Andrea Linna: The Corporate Practice of Medicine: Essential Guidance for Women’s Health Companies and Investors
September 2, 2025
Andrea Linna
The Corporate Practice of Medicine: Essential Guidance for Women’s Health Companies and Investors
As digital health companies blossom from ideas into reality, navigating state regulations on the corporate practice of medicine (CPOM) is typically one of the first and most crucial legal hurdles to clear if the company seeks to deliver professional healthcare services. Many states have strict rules about (1) what type of entities can perform medical services and (2) who can have an ownership interest in entities that provide those medical services. In many states, only a professional medical entity, and not a general corporation, can provide medical services. In addition, many states also limit ownership of professional medical entities to people with certain medical licenses. These ownership rules vary by state, though all states permit a licensed physician to be the sole owner of a medical group. For non-medical personnel, including founders, venture capital firms, private equity, and other investors, this means that they generally cannot invest in entities that provide medical services.
Working with experienced healthcare legal counsel is essential, as misunderstanding these regulations can lead to invalid corporate structures, regulatory penalties, and allegations of unlicensed practice of medicine. Further, compliance with CPOM laws is essential for investments and successful exists as sophisticated investors view CPOM compliance as a fundamental risk factor in their investment decisions. Healthcare counsel will design compliant corporate structures—often involving management service organizations (MSOs) alongside professional corporations (PCs)—that protect both clinical independence and allow for appropriate financial relationships between investors and the medical practice while satisfying regulatory requirements across different jurisdictions. These regulatory frameworks can be exceedingly complex, with subtleties that vary significantly from state to state, creating an intricate legal landscape where even well-intentioned founders and investors can easily make critical mistakes that threaten the viability of their business model or expose them to substantial liability.
While women’s health companies face underfunding, market skepticism, and unique social, political, and financial challenges, CPOM laws apply to digital health companies across the spectrum of care. This article discusses strategies used by digital health companies to comply with CPOM laws.
Who: CPOM Isn’t Just for Doctors
While state prohibitions on corporations practicing medicine are the most common, several states impose similar restrictions on other licensed professions, such as dentistry, nursing, behavioral health counseling, psychology, veterinary medicine, and physical therapy. These restrictions fundamentally limit who can own and control entities providing these professional services—typically requiring that owners hold the appropriate license. For example, a company that delivers virtual physical therapy services to pregnant women would need to verify whether state law requires the entity providing physical therapy services to be owned by licensed physical therapists.
For entrepreneurs, investors, and non-licensed business professionals looking to enter the women’s health space, these regulations create significant barriers to traditional business ownership and investment structures. The core purpose of these laws is to prevent business interests from interfering with professional judgment and the provider-patient relationship.
Why: Preserving the Sanctity of the Patient-Provider Relationship
The underlying public policy for state prohibitions on CPOM is derived from protecting the integrity of medical decision-making. CPOM laws aim to ensure healthcare professionals remain free from external influence (like a for-profit corporation’s obligation to maximize shareholder value). State prohibitions on CPOM are similar to, and often intersect with, other laws aimed at preserving the sanctity of the patient-provider relationship, such as the federal Anti-Kickback Statute, the Stark Law, and fee-splitting rules. Furthermore, CPOM prohibitions address the risk that non-licensed individuals such as founders and investors might effectively engage in medical decision-making, which could constitute the unauthorized practice of medicine—a criminal offense in most jurisdictions. For example, it would be unlawful for the unlicensed founder of a women’s therapy company to offer therapeutic advice to patients or determine how patients should be treated.
What: The MSO-PC Model
The most common and pressure-tested way for women’s health companies and their investors to comply with varying state prohibitions on CPOM and avoid possible criminal and civil penalties is to establish two distinct corporate entities: an MSO and a PC. This model is used by women’s health companies across the industry. The MSO typically employs administrative staff and provides management, financial, coding/billing, (possibly) marketing, and other administrative services to the PC, and may also serve as a lender to the PC. The PC employs the physicians and clinical personnel, owns all clinical assets (e.g., medical records), and is the entity through which all medical services are provided. Importantly, the PC’s physician owners control all decisions that involve medical decision-making.
Because the MSO does not perform medical services, it can be owned by lay investors, including investment firms and other non-professional entities. In contrast, in states with prohibitions on CPOM, the PC must be owned by one or more actively licensed medical professionals. The use of the MSO-PC model allows investors to share in the profits of the management company while still complying with state laws that protect the integrity of medical decisions, which are made solely by the PC through its physician owner(s).
How: The Key MSO-PC Agreements
Setting up an MSO-PC model can require significant time, effort, and expertise and includes a variety of agreements between the various entities involved. Of those agreements, two are particularly important: the Administrative Services Agreement and the Continuity Planning Agreement.
Administrative Services Agreement
Importantly, the PC and the MSO are not part of the same corporate structure; they are not subsidiaries or affiliates. Instead, they are business partners, tied together contractually by an Administrative Services Agreement (“ASA”) which sets forth the relationship and obligations of both entities. Under a typical ASA, the MSO will provide management, financial, coding/billing, (possibly) marketing, and other administrative services to the PC, and may also serve as a lender to the PC. In exchange, the PC will pay an administrative fee to the MSO.
Continuity Planning Agreement
The Continuity Planning Agreement (“CPA”) runs between the MSO, the PC, and the physician owner, and functions as the MSO’s (and the MSO’s investors’) “insurance policy” against a problematic physician owner. In essence, the CPA specifies the circumstances under which the physician owner can transfer their shares in the PC to another person/entity and requires the MSO’s consent for such a transfer. The CPA also sets forth certain circumstances under which the MSO can direct, or under which the physician owner is obligated to, transfer the physician owner’s shares (e.g., the physician owner’s medical license is revoked). It is important to note that CPAs are not legal or enforceable in every state, as some states believe they grant excessive control over the PC. Even in states where they are allowed, they must be carefully drafted to prohibit any such control.
Beyond the ASA and the CPA, the MSO-PC model typically requires numerous additional documents, including professional services agreements, employment agreements, HIPAA business associate agreements, trademark licensing agreements, promissory notes, and more.
Compliance is Key
Women’s health companies and their investors should be mindful of the risks and implications of violations of state prohibitions on CPOM. Violations can result in severe penalties, including criminal charges, jail time, substantial fines, loss of licensure, litigation, loss of reimbursement and payor agreements, and nullification of other business contracts, making compliance essential not just for legal operations but for protecting company valuation and long-term viability. To maintain compliance with CPOM, companies and their investors should conduct annual operational audits and training programs for all personnel involved in the MSO-PC relationship.
Conclusion
State prohibitions on CPOM can present a dizzying array of contrasting rules and obligations, but a properly structured MSO-PC model can help alleviate many of these concerns. Women’s health companies at all stages of growth should work with experienced healthcare regulatory counsel to understand the state prohibitions on CPOM and intersecting and evolving state and federal requirements.
About Andrea Linna:
Andrea Linna is a partner at Wilson Sonsini Goodrich & Rosati, where she is a member of the firm’s digital health industry group and its healthcare practice. With more than a decade dedicated to healthcare law, Andrea exclusively represents digital health and healthcare IT clients, from emerging companies to established industry players, investors, and healthcare systems. Andrea guides her clients through the patchwork of federal and state laws that apply to digital health companies, addressing issues such as corporate practice of medicine, Stark Law compliance, Anti-Kickback Statute considerations, fee splitting, billing Medicare and Medicaid, contracting with commercial payors, value-based care arrangements, artificial intelligence, remote patient monitoring, online prescribing, scope of practice, and licensing requirements.
Prior to joining the firm, Andrea was a partner at McGuireWoods in Chicago and served as co-leader of its digital health, technology and innovation practice. Before that, she was a partner at Honigman LLP.
