The corporate practice of medicine (CPOM) doctrine is one of the most consequential legal principles in healthcare, yet it remains poorly understood by many founders, investors, and even some healthcare attorneys who do not specialize in this area. If you are building a healthcare company, understanding CPOM is not optional. It dictates how you structure your entity, who can own your practice, and what decisions your business team can and cannot make.
Historical Origins of the Doctrine
The CPOM doctrine emerged in the early 20th century, rooted in concerns about the commercialization of medicine. State legislatures and courts recognized that when corporations control medical decision-making, the profit motive could compromise patient care. The foundational principle is straightforward: only a licensed physician should make decisions about medical diagnosis and treatment, free from corporate interference.
The earliest CPOM cases arose when corporations attempted to hire physicians as employees and direct their clinical activities. Courts held that a corporation, as an unlicensed entity, could not practice medicine through employed physicians because the corporation itself could not hold a medical license, could not be subject to medical board discipline, and had fiduciary duties to shareholders that might conflict with duties to patients.
The CPOM doctrine is not about preventing businesses from participating in healthcare. It is about ensuring that clinical decisions remain in the hands of licensed professionals who are accountable to patients and medical boards.
The Core Rationale
The doctrine rests on several interconnected policy rationales that remain relevant today:
- Professional accountability -- Licensed physicians are subject to medical board oversight, continuing education requirements, and disciplinary proceedings. Corporations are not.
- Undivided loyalty -- A physician's duty is to the patient. A corporation's duty is to its shareholders. CPOM prevents these duties from conflicting by keeping clinical control with the physician.
- Preventing fee-splitting -- Many CPOM statutes are intertwined with anti-fee-splitting laws that prohibit sharing professional fees with unlicensed persons or entities.
- Quality of care -- The doctrine aims to prevent cost-cutting measures that might compromise clinical standards, such as limiting appointment times, reducing referrals to specialists, or substituting cheaper but less effective treatments.
How States Interpret CPOM Differently
There is no federal CPOM law. The doctrine is entirely a creation of state law, and states vary enormously in how they apply it. This creates a complex patchwork that healthcare companies must navigate carefully, especially when operating across multiple states.
Strict Enforcement States
California, Texas, New York, and Illinois are among the states with the most rigorous CPOM enforcement. In these states, a lay corporation cannot employ physicians, direct clinical activities, or own a medical practice. The only entities that can practice medicine are professional corporations (PCs), professional associations (PAs), or professional limited liability companies (PLLCs) owned by licensed physicians.
California is particularly strict, with a long history of enforcement actions against companies that attempt to circumvent CPOM through creative structuring. The state's Medical Board and Attorney General have brought cases against companies that exercised too much operational control over affiliated PCs, even when the formal ownership was held by a licensed physician.
Moderate Enforcement States
States like Florida, Ohio, and Pennsylvania enforce CPOM but provide more flexibility. Florida, for example, does not have a traditional CPOM statute but regulates the practice of medicine through its Medical Practice Act. Ohio allows professional associations with non-physician limited partners in certain circumstances.
Limited or No CPOM States
A few states have minimal CPOM restrictions. Arizona, for instance, has explicitly allowed corporate employment of physicians since the 1990s. Utah and Oklahoma similarly permit more flexible ownership structures. In these states, you may not need a separate PC at all, though careful analysis is still required.
Modern Application to Digital Health
The CPOM doctrine was written long before telehealth, AI-powered diagnostics, and direct-to-consumer healthcare platforms. Applying a century-old legal principle to modern digital health creates both challenges and ambiguities that founders must navigate thoughtfully.
Where Digital Health Companies Typically Run Into CPOM
The most common CPOM issues for digital health companies include:
- Platform-driven clinical decisions -- If your algorithm recommends a treatment plan and the physician simply approves it, regulators may argue that the corporation (through its technology) is practicing medicine.
- Physician employment -- VC-backed companies that directly employ physicians in CPOM states are in violation, even if they believe their technology platform is the product rather than the clinical service.
- Formulary restrictions -- If your platform limits which medications a physician can prescribe, you are arguably interfering with clinical judgment.
- Compensation tied to volume -- Paying physicians based on the number of patients seen per hour can be construed as corporate interference with the physician-patient relationship.
The MSO-PC Model as the Solution
The industry-standard solution for digital health companies operating in CPOM states is the MSO-PC model. The technology company operates as a Management Services Organization that provides non-clinical services (the platform, billing, marketing, operations) to an affiliated Professional Corporation owned by a licensed physician. The PC employs the clinicians and retains full clinical autonomy.
Digital health founders often ask whether CPOM will eventually be repealed. While some states have relaxed their rules, the trend toward stricter enforcement in major markets like California and New York suggests that CPOM is here to stay. Building a compliant structure from day one is always the right approach.
Understanding the CPOM doctrine is the first step. Structuring your company to comply with it across every state where you operate is an ongoing commitment that requires experienced guidance and proactive compliance monitoring.