This article is part of our complete legal guide to selling a medical practice.
If you are selling to private equity, CPOM is the reason the deal looks the way it does. It explains why a buyer creates an MSO, why a physician may be asked to serve as the nominal owner of the practice, and why the management services agreement matters as much as the purchase agreement.
What is the corporate practice of medicine doctrine?
The doctrine comes from state law. Its premise is that medical judgment should be exercised by licensed physicians, not by business entities answerable to non-physician owners. Where state law prohibits it, a business entity owned by non-physicians may not practice medicine, employ physicians to practice medicine, or control clinical decisions. State corporate practice and professional entity rules vary substantially. Depending on the state and the entity, they may restrict ownership or control of a medical practice by non-licensees, permit physician employment by specified entities, or expressly authorize practice through ordinary entities subject to professional and licensing law.
How does CPOM shape a private equity deal?
Where CPOM applies, the typical structure has two halves:
- The clinical entity (often a professional corporation or PLLC) stays owned by one or more licensed physicians. It holds the payer contracts, employs the physicians, and delivers care.
- The MSO, owned by the private equity fund, buys the practice's non-clinical assets and provides billing, staffing, IT, real estate, and management in exchange for a management fee.
- Control documents, such as a stock transfer restriction agreement or succession agreement, let the MSO replace the physician owner and limit what that owner can do with the clinical entity.
Our guide to what an MSO is explains these pieces in more detail.
What does this structure mean for the selling physician?
| Issue | What to look at |
|---|---|
| Control | Which decisions stay with physicians, and which require MSO approval through the management agreement or control documents |
| Economics | How the management fee is calculated and whether it can grow in a way that shrinks physician compensation over time |
| Nominal ownership | If you will be the physician owner of the clinical entity, what obligations and restrictions come with that role and how you can be replaced |
| Exit | What happens to your role, your equity, and your restrictive covenants if you leave or are terminated |
| Compliance | Whether the structure actually keeps clinical decisions with physicians in practice, not just on paper |
Do Virginia and North Carolina apply the doctrine?
Not in the same way. Virginia law expressly allows professional services, including medicine, to be rendered through ordinary stock and nonstock corporations and ordinary LLCs, as well as professional corporations and PLLCs, unless another law or regulation prohibits it (Va. Code §§ 13.1-542.1, 13.1-1101.1). That does not allow unlicensed persons to practice medicine or control a physician's clinical judgment, but it means Virginia does not impose the same entity-ownership barrier that drives MSO structures in stricter states. Professional corporations and PLLCs still carry their own ownership requirements (Va. Code §§ 13.1-544, 13.1-1102). North Carolina is stricter on this point. Shares of a medical professional corporation generally may be issued and transferred only to qualifying licensees, arrangements that vest the shares' voting power in someone else are prohibited, and professional LLCs are subject to substantially the same restrictions (N.C. Gen. Stat. §§ 55B-4, 55B-6, 57D-2-02). MSO control documents, such as succession or stock transfer agreements, therefore need clause-by-clause review in North Carolina, because a document package that gives the MSO authority over the physician owner's voting rights would conflict with that rule. A platform operating in both states should not assume the clinical entity can be structured the same way in each. How each state's licensing board views a particular MSO arrangement or management fee should be confirmed before the deal is structured. For physicians in other states, the same question needs to be answered under that state's law.
Why does CPOM matter even if the buyer handles it?
The buyer's counsel designs the structure to protect the buyer. That structure will be legally sound from the buyer's perspective, but its control documents and management agreement allocate power and money in ways that directly affect you. A CPOM-compliant deal can still leave a physician owner with heavy obligations and very little real control. Understanding the structure early is what lets you negotiate the parts that matter, such as the management fee, approval rights, and the terms of the physician owner role.
Related guides
- Selling a Medical Practice: The Complete Legal Guide (start here)
- 7 Common Mistakes Physicians Make When Selling a Practice
- Selling Your Practice to Private Equity
- What Is an MSO?
- How to Value a Medical Practice
- Stark Law and the Anti-Kickback Statute in a Practice Sale
- Letters of Intent When Selling a Medical Practice
- Rollover Equity: What Physicians Should Know
- Your Employment Agreement After Selling Your Practice
- Non-Competes After Selling a Medical Practice
- F Reorganizations in a Medical Practice Sale
- Due Diligence When Selling a Medical Practice
- Selling to a Hospital, Private Equity, or Another Physician
About Med Contract Law. Med Contract Law is a focused practice group of McCormick Law & Consulting dedicated to physicians. We represent physicians and physician-owned practices in practice sales, private equity and MSO transactions, and hospital acquisitions. In these matters, we represent the physician side, not hospitals or health systems, so our focus is always on the physician's side of the deal.
If you are evaluating a private equity offer, understanding how CPOM shapes the structure is the first step in protecting your control and your economics. Schedule a confidential consultation to talk through your situation.
Unfamiliar with a term? See our physician contract and practice sale glossary.
Frequently asked questions
What is the corporate practice of medicine? It is a state-law doctrine that, where it applies, prohibits business entities owned by non-physicians from practicing medicine, employing physicians to practice medicine, or controlling clinical decisions.
Why do private equity deals use an MSO? In states that enforce CPOM, a lay investor generally cannot own the practice directly. The MSO lets the investor own and manage the business side while physicians keep legal ownership of the clinical entity.
Does CPOM protect the selling physician? Not automatically. The structure satisfies the doctrine, but the management agreement and control documents can still shift substantial control and income to the MSO. Those terms need to be negotiated.
Is CPOM the same in every state? No. The rules vary substantially by state and by type of entity, so the rules for your state should be confirmed before the deal is structured.