical operations, pricing of medical services, or physician compensation may be found to violate the corporate practice of medicine doctrine.
Common Violations and Legal Risks
Violations of the corporate practice of medicine doctrine can arise in several ways. Some common red flags include:
- Non-physicians setting or influencing patient care protocols or treatment plans.
- Business entities sharing in medical revenues or controlling physician compensation based on profits.
- MSOs or management firms hiring or firing medical personnel or dictating clinical schedules.
- Use of contracts that grant excessive control to non-licensed entities over the operations of a medical practice.
Even if the parties involved believe they are operating within the law, California regulators—such as the Medical Board, Department of Consumer Affairs, or Attorney General’s Office—may determine otherwise. Violations can lead to the suspension or revocation of professional licenses, civil fines, cease-and-desist orders, and potentially criminal charges for unlicensed practice of medicine.
Criminal Implications of CPOM
When the corporate practice of medicine doctrine is violated in a way that involves fraud, kickbacks, or other forms of deceptive conduct, criminal liability may follow. For example, a management company that pays physicians based on volume or revenue may be investigated under federal and state anti-kickback statutes or insurance fraud laws. Similarly, if an unlicensed entity controls a clinic that bills insurance companies for physician services, that could constitute unlicensed practice and insurance fraud—both criminal offenses in California.
Physicians caught in these arrangements may also face disciplinary action, even if they were unaware of the legal issues. That’s why it is critical for any healthcare provider entering into business agreements to seek experienced legal counsel before signing contracts or forming partnerships.
How to Protect Yourself and Your California Medical Practice
The safest approach to avoiding violations is to structure your medical practice or healthcare business in compliance with California’s laws and regulations from the outset. This includes:
- Ensuring that all medical services are provided through a physician-owned professional corporation.
- Limiting the role of non-physician entities to non-clinical management and support services.
- Drafting management agreements that clearly separate clinical and business functions.
- Avoiding compensation models that tie physician income to profits or patient volume.
- Conducting regular legal reviews of your business operations and agreements.
If you’re already in a business relationship that may raise concerns under the corporate practice of medicine doctrine, it is not too late to take corrective action. A thorough compliance review and restructuring—guided by a qualified healthcare law attorney—can help protect your license, avoid enforcement actions, and keep your practice in good legal standing.
Speak With a California Healthcare Law Attorney
At the Law Offices of Art Kalantar, we help physicians, medical groups, MSOs, and healthcare entrepreneurs comply with California’s corporate practice of medicine rules. We also defend providers facing investigations, license discipline, or criminal charges related to improper business arrangements or unlicensed practice.
If you have questions about whether your practice or business structure complies with California law, or if you’re facing scrutiny from a licensing board or government agency, contact us today for a confidential consultation. With the right legal guidance, you can protect your practice, your reputation, and your professional future.
