Corporate practice of medicine enforcement: New pressure points and a path forward

The corporate practice of medicine (CPOM) doctrine, and related prohibitions on the corporate practice of dentistry (CPOD) and other licensed healthcare professions, is a longstanding legal principle that prohibits unlicensed entities from employing licensed healthcare professionals or controlling clinical decision-making. In recent years, states have increased their scrutiny of corporate practice principles and heightened enforcement efforts in response to healthcare consolidation and growing investor involvement in healthcare delivery. In particular, states have focused enforcement efforts on the relationship between professional entities (PCs) and management services organizations (MSOs).

Recent actions by the California Attorney General (CA AG) have called into question contractual provisions and structural features between PCs and MSOs that potentially violate CPOM doctrine. The results of these developments could lead to similar enforcement priorities in other states.

Against this backdrop, while the PC/MSO model remains a viable structure in all states, companies are encouraged to review existing and proposed arrangements in the context of these developments, including consideration for potential challenges to lending arrangements that could make it more difficult for California PC/MSOs to receive funding, particularly if Continuity Agreements, Share Restriction Agreements, Succession Agreements, and Option Agreements are deemed to be no longer compliant in any form.

The foundational elements of the corporate practice of licensed healthcare professions doctrines

The policy goal of the prohibitions against CPOM, CPOD, and the corporate practice of other licensed healthcare disciplines is to protect patients by ensuring that licensed professionals retain independent judgment over clinical decisions. However, corporate practice prohibitions are not derived from a single, uniform federal law. Instead, these doctrines arise from a patchwork of state statutes, regulations, case law, attorney general opinions and actions, and licensing board guidance.

While a majority of state governments have some form of corporate practice prohibition, the scope and enforcement priorities vary by jurisdiction. Critically, states differ in their assessment of whether a lay entity crosses the line from providing permissible administrative and management support to impermissibly controlling or influencing clinical practice. As a result, complying with the requirements of these prohibitions depends on the facts and circumstances of each arrangement and the specific state’s restrictions. Activities, contractual arrangements, and services that may be acceptable in one state could be deemed noncompliant in another.

Despite these restrictions, the PC/MSO model is widely accepted as a compliant business structure, even in states that actively enforce corporate practice restrictions. Under this model, a licensed professional owns the professional entity and controls all clinical services and decision-making, including patient care, treatment plans, and the employment of or contracting with clinical staff. The professional entity then contracts with an MSO for non-clinical business support, management, and financial advisory services, which is often referred to as a Management Services Agreement (MSA). In most states, because licensed professionals retain ownership of the professional entity and control over all clinical decisions, the model satisfies the core concern underlying corporate practice prohibitions.

Recent enforcement actions and guidance from the CA AG

Three recent California matters, as set forth below, illustrate the state’s heightened focus on enforcing the CPOM and CPOD doctrines and certain PC/MSO arrangements that, in regulators’ minds, improperly cross the line from administrative support into control over licensed professionals and clinical decision-making.

Importantly, these matters involve distinct fact patterns that should be considered when evaluating corporate practice considerations and go-forward compliance. One matter, Art Center Holdings, Inc. v. WCE CA Art, LLC, is currently pending in California’s Court of Appeals, and the CA AG’s guidance appears in the form of an amicus brief, which signals its potential enforcement priorities, but does not amount to binding legal precedent. In the other two matters, while corporate practice issues are at play, the CA AG also had concerns related to other allegations, including misleading or false advertisements (Aspen Dental) and unfair consumer contracting, improper billing, and misleading representations to patients (Carbon Health).

CA AG’s amicus brief in Art Center Holdings and the medical community’s response

In an amicus brief filed in Art Center Holdings, Inc. v. WCE CA Art, LLC, the CA AG argued that agreements giving an MSO that is a lay entity the right to replace a PC’s physician-owner violates California’s CPOM prohibition.[1] The CA AG’s brief emphasizes that lay entities may not exercise, or even reserve the right to exercise, control over medical practices. Specifically, according to the CA AG, an MSO’s ability to unilaterally terminate and replace a physician-owner renders the physician’s ownership as nominal and gives the MSO effective control, even if the MSO never actually exercises that right. The CA AG also articulated that the PC does not have the same right to terminate the MSA with an MSO, as PC/MSO MSAs may contain extended terms with very limited termination rights for a PC. Accordingly, the CA AG asserts that this mechanism results in the MSO indirectly controlling all aspects of the PC, stripping the PC owner of autonomy, and making it so that the arrangement impermissibly divides the physician’s loyalties between clinical priorities and obligations to the MSO.

Notably, both the California Medical Association (CMA) and the American Medical Association (AMA) have issued statements regarding the CPOM doctrine and PC/MSO arrangements in response to the Art Center Holdings litigation.[2] While the CMA and AMA agree that PC/MSO arrangements must not permit lay entities to control clinical decision-making or physician independence, they differ in their guidance for physicians going forward.

The CMA does not condemn PC/MSO arrangements outright. Rather, the CMA acknowledges that “friendly PC arrangements are common and can be useful to carry out business alignment strategies between physicians and lay managers or other partners.”[3] The CMA rejects a “categorical prohibition” on PC/MSO structures, and instead, advocates for a fact-based, context-driven approach for each PC/MSO arrangement to determine whether the lay entity exercises undue control or influence over clinical functions.[4] According to the CMA, “CPOM enforcement needs to be precise to weed out friendly PC structures that run counter to its purpose of protecting physician independence and medical decision-making without forestalling the free flow of market forces that innovate and advance alignments of the delivery of medical care for the benefit of the public and patients.”[5] By contrast, the AMA takes a more advocacy-based approach, encouraging physicians who are contemplating corporate investor partnerships or relationships, including PC/MSO arrangements, to consider “whether and how a corporate relationship may require [physicians] to cede control over practice decision-making[.]”[6] And, on June 9, 2026, the AMA adopted a sweeping policy, reaffirming physician ownership and control over physician practices, opposing corporate arrangements that allow non-licensed entities to exercise direct or indirect control over such practices, and calling for greater transparency regarding such contractual arrangements.[7] The policy also targets certain types of restrictive covenants, which are often found in PC/MSO contractual agreements.

As of the publication date of this client alert, Art Center Holdings is pending before the California Second District Court of Appeal.

The CA AG’s settlement with Carbon Health

In a $4.5 million settlement with the CA AG, Carbon Health Technologies, Inc., Treat Medical, Inc., and Eren Bali (collectively, Carbon Health) resolved allegations that their MSO structure violated California’s CPOM prohibition.[8] Specifically, according to the settlement, the CA AG found several elements of Carbon Health’s PC/MSO model to be problematic. For example, under the MSA between the MSO and PC, the MSO retained complete authority over advertising, payor negotiations, medical equipment selection, and the hiring, firing, and compensation of licensed medical professionals. Further, under a revolving credit agreement with affiliated PCs, the PCs were required to obtain financing exclusively from the MSO at above-market interest rates, secured by a first-priority lien on each PC’s assets. Additionally, assignable option agreements included mechanisms permitting the MSO to control and select PC owners upon certain triggering events, rather than merely permitting the MSO to facilitate transfers between licensed professionals.

In a press release announcing the settlement, the CA AG emphasized that “medical decisions must be made by licensed healthcare professionals whose duty is to prioritize patient care, not by companies focused on profits.”[9] According to the CA AG, “this settlement holds Carbon Health accountable for violating California’s longstanding protections against the corporate practice of medicine” while setting “a significant precedent by showing that healthcare businesses can be restructured to protect patients, preserve physicians’ independent medical judgment, and comply with California’s laws.”[10]

The CA AG’s settlement with Aspen Dental

Under a stipulated judgment, Aspen Dental Management, Inc. (Aspen Dental), a dental MSO, was permanently enjoined from, among other things, owning practice property, hiring or evaluating clinical staff, determining clinician compensation, directing clinical scheduling, using revenue-based service fees, and practicing dentistry.[11] The settlement also required Aspen Dental to engage in annual written negotiations with PC owners over services and fees and to register as a Dental Group Advertising and Referral Service with the Dental Board of California. Additionally, Aspen Dental was required to pay $2 million in civil penalties and $300,000 in consumer restitution and participate in a 36-month compliance monitoring program (a state process similar to a federal corporate integrity agreement). This settlement reinforces California’s CPOD doctrine, with the CA AG’s messaging focused heavily on healthcare affordability, stating that “there is no room for unlawful business practices that can increase healthcare costs or harm consumers.”[12]

Emerging enforcement themes

Taken together, these matters signal that the CA AG is focused less on the label attached to an MSO relationship and more on whether the arrangement gives a lay entity practical control over a licensed clinical practice. The recurring pressure points in California include ensuring that MSOs, or other unlicensed entities or individuals, do not: 1) hold authority or control over licensed professionals, including hiring, firing, compensation, scheduling, and performance evaluation; 2) unilaterally control certain practice operations, including payor contracting, equipment selection, advertising, and financing; or 3) maintain unilateral physician-owner replacement rights, or otherwise have the ability to control or restrict the appointment of physician-owners. The through line is that contractual control matters even if it is not exercised, because reserved authority may itself create leverage over licensed professionals.

The evolving state-level corporate practice of licensed healthcare professions landscape

The enforcement activity in California is part of a broader national trend. Nationwide, state legislatures and regulatory bodies have taken steps to clarify, strengthen, or expand prohibitions on the corporate practice of licensed healthcare professions, particularly as they relate to private equity involvement in healthcare.

For example, Vermont Act 133 (Act), effective July 1, 2026, expressly prohibits private equity groups and hedge funds from interfering with healthcare providers' clinical judgment or exercising control over clinical standards, staffing levels, provider hiring and firing, pricing, coding, and medical equipment selection.[13] However, the Act still permits unlicensed entities to provide non-clinical management and administrative services, so long as licensed providers retain ultimate responsibility for clinical decisions and the services do not constitute de facto control over clinical decision-making. The Act also includes ownership reporting requirements applicable to all healthcare facilities and MSOs (as defined by the Act), regardless of ownership. Further, the Act grants aggrieved providers with a private right of action for equitable relief, actual damages, and attorney’s fees.

Last year, Oregon passed one of the most restrictive CPOM laws in the country, effectively banning dual employment relationships where friendly physicians are employed or engaged to provide services to the MSO, among other key restrictions.[14]

In North Carolina, the North Carolina Medical Board (NCMB) is active in enforcing the prohibition against the CPOM with regulators citing an estimated 30 to 40 cases annually “where the primary subject of the case is a [CPOM] violation.”[15] Moreover, NCMB guidance expressly discusses PC/MSO arrangements, pointing to MSAs as a source of evidence in corporate practice investigations of potential unlawful “straw owner[ship].” According to the NCMB, key red flags in an MSA may include restrictions on ownership of medical records, bank accounts, and restrictions on sale by the physician-owner as these restrictions could “provide[] a lot of evidence that the manager is the true owner and not the doctor.”[16] The NCMB also referenced that it reviews financial records when investigating CPOM cases and that they key in on total practice revenue relative to the “profits” that the owner is entitled to keep.[17]

The regulatory landscape, however, is not uniformly trending toward greater restriction, even in very active CPOM states. For example, in North Carolina, Senate Bill 570, which, if enacted, would have prohibited physician owners from holding ownership interests with non-physician investors in their practice’s MSO, failed to pass the General Assembly in June 2026.[18] Similar legislative proposals have failed in recent sessions in Maine, Minnesota, New Hampshire, and Washington. However, although these proposals did not pass, their introduction may signal growing legislative attention to PC/MSO arrangements in these states.[19]

This mixed legislative record underscores the complexity of the state-by-state regulatory environment; while some jurisdictions are actively expanding CPOM prohibitions, others have considered and rejected similar measures. Stakeholders in the healthcare space are encouraged to make a careful, jurisdiction-specific analysis when structuring PC/MSO arrangements, as regulatory risk and compliance obligations can vary from state to state.

Implications and structuring considerations for PC/MSO models

The developments outlined above, particularly in California, may create challenges for PC/MSO models nationwide. For example, for MSOs obtaining loans on behalf of PC/MSO businesses, lenders may view the lack of enforceable succession rights, revenue-linked economics, and fewer MSO control rights as a lending risk, in addition to the risk of lending in a heightened regulatory environment. PCs may also face higher ongoing costs for compliance reviews, revised governance processes, and monitoring obligations. If financing becomes more limited or costly, private investment in healthcare entities may shrink.

Despite these developments, the PC/MSO model is not inherently unlawful in California or any other corporate practice state. The viability of a particular structure may depend on the facts and circumstances of each arrangement. Careful structuring is encouraged to ensure compliance, particularly in states with heightened regulatory scrutiny. While the following considerations are informed by recent CA AG guidance and enforcement actions, they represent practices that could help reduce CPOM risk in any jurisdiction.

• Review MSA provisions and governance controls. PCs are encouraged to draft MSAs that avoid provisions giving the MSO actual or reserved control over clinical judgment, professional hiring and firing, compensation to clinical professionals, clinical scheduling, treatment planning, medical or dental equipment selection, or payor participation. Documentation of decisions made by licensed professionals – e.g., via a clinical governance committee or other governance mechanism – can serve as evidence of compliance with corporate practice restrictions.


• Consider MSA fee models. Lower-risk management fee models include cost-plus arrangements (where the MSO is reimbursed for actual costs plus a fixed margin) or flat fee structures (where the MSO receives a fixed periodic payment). These models may reduce the risk that regulators will view the MSO as having an impermissible financial stake in clinical decision-making. By contrast, revenue-based fee arrangements may be viewed by regulators as creating incentives for the MSO to influence clinical decisions to maximize revenue and have been identified as a risk factor in certain recent enforcement actions.


• Address advertising and consumer protection risks. Healthcare advertising activities conducted through the PC/MSO model could implicate not only CPOM restrictions but also federal and state unfair or deceptive trade practices laws, creating potential exposure to parallel enforcement actions. Because regulatory frameworks governing healthcare advertising vary across jurisdictions, it is encouraged that PC/MSO arrangements account for the specific advertising laws and regulations applicable to their operations and that PCs remain aware of and responsive to consumer complaints or concerns related to operational or advertising practices.


• Restructure physician-owner succession mechanisms. Despite the focus of recent enforcement actions on succession agreements, generally speaking, these agreements are not currently categorically prohibited. PCs are encouraged to structure lower-risk agreements to avoid granting the MSO a unilateral or freely assignable right to replace the physician-owner. This may include incorporating limited, defined termination-triggering events and identifying a named successor physician or using a defined selection process controlled by the PC, its licensed owners, or another licensed decision-maker within the PC organization.


• Evaluate lender and accounting considerations. It is encouraged that lending arrangements between the MSO and PC remain commercially reasonable to reduce the risk that regulators view the arrangements as exerting impermissible control over PCs. Further, MSOs and PCs are encouraged to review any external credit agreements to understand obligations related to updating MSAs or succession agreements and develop strategies to address any necessary changes driven by regulatory updates with external lenders. In addition, parties should carefully evaluate whether updated terms in arrangements governing the PC/MSO relationship are manageable both from an accounting perspective, as well as from an operational and financial planning perspective.

As the regulatory landscape changes, particularly in California and other states that could follow similar enforcement trends, parties are encouraged to proactively review existing or contemplated PC/MSO arrangements. This could help both healthcare providers and investors navigate these developments while maintaining compliant and sustainable business models.

Stakeholders should also be mindful that transactions subject to state healthcare material transaction review laws may present additional regulatory exposure for entities operating under PC/MSO models. These review processes may require submission of organizational charts, management services agreements, and financial statements, thereby potentially placing the mechanics of a PC/MSO relationship before state regulators for scrutiny and inviting questions about the degree of control exercised by the MSO. If more states adopt or expand transaction review requirements, the intersection of CPOM enforcement and healthcare transaction oversight could become an increasingly important consideration for deal planning and ongoing compliance efforts.

Nevertheless, the CPOM doctrine remains what it has always been—a patchwork of state-specific rules designed to ensure that licensed healthcare professionals, not lay entities, control clinical decision-making. What has changed in recent years is the intensity of regulatory focus, now extending not only to the substance of PC/MSO arrangements but also to transaction review processes that may bring these structures before regulators. Driven by concerns over healthcare consolidation and the growing role of private equity and other investors in healthcare delivery, states are taking a closer look at the contractual and structural arrangements that govern PC/MSO relationships. California’s recent enforcement actions and guidance offer a window into the types of provisions and practices that regulators may view as problematic and therefore could serve as a signal for the direction of enforcement in other jurisdictions. For healthcare providers, investors, and lenders, the path forward may require a careful, jurisdiction-by-jurisdiction approach that evaluates the specific CPOM and CPOD requirements, enforcement priorities, and transaction review obligations in each state.

For questions about developments related to corporate practice prohibitions or other state scrutiny over financial investments in healthcare, including healthcare transaction review laws, please contact your DLA Piper relationship partner, the authors of this alert, or any member of DLA Piper’s Healthcare practice group.

[1] Brief of the California Attorney General as Amicus Curiae in Support of Neither Party at 24-30, Art Center Holdings, Inc. v. WCE CA Art, LLC, No. B338625 (Cal. Ct. App. Mar. 30, 2026).

[2] See Brief of Amicus Curiae California Medical Association in Support of Neither Party at 24-39, Art Center Holdings, Inc. v. WCE CA Art, LLC, No. B338625 (Cal. Ct. App. Apr. 13, 2026); Tanya Albert Henry, Private Equity Firing Wrongly Crossed into Practicing Medicine, AMA (June 1, 2026), https://www.ama-assn.org/health-care-advocacy/judicial-advocacy/private-equity-firing-wrongly-crossed-practicing-medicine (last accessed July 17, 2026); see also Am. Med. Ass'n, Corporate Investors and Other Corporate Entities, Policy No. H-160.891 (modified 2025), https://policysearch.ama-assn.org/policyfinder/detail/H-160.891?uri=%2FAMADoc%2FHOD.xml-H-160.891.xml (last accessed July 17, 2026).

[3] Brief of Amicus Curiae California Medical Association in Support of Neither Party at 27.

[4] Id. at 38.

[5] Id. at 29.

[6] Henry, Private Equity Firing Wrongly Crossed into Practicing Medicine; Am. Med. Ass'n, Corporate Investors and Other Corporate Entities, Policy No. H-160.891.

[7] Press Release, Am. Med. Ass'n, AMA Strengthens Opposition to Corporate Practice of Medicine (June 10, 2026), https://www.ama-assn.org/press-center/ama-press-releases/ama-strengthens-opposition-corporate-practice-medicine (last accessed July 17, 2026).

[8] Proposed Final Judgment and Permanent Injunction at 2–6, People v. Carbon Health Technologies, Inc., No. 26STCV19242 (Cal. Super. Ct. L.A. Cnty. June 24, 2026). Carbon Health is in bankruptcy proceedings such that there is uncertainty regarding the satisfaction of monetary obligations by the corporate respondents. As a result, Eren Bali's individual liability under this settlement, distinct from any liability attributable to him in his capacity as an officer or director, may in part be due to doubt on the collectability of any monetary judgment against the corporate entities Carbon Health Technologies, Inc. and Treat Medical Inc. 

[9] Press Release, Attorney General Rob Bonta, Attorney General Bonta Announces First-of-Its-Kind Settlement with Carbon Health and its Co-Founder for Violating California’s Ban on Corporate Practice of Medicine and Other Healthcare and Consumer Protection Laws (June 26, 2026), https://www.oag.ca.gov/news/press-releases/attorney-general-bonta-announces-first-its-kind-settlement-carbon-health-and-its (last accessed July 17, 2026). 

[10] Id. 

[11] See Stipulation for Entry of Final Judgment and Permanent Injunction; Ex. A at 3-14, People v. Aspen Dental Management, Inc., No. 26STCV14023 (Cal. Super. Ct. L.A. Cnty. May 4, 2026). 

[12] Press Release, Cal. Dep't of Just. Off. of the Att'y Gen., Attorney General Bonta Announces Settlement with Aspen Dental Over Corporate Practice of Dentistry and False Advertising (May 7, 2026), https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-settlement-aspen-dental-over-corporate-practice (last accessed July 17, 2026).

 

[13] An Act Relating to Clinical Decision Making, 2026 Vt. Acts & Resolves No. 133 (codified at Vt. Stat. Ann. tit. 18, §§ 9771–9774). 

[14] See Or. Rev. Stat. §§ 58.375 –.376.

[15] See North Carolina Medical Board, Medboard Matters Podcast: Are you aiding in the unlicensed practice of medicine (dated Feb. 3, 2026), https://www.ncmedboard.org/images/uploads/podcast-transcripts/Ep._53_Transcript_-_Are_you_aiding_the_unlicensed_practice_of_medicine_.pdf (last accessed July 17, 2026). 

[16] Id.; see also North Carolina Medical Board, Position Statement § 9.1.3: Licensee Employment, in Position Statements of the North Carolina Medical Board 76 (adopted Mar. 2023), https://www.ncmedboard.org/resources-information/professional-resources/laws-rules-position-statements/position-statements/9.1.3-licensee-employment (last accessed July 17, 2026).  

[17] See North Carolina Medical Board, Medboard Matters Podcast. 

[18] S.B. 570, Gen. Assemb., Reg. Sess. (N.C. 2025).

 

[19] See e.g. H.P. 1478, L.D. 2199, 132nd Leg., 2d Reg. Sess. (Me. 2026), H.F. No. 2779, 94th Leg. (Minn. 2025), S.B. 666-FN, 2026 Sess. (N.H. 2026), S.B. 5387, 69th Leg., Reg. Sess. (Wash. 2026).