Pennsylvania has one of the oldest and most deeply entrenched corporate practice of medicine doctrines in the United States. For healthcare startup founders, Pennsylvania presents a strict regulatory environment that applies not just to physicians but to virtually every licensed health professional in the state. If you are building a digital health company, a behavioral health platform, or a multi-disciplinary virtual care service that will operate in Pennsylvania, the structure of your legal entities matters enormously — and the rules are less forgiving than in many peer states.

The Foundational Case: Neill v. Gimbel Brothers, Inc. (1938)

Pennsylvania's CPOM doctrine is one of the few in the country that traces directly to a named Supreme Court precedent. In Neill v. Gimbel Brothers, Inc., decided in 1938, the Pennsylvania Supreme Court held that a department store could not operate an optometry department through lay employees. The Court grounded its reasoning in the principle that the practice of a licensed profession requires individual professional judgment and cannot be reduced to a commercial transaction conducted by or for the benefit of a lay corporation.

That 1938 holding has never been overturned. Pennsylvania courts and regulators have extended its logic consistently across the decades to apply to medicine, dentistry, psychology, podiatry, and other licensed health professions. It is not merely historical precedent — it remains the live doctrinal foundation on which Pennsylvania's current licensing statutes are interpreted.

Pennsylvania's CPOM doctrine did not begin with a statute. It began with a Supreme Court decision rooted in professional ethics and patient protection. That origin gives the doctrine unusual durability — legislative changes to specific statutes cannot easily displace it.

The Statutory Framework

Building on the Neill precedent, Pennsylvania has codified professional practice restrictions through several overlapping statutes:

The Medical Practice Act of 1985

The Medical Practice Act of 1985 (63 P.S. §§ 422.1 et seq.) governs who may practice medicine in Pennsylvania. The Act defines the practice of medicine broadly and restricts it to individuals holding a valid Pennsylvania medical license. The Act does not explicitly enumerate all the ways corporate practice is prohibited, but it is interpreted — consistent with Neill — to prohibit lay corporations from employing physicians for the purpose of practicing medicine or directing the clinical activities of licensed practitioners.

The Professional Corporation Law of 1988

The Professional Corporation Law of 1988 (15 Pa. C.S. §§ 2901 et seq.) establishes the framework under which professionals can incorporate. A professional corporation in Pennsylvania must be organized for the purpose of providing one or more types of professional services, and its shares must be held exclusively by individuals who are licensed to provide those services. No lay person, investor, or corporate entity that does not hold the requisite professional license may own shares in a Pennsylvania professional corporation.

Cross-Professional Application

One of Pennsylvania's most important and frequently misunderstood features is that its CPOM doctrine applies across all licensed health professions, not just physicians. The prohibition on lay ownership of professional practices extends to:

For multi-disciplinary digital health platforms offering services across several of these professions, this means you need a compliant professional entity structure for each service line — you cannot use a single professional corporation to house clinicians of different license types unless the structure meets the requirements for each profession involved.

Enforcement: The Pennsylvania Bureau of Professional and Occupational Affairs

The Pennsylvania Bureau of Professional and Occupational Affairs (BPOA) houses the enforcement apparatus for health professional licensing in the state. The constituent boards — including the State Board of Medicine, the State Board of Osteopathic Medicine, the State Board of Dentistry, and the State Board of Psychology — each have the authority to investigate and discipline licensees who participate in non-compliant arrangements.

Enforcement in Pennsylvania tends to be methodical rather than headline-driven. The boards work primarily from complaint-based referrals, but they also respond to insurance audits, billing pattern analyses, and referrals from the Pennsylvania Attorney General's Office. In recent years, the AG's office has shown increased interest in private equity-backed healthcare consolidation, and Pennsylvania has been identified as a state where PE-backed roll-ups require careful compliance review.

The BPOA and the AG can pursue:

The MSO-PC Structure in Pennsylvania

Pennsylvania permits and regulators are familiar with the Management Services Organization / Professional Corporation model as the standard compliance vehicle for non-physician founders. The structure must be built carefully to ensure that the professional entity — not the MSO — genuinely controls clinical practice.

Entity Formation Requirements

The professional corporation must be formed under Pennsylvania's Professional Corporation Law. Its shareholders must be licensed Pennsylvania professionals. For a medical practice, this means a licensed Pennsylvania physician (MD or DO) must own 100% of the shares. There is no mechanism in Pennsylvania law that permits non-licensee ownership of shares in a professional corporation, even through trust structures or voting agreements that purport to keep economic benefits separate from nominal ownership.

The Management Services Agreement

The MSA between the Pennsylvania PC and the MSO must clearly delineate clinical functions (which belong exclusively to the PC) from non-clinical administrative services (which the MSO may provide). Pennsylvania regulators will look at the economic substance of the arrangement, not just its form. An MSA that gives the MSO the right to hire and fire clinical staff, set clinical protocols, or retain such a dominant share of PC revenue that the PC is effectively a shell entity will not survive scrutiny.

Key provisions to include in a Pennsylvania MSA:

Physician PC Owner Obligations

Pennsylvania's PC physician-owner is not a figurehead role. The physician-owner should be actively involved in credentialing decisions, quality assurance oversight, and clinical policy development. Documenting that involvement — through board meeting minutes, written protocol approvals, and participation in peer review — creates a contemporaneous record that demonstrates the PC is a genuine clinical entity rather than a conduit for MSO control.

Pennsylvania-Specific Gotchas for Digital Health Founders

Behavioral Health and Mental Health Platforms

Pennsylvania is a major market for behavioral health and mental health services, including teletherapy and telepsychiatry. The state's CPOM doctrine applies fully to psychology, counseling, and social work licensees. A venture-backed teletherapy platform that employs licensed clinical social workers or licensed professional counselors must use a professional corporation or professional LLC structure for those clinicians — it cannot simply employ them through a standard LLC or C-corp. This is an area where many early-stage behavioral health companies are out of compliance without realizing it.

Multi-Discipline Platforms

If your platform offers both medical services and behavioral health services, you may need separate professional entities for each service line, or a multi-disciplinary professional corporation that meets the requirements for each profession. Pennsylvania's professional corporation law can accommodate multi-disciplinary professional corporations in some circumstances, but the ownership requirements for each profession must all be satisfied simultaneously. This often means the shareholder must be licensed in each profession the entity provides, which is practical only in limited circumstances. Most multi-discipline platforms use separate professional entities for each service line.

Telehealth Prescribing

Pennsylvania has enacted telehealth legislation that permits telehealth prescribing, including prescribing of controlled substances in certain circumstances. However, the telehealth expansion did not change CPOM requirements. Pennsylvania physicians treating patients via telehealth must be licensed in Pennsylvania, and the entity billing for those services must be a properly structured professional corporation.

Employment of NPs and PAs

Nurse practitioners and physician assistants in Pennsylvania operate under collaborative practice agreements or supervision agreements with licensed physicians. In a telehealth context, the NP or PA must have an identified supervising or collaborating physician, and that physician must be practicing through a compliant professional entity structure. The layered supervision and entity requirements can be complex to implement in a large telehealth network.

Pennsylvania CPOM Compliance Checklist

  1. Form a Pennsylvania professional corporation under the Professional Corporation Law of 1988 — a PLLC is also permissible in Pennsylvania if organized correctly for professional services.
  2. Confirm the PC owner holds a current, unrestricted Pennsylvania license in the applicable profession before closing any structuring transaction.
  3. Identify the scope of health professions your platform serves and confirm whether one professional entity can cover all of them, or whether separate entities are required.
  4. Draft a Management Services Agreement with explicit clinical autonomy protections, FMV-based compensation, and clear definitions of clinical versus administrative functions.
  5. Commission a fair market value analysis of the management fee from a qualified healthcare valuation firm.
  6. Establish a PC governance framework — including documented board meetings, clinical protocol approvals, and QA processes — and maintain contemporaneous records of the physician-owner's participation.
  7. Review all employment agreements to ensure clinical staff are employed by or contracted with the PC, not the MSO or any non-professional entity.
  8. Audit billing arrangements to confirm the PC is the billing entity and that NPI numbers are attributed correctly.
  9. Review collaborative practice or supervision agreements for NPs and PAs to confirm they are current and compliant with Pennsylvania requirements.
  10. Implement an annual compliance review cycle covering the MSA, the FMV analysis, PC governance records, and all provider license verifications.

Why Pennsylvania Compliance Is Worth Getting Right

Pennsylvania is the fifth most populous state in the country, home to major academic medical centers in Philadelphia and Pittsburgh and a robust and growing health technology corridor. The market opportunity is significant. But the state's CPOM doctrine — grounded in nearly nine decades of case law and enforced by an active professional licensing bureau — is not a compliance risk that sophisticated founders can ignore or paper over.

Investors conducting due diligence on Pennsylvania-focused or multi-state healthcare companies have become increasingly sophisticated about CPOM structure. Venture firms and private equity buyers regularly include CPOM compliance as a specific item in their diligence checklists, and a non-compliant structure discovered at the Series B or during an M&A process can require expensive and disruptive remediation under time pressure. The cost of getting it right from the start — a properly formed PA PC, a well-drafted MSA, and an engaged physician-owner — is small relative to the downside risk of enforcement or a failed transaction.