Corporate Practice of Medicine (CPOM) Guide: California
This guide provides a summary of Corporate Practice of Medicine (CPOM) laws in California. CPOM doctrine is a legal framework designed to prevent business interests from interfering with medical decision-making. These laws vary by state and generally prohibit corporations and non-physicians from owning or controlling medical practices.
Read on to learn about California’s CPOM doctrine, compliant business structures, and practical steps for healthcare business owners to remain compliant while practicing medicine.
California CPOM Summary
California has one of the strictest CPOM doctrines in the United States. The key laws governing Corporate Practice of Medicine in California include:
Business & Professions Code Section 2052: Prohibits unlicensed individuals from practicing medicine.
Business & Professions Code Section 2400: Specifically bans the corporate practice of medicine.
These laws mean only licensed physicians can own or control medical practices. Any business arrangement must ensure that doctors—not business owners—have full control over patient care.
California law prohibits the following:
Non-physicians from owning or operating medical practices (e.g., business owners opening a medical clinic).
Corporations from employing physicians to provide medical services.
Management Service Organizations (MSOs) from advertising or arranging medical services (they can only offer non-medical administrative support).
Physicians acting as medical directors without owning the practice (e.g., a physician overseeing a spa owned by non-physicians).
What Is CPOM Doctrine?
The Corporate Practice of Medicine (CPOM) doctrine is a legal principle that prohibits corporations and non-physicians from owning or controlling medical practices. In California, these laws are strict to ensure that medical decisions remain solely in the hands of licensed physicians and are not influenced by business interests.
The CPOM doctrine is designed to:
Protect patient care by keeping medical decisions with trained professionals.
Prevent conflicts of interest, ensuring financial motives don’t impact medical treatment.
Maintain physician independence in clinical decision-making.
This means non-physicians cannot own, control, or employ doctors to provide medical services. The goal is to prevent business interests from overriding patient care quality.
Staying CPOM Compliant in California
To remain compliant with California’s CPOM laws, healthcare businesses must carefully structure their operations. The key to CPOM compliance is separating medical and non-medical responsibilities.
Here are some recommended steps for staying CPOM compliant in California.
Ensure only licensed physicians own and control the medical practice.
Use legally structured business models (see next section for compliant structures).
Management Service Organizations (MSOs) should only handle administrative tasks, like billing, HR, and scheduling—not clinical decisions.
Follow fair market value (FMV) guidelines for physician compensation to avoid illegal revenue-sharing arrangements.
Clearly define responsibilities in business agreements to separate medical and non-medical roles.
Healthcare businesses should also consult legal experts to ensure their operations align with California’s CPOM rules.
Compliant Business Structures in California
California does allow certain business structures that ensure physicians maintain control while still allowing non-medical businesses to provide administrative support.
1. Professional Corporations (PCs)
PCs are physician-owned entities that provide medical services. A PC must comply with the Moscone-Knox Professional Corporation Act, and at least 51% of the corporation must be owned by licensed physicians. Non-physician healthcare professionals (like nurses or therapists) can own up to 49%.
2. Management Service Organizations (MSOs)
MSOs can be owned by non-physicians and provide non-clinical administrative support. MSOs can contract with physician-owned practices through Management Services Agreements (MSAs) and manage billing, HR, office administration, and marketing—but cannot control medical decisions.
3. Friendly PC Model
A licensed physician owns the medical practice but works with non-physician investors via an MSO. Highly regulated and requires legal expertise to structure properly.
4. Healthcare Joint Ventures
Physician-owned practices partner with MSOs, hospitals, or investors. Physicians must retain full control over clinical decisions, and joint ventures must avoid fee-splitting or revenue-sharing that could violate CPOM laws.
Who Do These Laws Apply To?
California’s Corporate Practice of Medicine (CPOM) laws apply to any person, business, or entity involved in providing medical services, including:
1. Physicians and Medical Groups
Licensed physicians must own and control medical practices. Physicians cannot enter into contracts that give non-physicians control over their medical decision-making.
Medical groups must be structured as Professional Corporations (PCs) to remain compliant. A physician can also be employed by a PC or medical group that he or she does not own.
2. Startups & Telehealth Companies
Digital health and telemedicine companies must ensure that licensed physicians own and control all clinical operations. Business models based on non-physicians profiting from medical services (e.g., subscription-based medical treatment plans without physician ownership) can face legal scrutiny.
3. Non-Physician Business Owners & Investors
Entrepreneurs, private equity firms, and corporations cannot own, operate, or employ physicians in a medical practice. Non-physician investors can participate in healthcare businesses only through compliant structures like Management Service Organizations (MSOs).
4. Healthcare & Wellness Businesses
Medical spas (Medi-Spas), telehealth companies, urgent care centers, and concierge medicine businesses must ensure a physician owns and controls the medical side of the business. Non-compliant setups, such as a spa offering Botox injections without physician ownership, violate CPOM laws.
5. Hospitals & Healthcare Systems
While hospitals can employ physicians under certain legal exceptions, they must carefully structure employment contracts to comply with CPOM restrictions.
6. Management Service Organizations (MSOs)
MSOs must limit their role to non-clinical administrative services (billing, marketing, staffing). If an MSO interferes with medical decisions, it risks violating CPOM laws.
7. Employers Hiring Medical Professionals
Employers hiring physicians, nurse practitioners, or other medical professionals must ensure that these providers work under physician-owned entities, not general business corporations.
Consequences of CPOM Violations in California
Violating CPOM laws in California can result in severe penalties, including:
Criminal charges and fines
Loss of medical license
Business closure and legal sanctions
Civil lawsuits and patient claims
Insurance reimbursement clawbacks
Recent Enforcement Example: Envision Healthcare Case
In 2021, Envision Healthcare was sued for allegedly using business loopholes to control emergency room staffing, violating CPOM laws. The lawsuit resulted in Envision ceasing operations in California in 2024, even though there was no official court ruling.
Key Takeaways
Here are the key points to remember about CPOM in California.
Physician Ownership Is Required: Only licensed physicians can own and control medical practices in California. Non-physicians and corporations cannot employ physicians or influence medical decisions.
Compliant Business Structures: Professional Corporations (PCs) are the primary legal entity for physician-owned practices. Management Service Organizations (MSOs) can provide administrative support but cannot control clinical operations.
Strict CPOM Enforcement: Violations can lead to criminal charges, revoked licenses, lawsuits, and financial penalties. Physicians risk losing their licenses, and non-compliant businesses can be shut down.
How To Stay Compliant: Ensure only physicians own and control medical decisions, use legally approved business structures, and consult healthcare attorneys to prevent violations.
California’s CPOM laws are among the strictest in the nation, and enforcement is becoming more aggressive. Non-physician investors and businesses must be very careful when structuring partnerships with medical professionals.
Zivian Health Helps Healthcare Business Owners Navigate CPOM Compliance
Zivian Health specializes in helping healthcare providers and businesses navigate CPOM compliance. Whether you’re a physician interested in becoming a PC owner or a healthcare business seeking a compliant business model, we’re here to guide you every step of the way.
Contact Zivian Health today to learn more about our PC ownership and CPOM solutions.
