A physician or dentist who wants to bring in outside capital, sell an equity stake, or bring on a partner runs into a wall most business owners never face: in most states, only a licensed professional can own equity in the entity that actually practices medicine or dentistry. The corporate practice of medicine (CPOM) doctrine is the reason group practices use a two-entity structure – a professional corporation (PC) that employs the clinicians, and a separate management services organization (MSO) that owns everything else.
The Corporate Practice of Medicine Doctrine
CPOM doctrines, which exist in some form in roughly half the states, bar unlicensed individuals or corporations from practicing medicine, employing physicians for clinical care, splitting fees with non-licensed parties, or exercising control over clinical judgment. The doctrine exists to keep medical decisions in the hands of licensed professionals rather than investors – but it doesn’t stop capital from participating in the business side of a practice, which is exactly what the MSO structure is built around.
How the PC/MSO Split Actually Works
Under the PC-MSO model, licensed clinicians own 100% of the professional corporation, which employs the providers and retains full authority over diagnosis, treatment, and other clinical decisions. A separately owned MSO – which can have non-clinician or outside investor ownership – handles the non-clinical operations: billing, scheduling, HR, marketing, real estate, IT, and compliance administration. The MSO earns a management fee from the PC for these services rather than a share of clinical revenue directly, which is the structural feature that keeps the arrangement from becoming an illegal fee split.
The Doctrine of Control Is the Real Legal Test
Regardless of how clean the paperwork looks, regulators and courts in 2026 apply what amounts to a doctrine of control: if the MSO exercises so much influence over the practice’s operations that it functionally directs clinical decisions – setting quotas, dictating which patients to see, controlling hiring of clinical staff – the arrangement can be treated as the unlicensed practice of medicine regardless of the entity structure on paper. Management fee structures tied too closely to a percentage of clinical revenue, rather than a fixed or cost-plus fee for actual services rendered, are a common target of this scrutiny.
Equity Buy-In Mechanics for New Partners
When a new physician or dentist buys into a group practice, the buy-in is typically structured as a purchase of PC stock or membership units at a valuation tied to the practice’s earnings (often a multiple of trailing EBITDA or a formula written into the shareholder agreement), sometimes financed through a promissory note payable to the selling partners over several years. Getting a formal, updated valuation methodology written into the governing documents before a buy-in dispute arises matters more than most new partners realize – ambiguous buy-in formulas are a leading source of practice breakups.
2026 State-Level Tightening
Several states moved to tighten MSO oversight in 2026: California’s SB 351, effective January 1, 2026, bars private equity groups and hedge funds from interfering with clinical judgment at physician and dental practices and voids certain non-compete and non-disparagement clauses in MSO management agreements. Oregon’s phased MSO restrictions began applying January 1, 2026 to MSOs and professional medical entities organized after June 9, 2025. Practices and MSOs formed or restructured in 2026 need to check their specific state’s current rules rather than relying on an older CPOM analysis.
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Related reading: Professional Corporation Malpractice Liability and Holding Company Structures.
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