If you’re a PA or NP thinking about launching a clinic, expanding into multiple states or partnering with investors, one legal doctrine could derail your entire plan: the Corporate Practice of Medicine (CPOM).
In states that enforce CPOM, clinicians who don’t follow the rules risk license violations, clawbacks and even fraud accusations.
Veteran healthcare attorney Jeff Cohen of Florida Healthcare Law Firm has spent nearly four decades setting up legal structures for healthcare businesses nationwide. He offers advice to help clinicians avoid costly mistakes.
What is CPOM?
CPOM is a compliance law that prevents a layperson from owning a healthcare business. In the the roughly two-thirds of states that enforce this structure of governance, only licensed healthcare professionals can legally own a clinical practice.
The laws are state-based, so the rules in each state differ dramatically from those in others. Some states even apply CPOM to dental practices. Some extend it to mid-level providers. And these laws can change every year.
- Examples of states with strict CPOM laws include New York, Texas and California
- Moderate CPOM states include Illinois, Colorado and Florida
- Examples of states with more relaxed CPOM laws include Alaska, Nevada and Missouri
“State legislatures meet regularly, and they tinker with healthcare laws constantly. You can’t assume what worked last year still works now,” says Cohen.
Why CPOM exists and why it’s complicated
The rationale behind CPOM is to separate clinical decision-making from economic pressure. Lawmakers hope to protect the integrity of patient care by preventing non-clinicians from owning medical practices.
On its face, this sounds like a good idea, but in practice, it just creates tedious hoops for busy clinicians and entrepreneurs to jump through.
“The economic pressures on clinicians don’t disappear just because you’ve separated clinical from administrative ownership. If anything, those pressures come more from the payors than from business partners,” says Cohen.
Like the law or not, clinicians still must follow it when operating in CPOM states. If your structure violates CPOM, the consequences can be real and severe.
What happens if you’re out of compliance
Here’s what can happen if your entity is out of compliance in a CPOM-restricted state:
- State-level fines
- Invalidation of your business structure
- Payors demand full repayment of reimbursements
- Accusations of insurance fraud or False Claims Act violations
- Criminal exposure (in extreme cases)
“I’ve seen clients exposed after insurance companies ran background checks on the Secretary of State filings, saw a non-clinician listed as the owner and demanded every penny back. This isn’t theoretical. It happens,” says Cohen.
The legal workaround for CPOM
The most common way to comply with CPOM while involving non-clinicians is to create a Management Services Organization (MSO). In this model, the clinical services are delivered by a provider-owned entity. A separate entity owned by non-clinicians, called the MSO, handles operations, HR, billing, marketing and infrastructure. A management services agreement (MSA) defines the relationship between the two.
This lets business partners or investors participate in the business without owning the clinical side.
While MSO setups may seem like unnecessary bureaucracy, they’re necessary to healthcare law’s current reality. “You have to build for compliance,” says Cohen.
Do small practices still need to comply?
What if you’re a solo NP launching a mobile IV hydration clinic? Or just starting your first med spa location?
You still need to comply with CPOM laws if you’re operating in a state where it’s on the books.
“The law doesn’t care how small you are. If you’re in a CPOM state, the law applies to you the same as it would to a national chain,” says Cohen.
What if you want to sell?
Even in non-CPOM states, you may want to choose an MSO structure to appeal to investors. Private equity buyers prefer MSO models, says Cohen. “If you plan to sell down the line, build your business how your future buyer wants it. That means separating clinical from operational functions now/”
Can a spouse or family member own part of the practice?
If your spouse is handling operations, this doesn’t typically violate CPOM as long as ownership of the clinical entity belongs to the licensed provider. Once a non-clinician owns equity, you need to structure things carefully.
“Sometimes a family member can be a lender instead of an owner, but it has to be done right,” says Cohen.
What to look for in a healthcare lawyer
CPOM is not something to figure out through online templates, ChatGPT or a general business attorney. “Do not hire your cousin who does real estate closings for this. You need someone who structures CPOM-compliant businesses regularly,” says Cohen.
His advice: Ask for proof. How many CPOM or MSO structures has the lawyer handled this month? Can they explain the issue in writing within a day? Can they provide references?
“If they can’t explain the difference between CPOM and anti-kickback in under five minutes, don’t hire them.”
If you’re launching a practice or planning to grow across state lines, get your structure right. Because when it comes to CPOM, the cost of being wrong isn’t just a fine. It could be your license, your business or worse.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. Laws governing the Corporate Practice of Medicine (CPOM) vary by state and are subject to change. Clinicians and healthcare business owners should consult a qualified healthcare attorney familiar with CPOM and other relevant state-specific regulations before making any legal or structural decisions.
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