Tennessee Corporate Practice of Medicine: What Founders Need to Know

Tennessee often flies below the radar in CPOM discussions — it is not typically listed alongside New York or California as a strict enforcement state, and its reputation as a business-friendly environment can give founders a false sense of permissiveness. In reality, Tennessee has a robust corporate practice of medicine doctrine that is grounded in statute and case law, actively enforced by the Tennessee Board of Medical Examiners, and takes on particular significance given Nashville's status as the country's most important private healthcare company hub. If your startup is operating in Tennessee, acquiring Tennessee-based practices, or serving Tennessee patients via telehealth, you need to understand how CPOM works here.

The Statutory and Case Law Foundation

Tennessee's CPOM doctrine is codified and reinforced across several legal sources. The Tennessee Medical Practice Act (Tenn. Code Ann. §§ 63-6-101 et seq.) establishes who may practice medicine in the state and restricts that right to individually licensed physicians. The Act defines the practice of medicine broadly to include diagnosing, treating, prescribing, and advising patients with respect to physical or mental conditions. A lay corporation or non-licensed entity is not a physician and therefore cannot practice medicine under this framework.

Tennessee's Professional Corporation Act further restricts the formation and ownership of professional corporations: shares must be held by licensed professionals, and the entity must be organized for the purpose of providing professional services. These requirements work in tandem with the Medical Practice Act to create a statutory bar on lay ownership of medical practices.

Tennessee courts have reinforced the doctrine through case law. The state Supreme Court and intermediate appellate courts have held consistently that clinical decision-making is an individual professional function that cannot be delegated to or directed by a corporate entity that does not hold a medical license. The doctrine is not merely a statutory technicality — it reflects a deeply embedded principle of Tennessee professional law.

Nashville is the capital of for-profit hospital management and private healthcare services. That history has made Tennessee's regulators and courts experienced with — and skeptical of — arrangements that give lay entities substantive control over clinical operations, even when dressed in management services language.

Who Enforces CPOM in Tennessee

The Tennessee Board of Medical Examiners, a division of the Tennessee Department of Health, is the primary enforcement authority for CPOM violations affecting physician-owned practices. The Board is empowered to investigate complaints, conduct hearings, and impose a full range of disciplinary sanctions including license suspension and revocation. In practice, the Board has pursued enforcement actions against physicians whose practices were found to be operationally controlled by non-physician entities.

The Tennessee Attorney General can pursue civil enforcement actions against entities engaged in the unauthorized practice of medicine. The AG has broad authority to seek injunctive relief without needing to prove actual patient harm — the violation of the licensing statute is itself the actionable wrong.

The Tennessee Department of Health maintains oversight over licensed healthcare facilities, and facility licensing status can be jeopardized by CPOM violations in certain settings such as ambulatory surgery centers and outpatient clinics. For digital health companies that also operate physical clinical infrastructure in Tennessee, this creates an additional layer of exposure.

Exemptions: What Actually Qualifies

Tennessee's CPOM doctrine recognizes several categories of organizations that are permitted to employ physicians without running afoul of the doctrine. Understanding what actually qualifies — and what does not — is critical for founders who may be tempted to rely on a broad reading of these exemptions.

Hospital and Health System Employment

Licensed hospitals and hospital systems in Tennessee may employ physicians. This is a recognized statutory and regulatory exception. The hospital exception is limited to entities holding a current Tennessee hospital license issued by the Department of Health. A management company or private equity fund that acquires hospital assets but does not itself hold a hospital license does not inherit the hospital employment exception.

Nonprofit Organizations

Certain nonprofit organizations — primarily Federally Qualified Health Centers, Rural Health Clinics, and nonprofit hospital affiliates — may employ physicians. The nonprofit exception is narrow. A company that creates a nonprofit subsidiary for the sole purpose of employing physicians while its for-profit parent entity captures the economics of the practice will not qualify for the nonprofit exception if the arrangement is a sham.

Government Entities

State and local government entities, including state universities with medical schools, may employ physicians for governmental purposes. This exception has no practical relevance for most digital health founders.

What Does Not Qualify

For-profit corporations, LLCs, or any investor-owned entity that does not hold a hospital license and is not a recognized FQHC or RHC cannot rely on any of Tennessee's CPOM exemptions. The telehealth label, the technology-platform framing, and the management company structure do not create new categories of exemption. Digital health companies must use the MSO-PC model to operate compliantly in Tennessee.

Physician Clinical Decision-Making Control

Tennessee regulators have been particularly explicit about one requirement that is sometimes treated as a formality elsewhere: the physician must maintain full, genuine, and documented clinical decision-making control. This principle, expressed in Board guidance and enforcement history, means that the physician-owner of the Tennessee PC must actually direct the clinical activities of the practice — not simply sign off on decisions made by the MSO's operational team.

Arrangements where the MSO's clinical operations staff develop prescribing protocols, establish treatment algorithms, or define patient eligibility criteria — even with nominal physician approval — are at risk of crossing the line. The physician should be the architect of clinical policies, not just their signatory.

This is a practical challenge for technology-driven digital health companies that want to standardize clinical workflows at scale. The solution is not to avoid standardization — it is to ensure that the physician-owner and clinical leadership of the PC are the primary architects of those standards, with the MSO providing technological infrastructure and operational support rather than clinical direction. Documenting the physician's substantive participation in protocol development is essential.

The MSO-PC Structure in Tennessee

Tennessee permits and is familiar with the MSO-PC model as the standard structure for non-physician-founded healthcare companies. The structure needs to be built with particular attention to Tennessee-specific requirements.

Entity Formation

The professional corporation must be formed under Tennessee's Professional Corporation Act. A Tennessee-licensed physician must own 100% of the shares. There is no de minimis ownership exception. The PC is the entity that employs or contracts with Tennessee-licensed clinicians and bills for professional services rendered to Tennessee patients.

The Management Services Agreement

Tennessee MSAs require careful drafting to ensure the following:

• The PC retains exclusive authority over all clinical decisions including diagnosis, treatment planning, prescribing, and quality assurance
• The MSO's authority is limited to defined administrative services: billing support, technology platforms, marketing, office administration, HR for non-clinical staff, and real estate
• The management fee is set at fair market value and documented with an independent FMV analysis — Tennessee regulators are alert to MSA fee structures that extract most of the PC's revenue to the MSO, treating the PC as a pass-through entity
• The MSO does not have the contractual right to hire or fire clinical providers — that authority remains with the PC

Physician Compensation Structures

Tennessee has active enforcement attention on physician compensation arrangements that create financial incentives inconsistent with independent clinical judgment. An MSA or employment agreement that ties physician compensation directly to prescription volume, patient throughput, or revenue targets in a way that could create pressure to prescribe inappropriately can trigger Board scrutiny independent of the CPOM issue. Design physician compensation structures to reflect the value of professional services rendered, not business outcomes.

What Tennessee-Specific Founders and Telehealth Companies Need to Know

Nashville's healthcare ecosystem makes Tennessee a particularly important state for digital health companies. Many national healthcare platform companies are headquartered in Nashville or have significant operations there. This concentration has made the Tennessee Board of Medical Examiners and the state's legal community more sophisticated about MSO-PC arrangements than regulators in states with smaller healthcare footprints. A few specific points merit emphasis:

• Private equity acquisitions. Tennessee has been a frequent target for PE-backed physician practice management roll-ups. The Board has become more vigilant about PE structures and will look carefully at whether a PE-owned management company has de facto control of clinical operations. If you are acquiring Tennessee practices, ensure the MSO-PC separation is real and documented.
• Telehealth prescribing of controlled substances. Tennessee has specific requirements for telehealth prescribing, including controlled substance prescribing. The Ryan Haight Act overlay, DEA telemedicine requirements, and Tennessee's own prescribing rules all apply. Ensure your telehealth platform's prescribing workflows are designed with Tennessee clinical standards in mind and that prescribers hold current Tennessee DEA registrations where required.
• Weight management and GLP-1 platforms. The rapid growth of GLP-1 prescribing via telehealth has drawn Board attention. Platforms that use scripted clinical intake forms, auto-populating prescriptions, or protocol-driven prescribing without genuine physician-patient evaluation are at higher risk of CPOM challenge as well as clinical standards violations.
• Mental health and substance use disorder services. Tennessee has significant need for mental health and SUD services. Telehealth companies operating in this space must ensure their professional entities are structured correctly for the specific license types involved — psychiatrists and advanced practice psychiatric nurses each have distinct licensing requirements and supervision obligations under Tennessee law.

Tennessee CPOM Compliance Checklist

1. Form a Tennessee professional corporation under the Tennessee Professional Corporation Act with a Tennessee-licensed physician as the 100% shareholder.
2. Confirm the PC owner holds a current, active, unrestricted Tennessee medical license — verify through the Tennessee Department of Health licensure verification system.
3. Draft a Management Services Agreement that expressly reserves all clinical decision-making authority to the PC and limits MSO services to defined administrative functions.
4. Obtain an independent FMV analysis of the management fee and update it at least annually or whenever the scope of services changes materially.
5. Document the physician-owner's substantive involvement in clinical protocol development, QA processes, and credentialing — maintain contemporaneous meeting minutes and written protocol approvals.
6. Review physician compensation structures to ensure they do not create financial incentives inconsistent with independent clinical judgment.
7. Audit billing arrangements — the PC must be the billing entity and must hold appropriate NPI numbers and payer credentialing.
8. Confirm that all clinicians treating Tennessee patients hold valid Tennessee licenses and that supervision or collaborative practice agreements are current.
9. Review telehealth prescribing workflows for compliance with Tennessee prescribing standards and DEA requirements, particularly for controlled substances.
10. Implement a compliance review schedule that includes annual review of the MSA, management fee, PC governance records, and all provider credentialing files.

The Bigger Picture: Tennessee as a Healthcare Hub

For digital health founders, Tennessee's significance goes beyond just compliance risk. Nashville is home to more for-profit hospital and healthcare services companies per capita than any other city in the country. That concentration means Tennessee has experienced healthcare attorneys, sophisticated institutional investors who understand CPOM, and acquirers who will conduct rigorous CPOM diligence on any healthcare company they are considering. A non-compliant structure in Tennessee is not just a regulatory risk — it is a transaction risk that can materially affect your company's valuation and exit options. Build it right from the start.