A CPOM-compliant business structure separates control of medical care from control of non-clinical operations. In states where a PC/MSO model is appropriate, the professional entity handles the medical practice while the Management Services Organization supports the business side. The structure only works if ownership, contracts, clinical authority, and money flow all follow that separation.
Key Takeaways
- Start with the ownership and entity rules of the state where the professional practice will operate. (Jump to Section)
- The professional entity must retain control over clinical decisions, even when the MSO manages substantial business operations. (Jump to Section)
- The Management Services Agreement should clearly define what the MSO can do, what it cannot control, and how it will be paid. (Jump to Section)
- Patient revenue and management fees should follow the entity structure rather than being informally mixed between accounts. (Jump to Section)
- A paper PC/MSO structure is not enough if the MSO effectively controls medical decisions in practice. (Jump to Section)
Start With the State, Not the Diagram
There is no single PC/MSO structure that automatically satisfies Corporate Practice of Medicine rules nationwide.
CPOM is primarily state-driven. Ownership restrictions, permitted professional entities, fee-splitting rules, physician-control requirements, and exceptions vary considerably. The American Medical Association notes that CPOM laws remain highly variable across states, while recent state activity has placed additional attention on corporate influence and MSO control.
Before forming either entity, identify:
- Who may own the medical practice: Some states restrict ownership to physicians or other specified licensed professionals.
- What type of entity may practice medicine: Depending on the state, this may be a professional corporation, professional limited liability company, professional association, or another permitted form.
- Which decisions must remain with clinicians: Clinical judgment and certain practice-management decisions may be protected from non-clinical control.
- What fee arrangements are permitted: State fee-splitting and professional-practice rules can affect how the MSO is compensated.
- Whether special exceptions apply: Hospitals, nonprofit entities, academic organizations, or other healthcare entities may operate under different rules.
California illustrates how strict these boundaries can be. The Medical Board of California states that non-physicians cannot own or operate a business that provides medical diagnosis or treatment and that MSOs cannot control the physician’s practice of medicine.
The exact structure should therefore be reviewed under the law of each state involved.
Step 1: Confirm the Professional Entity Your State Requires
The professional entity is the part of the structure through which medical care is delivered. It may be called a Professional Corporation (PC), Professional Limited Liability Company (PLLC), Professional Association (PA), or another state-authorized entity.
Its responsibilities generally include:
- Providing professional medical services;
- Maintaining clinical authority;
- Contracting with or employing clinical providers as permitted;
- Controlling treatment decisions;
- Maintaining applicable clinical records;
- Approving clinical policies and protocols; and
- Receiving revenue attributable to professional medical services.
Ownership must follow the state’s professional-entity rules.
For example, California requires physicians practicing through a corporation to use a professional medical corporation rather than a standard LLC or general corporation. The Medical Board also restricts who may own shares in that professional corporation.
Do not form a standard business entity first and assume it can later be converted into the medical side of the practice.
The professional entity should be established correctly from the beginning.
Step 2: Form the Management Services Organization Separately
The MSO handles the non-clinical side of the healthcare business. A non-physician founder may generally own the MSO, subject to the rules of the applicable state and the overall structure.
Depending on the arrangement, the MSO may provide:
- Administrative staff;
- Office space;
- Equipment;
- Technology;
- Marketing;
- Scheduling;
- Bookkeeping;
- Payroll support;
- Non-clinical operations; and
- Other management services.
The MSO should have its own legal identity, governance documents, banking arrangements, accounting records, and contractual responsibilities. Its role is to support the professional practice.
It should not become the entity that actually makes medical decisions.
Building a PC/MSO structure for your clinic?
Align physician oversight with your state requirements.
Step 3: Keep Clinical Authority With the Professional Entity
The MSO can manage substantial business operations without controlling medical judgment. Clinical authority should remain with the professional entity and its appropriately licensed clinicians.
That typically includes decisions involving:
- Diagnosis;
- Treatment selection;
- Prescribing;
- Clinical protocols;
- Patient eligibility;
- Referrals;
- Clinical supervision;
- Provider competency;
- Medical-record content; and
- Other decisions requiring professional judgment.
The boundary can extend beyond obvious treatment decisions.
California’s Medical Board states that licensed physicians must retain responsibility for clinical decisions. These include diagnostic testing, referrals, and overall patient care. Physicians must also retain control over certain hiring or firing decisions involving clinical competency. Control over medical records, billing, equipment, and payer contracts can also raise physician-control concerns.
That is why a CPOM-compliant structure cannot be evaluated only by looking at who owns the PC.
You also have to look at who actually controls the practice.
Step 4: Draft the Management Services Agreement Around Clear Boundaries
The Management Services Agreement, or MSA, connects the MSO and professional entity. It should explain the services the MSO will provide and establish the boundaries between administrative management and professional medical control.
A well-structured MSA commonly addresses:
- Management services: Identify exactly what administrative services the MSO provides.
- Clinical reservations: State which decisions remain exclusively with the professional entity.
- Staff responsibilities: Clarify which entity employs or contracts with different categories of workers.
- Facilities and equipment: Explain how space, equipment, software, and other resources are provided.
- Management fees: Establish how the MSO will be compensated.
- Records and information: Define appropriate access while protecting clinical control and patient privacy.
- Term and termination: Explain how the relationship can end and what happens afterward.
- Insurance and liability: Allocate appropriate insurance and contractual responsibilities.
- Compliance obligations: Require each entity to follow applicable healthcare, privacy, licensing, and professional-practice laws.
The MSA should match actual operations.
A beautifully drafted agreement does little good if the MSO ignores those boundaries once the clinic opens.
Step 5: Structure the Funds Flow Correctly
The way money moves between the entities should reinforce the same separation established in the contracts.
A simplified model often looks like this:
Patient receives medical care → professional entity earns professional revenue → MSO provides contracted management services → professional entity pays the MSO under the MSA
The details require careful planning.
Questions to resolve include:
- Which entity bills patients or payers?
- Which entity receives professional-service revenue?
- Which account receives those payments?
- Which operating expenses belong to the professional entity?
- Which expenses belong to the MSO?
- How is the management fee calculated?
- Who approves transfers between entities?
- How are refunds and chargebacks handled?
Avoid casually sending all clinic revenue into the MSO’s operating account simply because the MSO owns the brand or manages the front desk.
The funds flow should reflect which entity actually earned the revenue.
Management Fees Need Their Own Compliance Review
Depending on the state, the management fee may need to be evaluated under CPOM restrictions, fee-splitting laws, referral rules, and fair-value considerations.
For example, California law addresses percentage-of-gross-revenue arrangements for services other than patient referrals. The compensation must be consistent with the value of the services provided or the fair rental value of the property or equipment involved.
That does not mean the same percentage arrangement is appropriate everywhere.
Management compensation should be reviewed under the specific state’s rules rather than copied from another clinic’s MSA.
Not sure whether your PC, MSO, and payment structure line up?
Align the structure with your clinic model.
Step 6: Separate the Entities Operationally, Not Just Legally
Two formation documents do not automatically create two functioning entities. The professional entity and MSO should remain distinguishable in actual operations.
Review areas such as:
- Bank accounts;
- Accounting;
- Contracts;
- Payroll;
- Insurance;
- Invoices;
- Tax records;
- Leases;
- Equipment ownership;
- Vendor agreements; and
- Internal approvals.
Shared resources may be appropriate when they are properly documented. Informal commingling is different.
For example, if the MSO owns equipment used by the professional practice, the agreement should explain how that equipment is provided. If the MSO provides administrative staff, the responsibilities should be defined instead of being left to an informal understanding.
Step 7: Check How the Structure Works Day to Day
A common CPOM structuring mistake is creating compliant documents while operating the clinic differently. Ask practical questions.
Who decides which treatments the clinic offers?
The MSO may research market opportunities and make business recommendations. Clinical approval of medical treatments should remain with the professional side where required. The professional entity should also decide whether the clinic has the appropriate providers, protocols, and safeguards in place before a treatment is offered.
Who decides whether a patient is eligible?
That decision belongs to the appropriate licensed clinician. Patient eligibility should be based on the clinical evaluation, medical history, contraindications, and treatment-specific criteria rather than a business or sales decision.
Who writes and approves standing orders?
They should be handled through the appropriate professional and physician oversight structure. The orders should also reflect the services actually being provided and clearly identify which clinicians may act under them.
Who determines clinical competency?
A non-clinical owner should not override licensed professionals on whether a clinician is competent to perform a medical service. Competency decisions should be based on training, licensure, experience, and any additional requirements tied to the procedure.
Who can change a treatment protocol?
Changes involving clinical care should follow the professional entity’s clinical authority. Any revision should also be reviewed by the appropriate physician or clinical lead before staff begin using the updated protocol.
Who responds when a provider has a clinical question?
The clinic should have a real physician or professional escalation pathway, not simply a physician name appearing in formation documents. Providers should know who to contact, how quickly that person is expected to respond, and when a clinical issue requires escalation.
This is where regulators may look beyond corporate paperwork and evaluate who actually exercises control.
The Medical Board of California specifically warns that an MSO may not exercise control over a physician’s medical practice even when physicians formally own and operate the professional entity.
Step 8: Align the Medical Director Relationship With the Professional Entity
The medical director should be connected to the clinical side of the structure, not treated as a service provider for the MSO alone. The physician’s authority and responsibilities should support the professional entity that is actually delivering medical care. That relationship should also be reflected consistently across the medical director agreement, standing orders, protocols, and day-to-day clinical workflows.
The physician’s responsibilities may include:
- Approving protocols;
- Maintaining standing orders;
- Supporting delegation;
- Reviewing charts;
- Providing clinical consultation;
- Overseeing applicable providers; and
- Helping address adverse events or quality concerns.
The exact responsibilities depend on the state, services, and provider mix.
Avoid structuring the medical director as someone whose only relationship is with the non-clinical MSO while the professional practice lacks meaningful physician governance.
Clinical oversight should connect back to the entity responsible for delivering medical care.
Medical Director Co.’s current PC/MSO guidance similarly places medical oversight and clinical decision-making with the professional entity rather than the MSO.
Step 9: Make Sure the Brand Does Not Blur the Legal Structure
Patients may experience the clinic as one brand even when two entities operate behind it. That does not mean the legal distinction should disappear.
Review:
- Patient agreements;
- Consent forms;
- Invoices;
- Privacy notices;
- Website language;
- Employment documents;
- Payer contracts;
- Vendor agreements; and
- Professional-service disclosures.
The correct entity should appear where legally and operationally appropriate.
For example, the MSO may operate the website. However, the site should not make the MSO appear to be independently practicing medicine when the PC actually provides the professional services.
Branding should support the business without misrepresenting who provides medical care.
Step 10: Build for State-by-State Expansion
A PC/MSO structure that works in one state should not automatically be copied into another. State law may change:
- Who may own the professional entity;
- Which professional entity type is permitted;
- Whether foreign professional entities can register;
- Physician licensure requirements;
- Fee-splitting restrictions;
- Medical director responsibilities;
- NP and PA practice authority;
- Telehealth requirements; and
- How much influence an MSO may exercise.
Recent policy activity also shows increasing scrutiny of corporate influence in healthcare. The AMA reported in 2026 that states have been strengthening approaches intended to preserve physician control and limit indirect corporate influence through business arrangements.
Treat each new state as a separate structuring project.
Do not simply change the address on an existing MSA.
Common PC/MSO Structuring Mistakes
Most structural problems come from allowing the legal documents and the actual business to tell different stories.
Watch for these mistakes:
- The MSO controls clinical decisions: Business ownership does not provide authority over diagnosis, treatment, prescribing, or other professional judgment.
- The physician owner exists only on paper: Professional ownership should come with the control required under the applicable state’s laws.
- The MSA is copied from another state: State CPOM and fee-splitting rules can make an otherwise familiar contract inappropriate.
- All money flows through one entity: Commingling can blur which entity provides medical care and which provides management services.
- The management fee has no supporting rationale: Fees should be structured and reviewed under applicable state law.
- Clinical staff relationships are unclear: Employment, contracting, supervision, and delegation should match the professional structure.
- The MSO controls patient records without review of state requirements: Some states treat control of medical records as part of professional practice authority.
- The medical director agreement conflicts with the MSA: The physician’s clinical authority should not be contradicted by management rights granted elsewhere.
CPOM Structure Checklist
Use this checklist before launch or after restructuring an existing business.
Structure Question | Confirmed | Needs Review |
|---|---|---|
Professional entity type complies with state law | ☐ | ☐ |
Professional ownership meets state requirements | ☐ | ☐ |
MSO is established as a separate entity | ☐ | ☐ |
Clinical authority is reserved to the professional entity | ☐ | ☐ |
MSA clearly defines management services | ☐ | ☐ |
Management fee has been reviewed for state compliance | ☐ | ☐ |
Professional revenue follows the appropriate entity flow | ☐ | ☐ |
Bank accounts and accounting are separated | ☐ | ☐ |
Clinical provider relationships match the structure | ☐ | ☐ |
Medical director duties align with the professional entity | ☐ | ☐ |
Patient-facing documents use the appropriate entity | ☐ | ☐ |
State-specific legal review has been completed | ☐ | ☐ |
A checked box does not replace legal review. It helps identify which pieces need to fit together before the structure is operational.
How Medical Director Co. Supports PC/MSO Healthcare Businesses
Medical Director Co. supports healthcare founders who need physician placement and clinical oversight within a CPOM-conscious business structure.
Current services include licensed medical director placement, state-specific agreements, standing orders, protocols, and ongoing physician oversight. Medical Director Co. also includes MSO agreement preparation where required as part of its current medical director service offering. Plans currently start at $799 per month, with physician matching available within 24 hours.
The physician relationship is only one piece of the structure. The professional entity, MSO, MSA, clinical authority, and funds flow still need to work together under applicable state law.
Building a healthcare business in a CPOM state?
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FAQs
What is the basic structure of a CPOM-compliant healthcare business?
In states where a PC/MSO model is appropriate, the professional entity provides medical care and retains clinical authority. A separate MSO provides defined administrative and business services under a Management Services Agreement.
Does every CPOM state require a PC and MSO?
CPOM requirements and permitted entity structures differ by state. Some states permit other professional entities or contain exceptions, so the structure should be confirmed before formation.
What should a Management Services Agreement include?
An MSA should clearly define the administrative services provided by the MSO, the management fee, each entity’s responsibilities, and the clinical decisions reserved to the professional entity. It should also address areas such as facilities, staffing, records, insurance, and termination.
Can the MSO receive a percentage of clinic revenue?
The answer depends on the state and the arrangement. Percentage-based management fees can raise fee-splitting and CPOM concerns, so the compensation formula should be reviewed under applicable state law rather than assumed to be permissible.
Who should collect patient payments in a PC/MSO structure?
The appropriate funds flow depends on the services being billed and applicable state requirements. Professional medical revenue generally needs to remain attributable to the professional entity, with the MSO receiving compensation under the management arrangement.
Can the MSO hire the clinic’s physicians?
This depends on state law and the exact structure. In stricter CPOM jurisdictions, allowing the MSO to employ or control physicians can undermine the required separation between business management and professional medical practice.
Can one PC operate in multiple states?
Professional-entity registration, ownership rules, physician licensure, and foreign-entity requirements can differ by state. Multi-state businesses should review the structure separately before entering each jurisdiction.
Why does clinical control matter if a physician already owns the PC?
Ownership alone may not resolve a CPOM problem if the MSO effectively controls medical decisions. Regulators can consider how the business actually operates, including who controls providers, treatment decisions, protocols, records, and other aspects of professional practice.
How does Medical Director Co. help with PC/MSO structures?
Medical Director Co. provides physician placement and ongoing physician oversight. Its services can also include state-specific clinical agreements, standing orders, protocols, and MSO agreement preparation where required.
Build the Structure Around Real Separation
A CPOM-compliant healthcare business requires more than forming two entities. The professional entity must retain the clinical authority required by state law, while the MSO stays within its defined management role.
The MSA, physician relationship, funds flow, and daily operations should all reinforce that separation. Because CPOM and fee-splitting rules vary by state, founders should have the final structure reviewed by qualified healthcare counsel before treating patients.
Set up the clinical side correctly from the start.
Get matched with a qualified medical director.
Bolton M. Harris, J.D., is a seasoned attorney with a formidable background in criminal law and a focus on healthcare law and compliance. As the in-house legal counsel at Medical Director Co., Harris brings a unique blend of prosecutorial experience and regulatory expertise to support healthcare professionals across Texas. Her career spans roles as a prosecutor in multiple counties and now as a trusted advisor on the legal intricacies of medical practice operations.
Education & Early Career
Bolton Harris completed her undergraduate studies at Southern Methodist University (SMU) in 2013. During her time at SMU, she was not only a dedicated student but also a competitive athlete on the university’s women’s swimming team. She went on to earn her Juris Doctor from Texas A&M University School of Law in 2016 and became a member of the Texas Bar that same year. Armed with a strong academic foundation and discipline honed as a student-athlete, Harris embarked on a career in criminal law immediately after law school.
Prosecutorial Experience in Texas
Bolton Harris began her legal career in public service as a criminal prosecutor. She served as an Assistant District Attorney in multiple jurisdictions, where she quickly rose through the ranks and handled a broad spectrum of cases. Some highlights of her prosecutorial career include:
- Assistant District Attorney, Dallas County, Texas: Prosecuted a high volume of criminal cases in one of the state’s busiest DA offices, gaining extensive trial experience in both misdemeanor and felony courts.
- Assistant District Attorney, Ellis County, Texas: Continued to hone her courtroom advocacy skills, known for meticulous case preparation and a tenacious pursuit of justice on behalf of the community.
- Assistant District Attorney, Navarro County, Texas: Broadened her legal expertise by handling diverse criminal matters in a smaller county, working closely with law enforcement and community leaders to uphold the law.
Through these roles, Harris built a reputation for being a tough but fair advocate. She brought numerous cases to trial and developed an in-depth understanding of the criminal justice system. This distinguished prosecutorial background laid a strong foundation for the next phase of her career in the private sector.
Healthcare Law & Compliance at Medical Director Co.
After her tenure as a prosecutor, Harris shifted her focus to healthcare law, applying her legal acumen to the medical field. She recognized that the same attention to detail and tenacity that served her in criminal law could benefit healthcare providers navigating complex regulations. Embracing this new direction, Harris became well-versed in the intricate laws governing medical practices – from licensing requirements to patient safety and privacy standards – and is passionate about helping practitioners stay compliant.
In her current role as the in-house attorney for Medical Director Co., Bolton Harris oversees all legal and compliance matters for the organization and its clients. Medical Director Co. is a nurse-owned firm that connects nurse practitioners (NPs), physician assistants (PAs), and registered nurses with qualified medical directors and collaborating physicians, offering fast placements and comprehensive compliance support for healthcare practices. Harris ensures that each of these partnerships and clinical ventures adheres to all applicable state and federal laws. She is responsible for drafting and reviewing collaborative practice agreements, advising on regulatory requirements, and providing ongoing legal counsel as clients establish and grow their clinics. Drawing on her prosecutorial eye for risk management, Harris proactively identifies potential legal issues and addresses them before they escalate, giving healthcare professionals peace of mind.
Bolton M. Harris’s multifaceted expertise – spanning high-stakes courtroom litigation to detailed healthcare compliance – makes her a formidable legal ally. Whether advocating in front of a jury or guiding a medical practice through regulatory hurdles, she remains committed to the highest standards of the legal profession. Her blend of courtroom-tested skill and healthcare law knowledge ensures that clients of Medical Director Co. receive elite-level counsel and steadfast protection in an ever-evolving legal landscape.
