The question of whether a person without a medical license can own a medical practice is governed by a patchwork of state laws. The legality of non-physician ownership depends entirely on the specific jurisdiction and the precise legal arrangement used to separate clinical and administrative functions. Navigating this landscape requires understanding the foundational legal barriers that necessitate complex organizational models.
The Corporate Practice of Medicine Doctrine
The primary barrier to non-physician ownership is the Corporate Practice of Medicine (CPOM) doctrine, a legal concept established at the state level. This doctrine generally prohibits standard corporations or lay entities from practicing medicine or employing physicians to provide clinical services. CPOM was developed to protect the integrity of the physician-patient relationship and ensure clinical decisions are guided by patient welfare, not profit motives. This prohibition prevents business executives or shareholders from dictating patient care protocols to maximize revenue, which could compromise medical judgment. The doctrine treats a medical practice not as a simple business transaction, but as a licensed professional service that must remain under the control of licensed practitioners.
State-by-State Variations in Ownership Rules
CPOM enforcement is not uniform across the United States, creating regulatory variation that dictates where and how non-physicians can become involved in a practice. Approximately 33 states have some form of CPOM law, but the level of enforcement and the extent of the prohibition vary dramatically. The most important factor in determining the legality of non-physician ownership is the practice’s physical location.
States with Strict CPOM Enforcement
In states with strict CPOM enforcement, non-physician ownership is almost entirely prohibited, requiring highly structured workarounds. Jurisdictions like California, Texas, and New York rigorously enforce laws mandating that only licensed physicians can own and control medical practices. These states impose severe penalties for violations.
States with Modified or Limited CPOM
Other states maintain CPOM principles but offer more leniency regarding business structures, provided clinical autonomy is preserved. These states may permit non-physician ownership under certain conditions, often utilizing specific management models. For example, in Florida, non-physician investors frequently use Management Service Organizations (MSOs) to partner with physicians, allowing for greater structural flexibility.
States with No or Minimal CPOM
A smaller group of states, such as Alaska, Nevada, and Missouri, have minimal or no explicit CPOM laws, imposing fewer restrictions on corporate ownership or physician employment. In these states, non-physician entities may even be permitted to employ physicians, as long as the arrangement is structured to respect the medical professional’s autonomy in clinical matters.
Structuring a Practice for Non-Physician Ownership
In most states, the Management Service Organization (MSO) model is the structural solution that allows non-physicians to participate financially in a medical practice without violating CPOM laws. This model legally separates the clinical and administrative functions of the practice through a split structure. The MSO is a non-clinical business entity that can be owned by non-physicians, while the clinical operations are held by a Professional Corporation (PC) owned exclusively by licensed physicians.
The MSO is responsible for all non-clinical, administrative, and business functions, such as billing, human resources for non-clinical staff, facility management, equipment leasing, and marketing. This arrangement allows the non-physician owner to capture value and operational efficiencies by managing the business side, while the physician-owned PC handles all patient care, clinical decision-making, and employs the licensed medical staff.
The relationship between the two entities is governed by a formal Management Service Agreement (MSA). The MSA is the foundational contract detailing the services the MSO provides to the PC and the compensation structure. The fees charged by the MSO must represent the fair market value (FMV) of the services rendered and must not be tied to the PC’s patient volume or professional clinical revenue. The use of a flat fee or a cost-plus model is often preferred over a percentage of collections, as this separation ensures the arrangement does not constitute illegal fee-splitting.
Defining the Non-Doctor’s Operational Role
For the MSO structure to remain compliant, the non-doctor owner’s operational role must be strictly limited to non-clinical activities, ensuring they never interfere with the physician’s independent medical judgment. Permitted activities for the MSO include financial management, strategic planning, overseeing non-clinical human resources, managing vendor negotiations, IT infrastructure, and marketing strategy.
The non-doctor must never engage in prohibited activities that constitute the practice of medicine or control over it. The MSO is strictly forbidden from hiring, firing, or setting the compensation for licensed medical staff, including physicians, physician assistants, and nurses. Furthermore, the non-doctor cannot set treatment protocols, dictate the type of equipment used for clinical care, or influence a physician’s diagnosis or treatment plan.
Compliance Risks and Regulatory Pitfalls
Even a properly structured MSO can face significant compliance risks if the operational separation is not diligently maintained. A common regulatory pitfall is illegal fee splitting, which occurs when the MSO’s management fee is calculated as a percentage of the PC’s professional fees. Regulators view such percentage-based compensation as potentially giving the non-licensed entity a direct financial stake in the outcome of clinical services, which can be interpreted as paying for referrals or splitting clinical revenue.
The risk of illegal control is another pitfall, arising when the MSO exerts excessive influence over the practice’s clinical operations. If an MSO’s actions lead regulators to believe it is effectively dictating clinical decisions, the state may argue the MSO is illegally practicing medicine. To mitigate this, the MSA must clearly establish a fee structure consistent with Fair Market Value (FMV), often requiring an independent third-party valuation to demonstrate commercial reasonableness.
Violations of CPOM laws and fee-splitting prohibitions carry severe consequences for both the non-physician business owner and the licensed physician. Penalties can include substantial fines, the invalidation of the entire management contract, and the loss of the medical license for the cooperating physician. Structuring and operating a compliant MSO arrangement requires specialized legal counsel to navigate specific state regulations and federal laws, such as the Anti-Kickback Statute, which scrutinize financial arrangements involving referral sources.