By: Carlos Arce, Attorney
Having represented numerous management service organizations (MSOs) and physician practices throughout the country, I have seen firsthand where these arrangements succeed — and where they become legally vulnerable.
At the center of the issue is one concept: control.
The modern MSO-PC model has become one of the most widely utilized structures for healthcare growth and investment. In many states, the framework allows non-clinical business executives and investors to participate economically in healthcare ventures without directly owning the professional entity that practices medicine. But this is where many organizations misunderstand the purpose of corporate practice of medicine (CPOM) laws.
The goal of CPOM restrictions is not simply to prohibit ownership. The goal is to prevent non-medical personnel from exercising control over clinical judgment, medical personnel, or the physician practice itself. And regulators are beginning to scrutinize these arrangements more aggressively than ever before.
The Real Issue Is Not the Structure — It’s the Control Dynamic
Most MSOs and physician groups focus heavily on drafting management services agreements (MSAs), equity restriction agreements, succession documents, and shareholder arrangements designed to protect financial investments and operational continuity.
But regulators are increasingly asking a more practical question:
Who actually controls the practice?
That question goes beyond corporate charts and legal diagrams.
It reaches into:
• Operational authority
• Decision-making rights
• Governance structures
• Succession mechanisms
• Transfer restrictions
• Physician autonomy
• Day-to-day operational conduct
Typically, physicians must retain autonomy over:
• Clinical decision-making
• Medical personnel
• Standards of care
• Patient treatment
• Supervision of providers
• Medical policies
• The professional practice itself
The challenge arises when the MSO relationship becomes so operationally dominant that the physician is effectively reduced to a figurehead. When that occurs, regulators may view the arrangement as violating CPOM doctrines — regardless of what the contracts say on paper.
California, New York, and Texas Are Leading the Charge
Certain states have always been more aggressive regarding CPOM enforcement, particularly:
• California
• New York
• Texas
These states are highly sensitive to arrangements that appear to subordinate physician authority to business operators or investors. And importantly, there is no true “50-state” template.
Each jurisdiction has:
• Different statutes
• Different regulatory guidance
• Different attorney general positions
• Different board interpretations
• Different case law
What works in one state may create significant risk in another. California, in particular, issignaling heightened scrutiny over so-called “captive PC” structures — arrangements where physicians technically own the professional corporation, but meaningful control arguably rests elsewhere.
Regulators are increasingly evaluating provisions such as:
• Succession agreements
• Equity transfer restrictions
• Management approval rights
• Ownership reassignment mechanisms
• Delegation authority
• Operational veto powers
For example, if an MSO has the ability to effectively replace the physician owner, transfer control, or dictate operational authority in a manner that undermines physician independence, regulators may interpret that as unlawful control. The issue is not merely theoretical anymore.Enforcement posture is changing.
Contracts Alone Will Not Protect You
One of the biggest misconceptions I see is the belief that carefully drafted contracts alone solve the problem. They do not. Regulators examine not only the documents, but also the real-world behavior of the parties.
That means:
• How decisions are actually made
• Who directs employees
• Who controls finances
• Who negotiates payer relationships
• Who supervises operations
• Who disciplines providers
• Who has ultimate authority during disputes
If the operational reality contradicts the contractual language, the arrangement becomes vulnerable. In other words: Your actions must match what your contracts say. If your agreements state that physicians maintain independent clinical authority, but the MSO is functionally directing the practice, regulators will focus on the operational conduct — not simply the paper.
What Physicians Need to Understand
Physicians entering MSO relationships must understand the legal and regulatory implications before signing agreements.
Too often, physicians assume:
• “This is standard.”
• “Everyone is doing it.”
• “The MSO handles everything.”
• “The lawyers already approved it.”
But physicians themselves may ultimately face scrutiny from:
• State medical boards
• Attorneys general
• Regulatory investigators
• Licensing authorities
And when those inquiries occur, physicians must be prepared to answer truthfully:
Who really controls the practice?
If the physician cannot confidently demonstrate meaningful authority and independence, the structure may already have a problem.
What MSOs Need to Understand
MSOs also face substantial risk.
Many organizations understandably want strong contractual protections around:
• Capital investment
• Operational continuity
• Brand protection
• Growth strategies
• Exit rights
• Financial stability
But there is a line between protecting an investment and exerting impermissible control. The more aggressive the governance provisions become, the more regulators may question whether the arrangement crosses into unlawful territory. The solution is not abandoning the MSO model.The solution is structuring relationships carefully, state-by-state, with a genuine respect for physician autonomy and operational compliance.
The Bottom Line
The corporate practice of medicine is no longer a passive compliance issue sitting quietly in the background. States are paying attention. Attorney general offices are paying attention. Medical boards are paying attention. And they are increasingly focused not only on ownership — but on operational control. For physicians and MSOs alike, the takeaway is simple: A compliant structure is not just about how the documents are drafted. It is about whether the operational reality truly reflects physician independence and lawful governance. Because in today’s regulatory climate, form without substance is no longer enough.
