Texas is one of the largest and most important healthcare markets in the country, but it is also one of the most complex states for healthcare compliance. The Texas corporate practice of medicine doctrine is well-established, actively enforced, and applies to a wide range of healthcare services. Whether you are launching a telehealth startup, opening a brick-and-mortar clinic, or expanding an existing practice into Texas, understanding these rules is essential to building a compliant operation.
The Texas Medical Practice Act
Texas CPOM law is rooted in the Texas Medical Practice Act (Title 3, Subtitle B of the Texas Occupations Code), which governs who can practice medicine and how medical practices can be structured. The Act defines the practice of medicine broadly and restricts it to individuals who hold a license issued by the Texas Medical Board (TMB).
Under the Texas Medical Practice Act, a corporation, LLC, or other business entity cannot practice medicine. Only individual physicians licensed by the TMB or professional entities that meet specific requirements can engage in the practice of medicine. This prohibition extends to employing physicians for the purpose of practicing medicine, directing or controlling medical decisions, and sharing in the fees generated by medical practice.
What Constitutes "Practicing Medicine" in Texas
Texas defines the practice of medicine broadly under Section 151.002 of the Occupations Code. It includes diagnosing, treating, or offering to diagnose or treat any disease, deficiency, or physical or mental condition. Notably, Texas courts have interpreted this definition expansively, and activities that might seem purely administrative can cross into the practice of medicine if they involve clinical judgment.
Texas is not a state where you can rely on creative legal arguments to structure around CPOM. The TMB and the Texas Attorney General take enforcement seriously, and the case law is well-developed.
Exceptions to the Texas CPOM Doctrine
While Texas has a strict CPOM doctrine, the law does provide specific exceptions that allow certain types of organizations to employ physicians or provide medical services. Understanding these exceptions is critical for proper structuring:
501(a) Professional Associations
Texas allows physicians to form professional associations (PAs) under the Texas Professional Association Act. These PAs can employ other physicians and provide medical services. The PA must be organized for the purpose of practicing medicine, and its members must be licensed physicians. This is the Texas equivalent of a professional corporation in other states.
Nonprofit Exceptions
- 501(c)(3) organizations -- Certain nonprofit, charitable organizations can employ physicians under specific conditions. Federally Qualified Health Centers (FQHCs) and community health centers operate under this exception.
- Hospital exceptions -- Licensed hospitals can employ physicians, though the terms of employment must not interfere with medical judgment.
- University and governmental exceptions -- State universities and governmental entities can employ physicians for specific purposes.
What Does NOT Qualify as an Exception
A standard LLC or corporation formed by a non-physician does not qualify for any of the above exceptions. A technology company, management company, or investor-owned entity cannot directly employ physicians or provide medical services in Texas, regardless of how the operating agreement is drafted.
Enforcement History in Texas
Texas has a more active enforcement history than many states when it comes to CPOM violations. The Texas Medical Board has the authority to investigate and discipline physicians who practice medicine through an unlicensed entity, and the Texas Attorney General can pursue injunctive relief against entities engaged in the unauthorized practice of medicine.
Notable enforcement patterns in Texas include:
- Actions against medical spas where a lay owner controlled clinical protocols and the physician served only as a figurehead
- Investigations of telehealth companies that employed physicians through standard corporate entities without proper professional entity structures
- Discipline of physicians who allowed their licenses to be used by non-physician-owned companies in exchange for compensation
- Enforcement against staffing companies that contracted physician services in ways that constituted employment
The Texas Medical Board has made it clear that it views the friendly PC arrangement as compliant only when the physician owner exercises genuine clinical authority. A physician who serves as a PC owner in name only is exposing both themselves and the affiliated MSO to enforcement action.
Telehealth Rules in Texas
Texas has developed a comprehensive telehealth regulatory framework that interacts with its CPOM doctrine in important ways. Texas Senate Bill 1107 (2017) was a landmark bill that expanded telehealth access by eliminating the requirement for an in-person visit before a telehealth consultation. However, the bill did not relax CPOM requirements.
Key Texas Telehealth Requirements
- Standard of care -- The same standard of care applies to telehealth as to in-person visits. A telehealth provider must be able to perform the same evaluation and reach the same clinical conclusions they would in person.
- Informed consent -- Patients must provide informed consent for telehealth services, which must be documented in the medical record.
- Prescribing -- Texas allows prescribing via telehealth, including controlled substances, provided the prescriber has established a valid physician-patient relationship. The prescriber must hold a Texas medical license or be practicing under a valid Texas APRN authorization.
- Technology requirements -- Audio-video telehealth is the standard, though audio-only visits are permitted in certain circumstances. All platforms must be HIPAA-compliant.
How to Structure Compliantly in Texas
For non-physician founders entering the Texas market, the MSO-PA (Management Services Organization and Professional Association) model is the standard approach. Here is the typical structure:
- Form a Professional Association (PA) owned by a Texas-licensed physician. The PA employs or contracts with the clinical providers and is the entity that practices medicine.
- Form the MSO (typically a Texas LLC or out-of-state entity registered to do business in Texas) owned by the founder and/or investors. The MSO provides all non-clinical management services.
- Execute a Management Services Agreement between the MSO and PA that defines services, compensation, and clinical autonomy protections.
- Ensure the PA owner exercises genuine clinical governance, including oversight of clinical protocols, provider credentialing, and quality assurance.
Texas-specific nuances include the fact that a PA (rather than a PC) is the standard professional entity type, the TMB's focus on the substance of the physician's involvement rather than just the paperwork, and the state's robust anti-fee-splitting provisions that must be accounted for in the MSA's compensation structure.
Getting Texas right from the start is worth the investment. Restructuring a non-compliant Texas operation after the fact is significantly more expensive and disruptive than building it correctly from day one.