Founders launching a new telehealth platform, medspa, ketamine clinic, or GLP-1 and peptide therapy practice usually start with the same instinct: nail the brand, the website, the patient funnel, and the fundraising deck, and treat the legal entity structure as paperwork to clean up later. In a corporate-practice-of-medicine (CPOM) state, and at this point, most states qualify, that instinct gets the sequence backwards.
The way the practice and its management company are structured determines whether the business is legally defensible on day one, or is quietly building the kind of exposure that only surfaces during a medical board inquiry, an attorney general investigation, or diligence on an acquisition. We’ve written before about the state-by-state CPOM crackdown and the new federal bill drawing on it — this piece is the other half of that conversation: not what regulators are targeting, but how to build the structure correctly from the start.
LumaLex Law has built and audited MSO/PC structures across telehealth, peptide and GLP-1 therapy, ketamine clinics, and hormone replacement therapy. If you’re researching how to form an MSO/PC structure, here’s where to start.
1. Get the Entity Structure Right
Every MSO/PC structure starts with two separate entities. The professional entity — a PC, PLLC, or similar — holds the medical license, employs or contracts with the clinicians, and is the entity that actually practices medicine. The management services organization is a separate company that provides non-clinical support in exchange for a fee. Collapsing the two, or treating the split as a formality, is where most compliance problems start.
Getting the professional entity’s ownership right isn’t just about who holds the shares, and the actual bar varies significantly by state. The pending federal bill, drawing on Oregon’s SB 951, uses a majority-ownership-and-governance test: licensees must hold a majority of the ownership interest and make up a majority of the entity’s governing body. A number of states set a higher bar, requiring licensees to hold all or substantially all of the ownership interest, with no room for non-licensee equity at all. Don’t assume a structure that would clear the federal bill’s threshold automatically satisfies the CPOM law in the state where the practice actually operates — confirm the specific requirement state by state before finalizing the cap table.
The best time to get this right is before the first licensee signs on or the first dollar of outside capital comes in — not after the business has revenue and a structure that needs to be unwound.
2. Build the Management Services Agreement the Right Way
The management services agreement, or MSA, is the document that actually defines the relationship between the MSO and the PC, and it should be negotiated at arm’s length. The pending federal bill would make that a statutory requirement, and it’s the posture we recommend in every state regardless. In practice, that means the PC selects its own legal counsel, negotiators, and financial advisors — without the MSO’s involvement in that selection, and without any financial conflict of interest running back to the MSO.
This is the step we see get shortcut most often in structures built by other counsel: the MSO’s own attorneys draft the MSA for both sides, or the physician-owner’s “independent” counsel is effectively selected and paid for through the MSO relationship. Genuine independence — documented as it happens, not reconstructed later if the structure is ever challenged — is what regulators and courts are actually testing for.
3. Price the MSA at Fair Market Value
Getting the negotiation process right is only half the equation. The compensation itself should reflect fair market value for the services the MSO is actually providing.
This is where fee structure becomes a legal question, not just a business one. We do not recommend revenue-based or percentage-of-collections management fees, for a simple reason: tying the MSO’s compensation to clinical volume or collections gives it a financial stake in clinical decisions, which is exactly what CPOM law is designed to prevent — and regulators have started treating it that way. A cost-plus or flat-fee model, or some defensible mixture of the two, holds up far better under scrutiny, and it’s the only fee approach we recommend to clients regardless of which state’s rules apply.
Don’t rely on a rule of thumb for the number itself. A contemporaneous fair-market-value analysis, prepared at the time the agreement is signed, is worth far more than a defensible-sounding figure picked without one.
4. Draw the Control Lines Clearly
An MSO can legitimately run the practice’s back office: billing infrastructure, HR and payroll administration, IT systems, marketing, scheduling software, and facilities or lease management. It can also provide administrative support around coding, payer contracting, and pricing — but final decision-making authority over those areas, along with the hiring and firing of practice staff, staffing levels, and clinical standards and policy, has to stay with the PC. Exactly where the line falls varies by state, and some states draw it more tightly than others.
The line matters more in the management agreement’s actual operation than in its drafting. An MSA that reserves these decisions to the PC on paper, while the MSO’s staff makes them in practice, doesn’t hold up — regulators are increasingly applying a functional “de facto control” test rather than taking the document’s language at face value.
5. Make Licensee Governance Real, Not Nominal
This is the “friendly PC” or “straw doctor” problem, and it’s where regulators are paying close attention. A licensee who nominally owns and governs the practice, but has no real involvement in hiring, compensation, staffing, or clinical policy, doesn’t satisfy the CPOM requirement just because their name is on the cap table.
In a pending California appellate case, the state Attorney General has filed an amicus brief arguing that an MSO’s unilateral right to replace a professional entity’s physician-owner violates the corporate practice doctrine even if the right is never exercised — the theory being that the reserved authority itself makes the physician’s ownership nominal. That is a position being argued, not yet a decision, but it signals how closely reserved control is being read. Build governance so the licensee-owner actually exercises the authority the documents say they have, and so the MSO holds no unilateral power to override or replace them.
6. Plan for Multi-State Expansion Before You Need It
CPOM law is state law, and there is no universal template that works everywhere. A structure that’s fully compliant in one state can fail in another — particularly as more states adopt Oregon- and California-style functional control tests rather than relying on formal ownership alone.
Telehealth platforms in particular tend to cross state lines faster than their legal structure catches up. Before entering a new state, run a state-specific CPOM and licensure analysis rather than assuming the structure that worked at home will travel.
7. Handle Succession and Exit Without Creating a Red Flag
In many states — and under the pending federal bill — an MSO may not control or restrict the sale or transfer of the PC’s shares or assets; that authority has to stay with the licensees. North Carolina’s medical board, for example, has treated provisions limiting a physician-owner’s ability to sell the practice as evidence of straw ownership. This becomes a real design question when a physician-owner exits or the platform is preparing for a sale.
Assignable option agreements that let the MSO effectively select the next physician-owner are the kind of structure California’s Attorney General targeted in a $4.5 million settlement with an MSO. A cleaner approach is generally a buy-sell arrangement among qualified licensees, with any right of first refusal held by the PC or its licensee-owners rather than the MSO — subject, as always, to the rules of the specific state.
FAQ
What is an MSO/PC structure?
An MSO/PC structure separates a licensed medical practice (the PC or PLLC) from the management company that provides its non-clinical support (the MSO). The PC holds the license and controls clinical operations; the MSO provides administrative services under a management agreement in exchange for a fee.
Why can’t an MSO own a medical practice?
Corporate-practice-of-medicine doctrines exist in some form in most states, and generally require that a medical practice be owned and governed by licensed professionals rather than a lay corporate entity. The rationale is that clinical decisions should be made by licensees, not by investors or corporate management with a financial stake in those decisions.
What makes an MSO management agreement compliant?
There is no single national checklist, since the rules vary by state. But the features regulators and the pending federal bill focus on are consistent: the PC negotiates the agreement at arm’s length through its own independently selected counsel and advisors; the MSO’s compensation reflects fair market value; and the agreement leaves core clinical and business decisions — staffing, clinical policy, final authority over coding and pricing — with the PC in practice, not just on paper.
Do management fees have to be fair market value?
As a matter of sound practice, yes — though how explicitly the requirement is written varies. The pending federal bill would make fair market value compensation a condition of any MSO management contract, and regulators increasingly read revenue-tied fees as evidence that an MSO has a stake in clinical decisions. Separately, fair market value is a core concept under federal fraud-and-abuse law where federal healthcare program business is involved, which is its own analysis apart from CPOM. A contemporaneous FMV analysis is the strongest way to support the number.
Does this vary by state?
Significantly. CPOM restrictions, MSO-specific rules, and enforcement posture all vary state by state, and several states (Oregon, California, Vermont among them) have adopted stricter functional-control standards since 2025. A structure built for one state should not be assumed to work in another without a separate analysis.
How to Form an MSO/PC Structure
Forming an MSO/PC structure is not a paperwork exercise that can wait until after the practice is up and running. It’s a legal and governance foundation that determines whether the business is defensible from day one — and the strongest structures are built that way from the start: the right entity split, an arm’s-length and fair-market-value management agreement, clear and functionally real control lines, and a succession plan that keeps transfer authority with the licensees.
LumaLex Law works with telehealth platforms, peptide and GLP-1 practices, ketamine clinics, and other MSO-backed healthcare businesses on formation, MSA structuring, governance design, and multi-state compliance. If you’re forming or restructuring an MSO/PC arrangement, contact us to discuss how to build it correctly from the start.
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Corporate-practice-of-medicine, licensing, and MSO rules vary by state and change frequently, and some remain unsettled or subject to pending legislation. Consult qualified counsel about your specific facts before structuring or restructuring an MSO/PC arrangement.
