Over the past five years, the management services organization and professional corporation model has gone from a niche legal structure used by physician groups to the default corporate architecture for venture-backed digital health companies. This shift reflects a broader transformation in how healthcare is delivered, funded, and scaled. Understanding why the MSO-PC model has become dominant, and what drives its continued growth, is essential for anyone building or investing in healthcare technology.
Why VC-Backed Companies Adopt MSO-PC
The fundamental challenge facing any venture-backed healthcare company is simple: venture capital firms cannot own medical practices. The corporate practice of medicine doctrine, enforced in the majority of U.S. states, prohibits non-physician-owned corporations from practicing medicine, employing physicians, or directing clinical decisions.
This creates an obvious tension. Venture capital investors need equity ownership and control mechanisms to protect their investment. But healthcare regulations require that clinical operations be owned and controlled by licensed physicians. The MSO-PC model resolves this tension elegantly:
- Investors own equity in the MSO, which is the technology and services company that generates most of the enterprise value
- A licensed physician owns the PC, which employs clinicians and holds the authority to practice medicine
- The MSO and PC are linked by a management services agreement that allows the MSO to capture the economic value of the arrangement while the PC retains clinical independence
This structure allows founders to raise venture capital, build technology, scale marketing, and grow the business, all without violating CPOM laws. It is the reason that companies like Hims, Cerebral, Done, and dozens of other telehealth companies were able to exist at all.
Growth of the Model
The growth of MSO-PC structures has been driven by several converging trends:
The Telehealth Explosion
The pandemic accelerated telehealth adoption by a decade, creating massive demand for virtual care platforms. These platforms are typically built by technology companies that need the MSO-PC structure to deliver clinical services legally. As telehealth volume grew, so did the number of MSO-PC arrangements.
Venture Capital Flooding Healthcare
Digital health venture funding exceeded $29 billion in 2021 and has remained robust since. Every dollar of that investment flowing into clinical services requires a compliant corporate structure, and the MSO-PC model is the proven solution.
Specialty Expansion
The model has expanded well beyond primary care and mental health into virtually every medical specialty: dermatology, weight management, fertility, musculoskeletal care, chronic disease management, and more. Each new vertical creates demand for MSO-PC formation services.
Five years ago, most MSO-PC formation requests came from well-funded Series A companies with healthcare attorneys on retainer. Today, we see pre-seed founders, solo practitioners, and small telehealth startups all recognizing the need for proper corporate structure from day one.
Advantages Over Alternatives
The MSO-PC model is not the only way to structure a healthcare company, but it has proven advantages over the alternatives:
Versus Direct Physician Ownership
Having a physician co-founder own the entire company seems simpler, but it creates problems at scale. The physician's personal liability is unlimited, the company cannot raise traditional venture capital, and if the physician departs, the entire corporate structure may need to be restructured. The MSO-PC model separates these concerns cleanly.
Versus Operating Only in Non-CPOM States
Some companies try to avoid CPOM issues by only operating in states without strong CPOM enforcement. This strategy limits your addressable market, excludes major states like California, New York, and Texas, and provides no protection if enforcement policies change. The MSO-PC model enables nationwide operation.
Versus Independent Contractor Models
Engaging clinicians as independent contractors without a PC can work in limited circumstances, but it creates significant classification risk, lacks the clinical governance structure that regulators expect, and makes it difficult to ensure consistent quality and compliance across your clinician network.
Industry Trends Shaping the Future
Several trends are shaping the evolution of the MSO-PC model:
- Increased regulatory scrutiny: State medical boards and attorneys general are paying closer attention to MSO-PC arrangements, particularly in the telehealth space. This means structures must be more robust and better documented than ever.
- Standardization of best practices: As more companies adopt the model, best practices around management fee structures, physician governance, and compliance monitoring are becoming more established and expected.
- Multi-state complexity: Companies expanding into multiple states need MSO-PC arrangements that account for varying state laws, requiring more sophisticated and dynamic compliance frameworks.
- PE and M&A activity: Private equity acquirers increasingly expect clean MSO-PC structures as a prerequisite for investment, further driving adoption.
The MSO-PC model has become the standard architecture for healthcare delivery by non-physician-owned companies. Its rise reflects the healthcare industry's broader transition toward technology-enabled care delivery, and its continued evolution will be shaped by the tension between innovation and regulation that defines digital health. For founders and operators, understanding this model is no longer optional. It is the foundation upon which compliant healthcare companies are built.