Understanding Corporate Practice of Medicine in easy terms
The Overlooked Risk Behind Healthcare’s Most Misunderstood Doctrine
Despite decades of case law and regulatory guidance, the Corporate Practice of Medicine (CPOM) doctrine remains one of the most misunderstood areas of healthcare compliance. For digital health companies, investors, and independent practices, CPOM isn’t just a legal technicality—it’s a structural risk that can derail deals, delay market expansion, and drive up costs.
In conversations with healthcare providers, startup founders, investors, and legal teams, a consistent pattern emerges: even sophisticated operators misinterpret CPOM, leaving their organizations—and in some cases, their professional licenses—exposed to costly vulnerabilities.
The Knowledge Gap Crisis
The real issue isn’t simply the doctrine itself. It’s the widespread misunderstanding of how CPOM applies to modern healthcare businesses and independent practices.
These misconceptions show up in daily conversations:
“We operate in states without CPOM laws.” → Overlooking enforcement through medical board actions and attorney general opinions.
“Our MSO structure covers compliance.” → Assuming structure alone guarantees compliance.
“This only applies to traditional practices.” → Ignoring that telemedicine platforms and independent clinics trigger the same core principles.
“We’ll fix it in due diligence.” → Misjudging that structural issues must be addressed at formation, not patched later.
Even well-funded companies and experienced attorneys fall into these traps, which drive unnecessary transaction costs, compliance risk, and operational inefficiencies.
The Domino Effect: How Misunderstanding CPOM Costs Millions
When CPOM is misunderstood, ripple effects spread across both large enterprises and small practices:
Extended due diligence timelines – Structural gaps discovered late in a deal can add months.
Escalating professional fees – Multiple law firms, consultants, and accountants get pulled in.
Regulatory complexity – More advisors are required to untangle issues.
Transaction and practice risk – Deals stall or collapse, and for independent providers, agreements can be unenforceable or trigger board discipline.
The Enforcement Trap: States Without “Formal” CPOM
A dangerous blind spot is assuming that only states with formal CPOM statutes present risk. In reality, many states without statutes enforce CPOM through administrative actions, medical board guidance, and AG opinions.
Phantom Doctrine States
Medical Board Policy Statements – Informal but enforceable guidance.
Licensing Enforcement – Precedent-setting disciplinary actions.
Attorney General Opinions – Carry weight in enforcement decisions.
Administrative Settlements – Consent agreements shaping compliance obligations.
Colorado is a prime example. Though it lacks a CPOM statute, the medical board enforces restrictions through published guidance and disciplinary precedent. Companies and independent practices that assume “Colorado doesn’t have CPOM” are walking into a compliance minefield.
Why CPOM Exists (And Why It’s Still Relevant)
The policy rationale behind CPOM remains clear:
Protect clinical independence → Physicians, not corporations, control patient care decisions.
Mitigate economic pressure → Business interests shouldn’t override clinical judgment.
Preserve professional obligations → Licensed providers answer to patients, not investors.
The doctrine emerged to prevent corporate profit motives from driving clinical care. In today’s environment—whether venture-backed startups or an NP opening their own clinic—this principle is more relevant than ever.
Why Even Sophisticated Operators Struggle
Even smart executives and independent practitioners stumble on CPOM because:
Conceptual vs. operational disconnect – Knowing clinicians must control care is different from structuring governance, compensation, and contracts.
Modern business models – Multi-state telehealth platforms and MSO arrangements don’t map neatly onto old CPOM frameworks.
Jurisdictional variation – Each state enforces CPOM differently, often unpredictably.
Evolving care delivery – Regulators lag behind in addressing digital-first models, allied health providers, and scope-of-practice questions.
The Business Impact: Why CPOM Must Be a Strategic Priority
Misunderstanding CPOM isn’t just a compliance issue—it’s a business and practice strategy issue.
Strategic Risks for Companies
Market entry delays when compliance structures must be rebuilt.
Investment uncertainty, with higher risk premiums demanded by investors.
Wasted resources on remediation instead of growth.
Lost deals when compliance concerns surface late.
Strategic Risks for Independent Practices
Board discipline for improper structures (e.g., wrong entity type, revenue-splitting).
Unenforceable contracts with MSOs or collaborators.
Lost revenue when payors or partners flag structural non-compliance.
Practice disruption if regulators require restructuring before continuing operations.
Building a Strategic Framework for CPOM Compliance
Whether scaling a national telehealth company or launching a local clinic, a systematic framework is essential:
Foundational Knowledge
Understand CPOM’s policy objectives.
Map both statutory and enforcement-based obligations across states.
Business Model Alignment
Assess how your model (telehealth, MSO, private equity, or independent practice) implicates CPOM risks.
Choose the right entity type (PC, PLLC, PA, etc.).
Plan governance, ownership, and compensation structures upfront.
Cross-Disciplinary Expertise
Engage advisors with deep CPOM experience—not just general business counsel.
Align corporate, tax, healthcare, and securities advisors.
Ongoing Intelligence
Track enforcement trends and state board guidance.
Reassess structures as services, states, or partnerships expand.
Final Word
For digital health operators, investors, and independent practitioners, CPOM is not a box-checking exercise. It’s a foundational compliance and governance requirement that—if misunderstood—can cost millions for companies and put providers’ licenses and livelihoods at risk.
Those who approach CPOM with proactive strategy, not reactive fixes, unlock faster growth, smoother transactions, and long-term resilience in a complex regulatory landscape.
FAQs
Do nurse practitioners (NPs) and physician assistants (PAs) need to worry about CPOM?
Yes. In many states, NPs and PAs face similar restrictions. Their agreements with collaborating physicians or MSOs must be structured carefully to avoid unlawful corporate control.
Can I use a regular LLC to run my clinic?
In CPOM states, usually not. Most require a professional corporation (PC, PLLC, or PA) for clinical services. A general LLC may be fine for a management entity (MSO) but not for the clinical entity.
What happens if I split revenue with a management company?
Revenue-sharing tied directly to medical income can violate CPOM. Instead, management companies are typically paid flat fees or fair market value service fees.
I’m just a solo telemedicine provider. Does this apply to me?
Yes. Even single-provider telehealth practices must comply with CPOM. The absence of investors or a board doesn’t remove state restrictions.
