The Corporate Practice of Medicine (CPOM) doctrine is a set of state-level laws that prevents non-physician-owned corporations or private equity firms from directly owning a medical practice or employing physicians to provide clinical services. The goal is to ensure business interests do not interfere with a physician’s independent medical judgment.
These laws vary greatly from state to state. About two-thirds of states have some form of CPOM, with states like California, Texas, and New York having very strict regulations and enforcement.
Why This Matters to Healthcare Providers
CPOM rules directly affect how you can sell your practice. In a state with strong CPOM laws, a hospital or private equity firm cannot simply buy your practice outright. Think of it like an airline and its pilots. The airline can own the planes, manage the routes, and sell the tickets, but only a licensed pilot can fly the plane and make final decisions in the cockpit. Similarly, CPOM requires a legal structure where your clinical practice remains owned and controlled by physicians, even after a sale.
Example in Healthcare M&A
Scenario: A private equity firm wants to acquire a large, multi-location orthopedic group in California, a state with strict CPOM laws.
Application: The PE firm cannot legally purchase the physicians’ professional corporation (the entity that holds the medical licenses and employs the doctors). Instead, the deal is structured using a Management Services Organization (MSO).
- The PE firm creates an MSO that acquires all the non-clinical assets from the orthopedic group. This includes the real estate, medical equipment, office supplies, and employment agreements for administrative staff.
- The physicians’ original professional corporation (PC) remains intact and owned by the physicians.
- The PC signs a long-term Management Services Agreement (MSA) with the MSO. The MSO agrees to handle all business operations like billing, collections, HR, IT, and marketing in exchange for a management fee.
Outcome: The physicians receive a large a large portion of the practice value at closing from the sale of the non-clinical assets. They continue practicing medicine through their own PC, maintaining full control over clinical decisions and patient care, which satisfies CPOM law. The PE-backed MSO provides capital and operational expertise to help the practice grow.
Related Terms
The structure of your practice sale has major implications for your after-tax proceeds. Learn about our Tax-Efficient Sale Structures →
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Frequently Asked Questions
What is the Corporate Practice of Medicine (CPOM) doctrine?
The CPOM doctrine is a set of state-level laws that prevent non-physician-owned corporations or private equity firms from directly owning a medical practice or employing physicians to provide clinical services. Its goal is to ensure that business interests do not interfere with a physician’s independent medical judgment.
How do CPOM laws affect the sale of a medical practice?
In states with strong CPOM laws, a hospital or private equity firm cannot directly buy a physicians’ practice. The medical practice must remain owned and controlled by physicians, even after a sale. This means the sale structure must separate ownership of clinical services from business operations.
What is an example of how a private equity firm can structure a healthcare acquisition in a strict CPOM state like California?
A private equity firm can create a Management Services Organization (MSO) to buy all non-clinical assets such as real estate and office equipment. The physicians keep ownership of their professional corporation (PC) for clinical services. The PC then contracts the MSO through a Management Services Agreement (MSA) to handle business operations, allowing physicians to retain control over medical decisions.
Why do CPOM laws exist?
CPOM laws exist to ensure that physicians maintain independent medical judgment free from influence by business interests. They are designed to protect the integrity of medical care by preventing non-physician entities from controlling clinical decisions.
Which states have very strict CPOM laws?
States like California, Texas, and New York have very strict CPOM laws and enforce regulations rigorously.