Physicians who build or acquire a medical practice often focus first on patient care, staffing, payer relationships, and revenue. The ownership structure can be just as important. In states that restrict lay ownership or outside control of medical practices, an arrangement that appears commercially efficient may create licensing, fee-splitting, tax, or enforceability concerns.
These rules are commonly referred to as corporate practice of medicine, or CPOM, restrictions. Their purpose is generally to protect a physician’s independent clinical judgment and prevent business owners from directing medical decisions. The rules are not uniform. A structure that works in one state may be restricted or invalid in another.
Who May Own and Control the Medical Practice?
The first question is whether the operating medical entity must be owned by a licensed physician or a specific professional entity, such as a medical professional corporation or professional limited liability company. Some states permit only physicians to own the equity. Others allow limited ownership by certain licensed professionals or impose requirements concerning voting rights, directors, officers, or the physician’s percentage of ownership.
Ownership on paper is not enough. Regulators and courts may examine who actually controls the practice. Agreements that give a management company authority over clinical staffing, diagnosis, treatment protocols, medical records, referrals, coding decisions, or physician hiring can create problems even when a physician holds the formal shares.
A physician owner should retain authority over matters such as:
- Clinical policies and treatment decisions
- The hiring, supervision, and termination of licensed clinicians
- Patient referrals and medical necessity determinations
- Access to and control of medical records
- Professional billing and coding judgments
- Compliance with licensing and professional standards
A separate administrative company may handle nonclinical functions, including payroll, facility operations, technology, marketing, scheduling support, and vendor management. The division must be clearly documented and followed in daily operations.
Structuring the Relationship With a Management Company
Many physician-owned practices use a management services organization, or MSO, to provide business support. The relationship typically requires a written administrative services agreement. That contract should identify the services provided, the allocation of responsibilities, payment terms, record ownership, confidentiality obligations, and procedures for ending the relationship.
Compensation deserves careful attention. A fixed monthly fee, cost-based arrangement, or fair-market-value payment for identifiable services may be more defensible than a percentage of professional fees. State law may restrict fee-splitting or prohibit payments that effectively give a non-physician an economic interest in medical revenue.
The agreement should also avoid giving the MSO practical control over the medical practice. For example, broad approval rights over physician compensation, patient acceptance, clinical schedules, or treatment-related expenses may undermine the physician’s independence. Financial reporting and budgeting can remain part of administrative oversight without allowing business personnel to dictate clinical outcomes.
Stock Transfer and Succession Provisions
Because physician ownership may be required, practices need a workable plan for death, disability, retirement, license suspension, or a physician’s decision to leave. Stock transfer restrictions, succession agreements, and buy-sell provisions should identify who may acquire the ownership interest and how the purchase price will be calculated.
A common concern is an agreement that gives an unlicensed party an unrestricted right to select the next owner. A better structure may require a qualified physician to serve as the successor while allowing the administrative company to receive repayment of documented advances or other permitted amounts. The details must be reviewed under the law of the state where the practice operates.
Reviewing the Structure Before Expansion
Ownership issues often become more visible during a merger, acquisition, refinancing, or year-end expansion. Lenders, investors, landlords, and professional liability carriers may request organizational documents and contracts. A structure that was informally assembled years earlier may not withstand that review.
Before opening a second location or adding a specialty, practice owners should examine:
- Articles of incorporation and bylaws
- Physician ownership and licensing records
- MSO and administrative services agreements
- Employment and contractor arrangements
- Banking, billing, and revenue-flow procedures
- Buy-sell, succession, and equity transfer documents
- State-specific fee-splitting and referral restrictions
The goal is not merely to create compliant paperwork. The ownership documents, contracts, bank accounts, and everyday decision-making should all reflect the same division between clinical authority and business administration. That alignment helps protect physician independence, reduce transaction risk, and give patients a more stable practice as the business grows.
