What is the Corporate Practice of Medicine in California?

In California, the Corporate Practice of Medicine (CPOM) doctrine is a strict legal prohibition that prevents non-physicians, corporations, and other lay entities from owning, controlling, or practicing medicine. Only licensed physicians (or certain professional medical corporations) may employ physicians or make clinical decisions.

The doctrine, rooted in California Business and Professions Code § 2052 (prohibiting unlicensed practice of medicine) and § 2400 (stating that corporations have no professional rights, privileges, or powers), ensures that medical decisions prioritize patient care over corporate profits and prevents lay interference in professional judgment.

We have seen the corporate practice doctrine in two contexts. First, we see non-profits who have exemptions to the CPOM rule place non-physicians in supervisorial roles where they overstep their bounds and start regulating how doctors practice. Many of these so-called non-profits pay huge salaries to the corporate directors so it is technically a non-profit but it functions as a for profit entity. We also see for profit entities hiring physician groups that do their bidding but technically are independent. To pierce this veil of deceit is difficult but it often reveals a cynically pattern of abusing the physician group name to allow a corporation to practice medicine. We see this in situations where the hospital brings in a physician group to take over parts of the hospital practice. Independent physicians are displaced and the hospital and physician group function as a single partnership entity.

Key points in California:

Non-physician-owned corporations generally cannot directly employ physicians or contract for medical services in a way that influences clinical care.
Physicians must typically practice through a professional medical corporation (PC) under the Moscone-Knox. An MD or OD must own 51% or more of the corporation.
Management Services Organizations (MSOs) can provide administrative support but cannot control clinical decisions, hiring of physicians for medical services, or patient care. But be aware - billing decisions may affect medical decision making and if so that is solely within the authority of the doctor.

The interaction between an MSO and physician is a key area of CPOM law. A recent case is very instructive on this point. In Lew-Williams v. Petrosian, 101 Cal.App.5th 97 (2024), the California Court of Appeal (Second District, 2024) addressed a dispute arising out of a management services agreement between a physician's professional corporation and a lay company (Petrosian Esthetic Enterprises, LLC) to operate medical spas and laser hair removal clinics. The agreement expressly provided that the physician corporation would provide medical services and "make all decisions related to the practice of medicine," while the lay entity would provide facilities and nonmedical management services. Although the appeal focused on arbitration and enforcement issues rather than a direct CPOM challenge, the case illustrates the structure California practitioners use to navigate the CPOM prohibition and the litigation risks that arise when such MSO arrangements break down—particularly where the lay entity exercised financial control over operating accounts. We have seen many cases where non-physicians fund and run these clinics. An MSO charges a franchise fee and management fee. A figurehead doctor technically owns the clinic and it runs without any real physician oversight. While these clinics rarely harm patients they are still vulnerable to investigation and prosecution. In a case where there is patient harm, the structure makes the figurehead doctor highly vulnerable.

Along the same lines is the federal regulation danger. Many of these spas and MSO run clinics promote non-FDA approved stem cell treatments. There are state disclosure rules for these procedures and the primary care physicians for the patient must be consulted. However there is also the separate issue of federal rules. A recent case held that state rules do not override the federal rules and compliance wiht both is required.

In United States v. California Stem Cell Treatment Center, Inc., 117 F.4th 1213 (2024), the Ninth Circuit held in 2024 that FDA regulation of physicians performing stem cell treatments using stromal vascular fraction (SVF) did not impermissibly intrude upon the states' authority to regulate the practice of medicine. The physicians argued that the FDCA's application to their treatments would unconstitutionally encroach on state-regulated medical practice. The Ninth Circuit rejected this argument, citing its earlier precedent that "though the regulation of the practice of medicine is delegated to the states, when a physician misuses medical devices and threatens public health, the physician may run afoul of the [FDCA]." This case is significant in the CPOM context because it confirms the boundary between exclusive state authority over medical practice regulation (including CPOM enforcement) and permissible federal product regulation, a distinction relevant to any business structure involving federally regulated healthcare products or devices.

In the world of personal injury law the same corporate structure can use an MD owner as a figurehead. This can lead to criminal liability as many jurisdictions (especially Riverside California) are targeting personal injury doctors who run up large bills, order lots of imaging and then reduce their bills (regularly) as part of a personal injury settlement. In United States v. Solakyan, 119 F.4th 575 (2024), the Ninth Circuit (2024) affirmed convictions arising from a workers' compensation fraud scheme in which the owner of medical imaging companies paid complicit physicians and schedulers to route patients to his companies. The court reaffirmed that under California law, "physicians have a fiduciary duty to their patients to disclose all information material to the patient's health, whether medical or economic, that might affect a physician's professional judgment." This principle is foundational to the CPOM doctrine, which is rooted in the concern that corporate financial interests will corrupt physician judgment. Solakyan demonstrates the criminal enforcement consequences—including honest-services mail fraud and healthcare fraud liability—that can flow from corporate arrangements that co-opt physician referral and treatment decisions. The point in the Solakyan case is that the doctors are part of a business that works with lawyers and does not really focus on patient needs other than to generate a large personal injury settlement. A doctor who lends his name to this type of enterprise violates ethical duties and can be exposed to criminal liability.

There are many ways that corporations try to get around the CPOM rules. For example, a private equity firm buys a medical practice, but legally cannot own it. Instead, they form a "Friendly PC" owned by a physician. The firm creates a Management Services Organization (MSO), which signs a contract to provide "management services" (billing, staffing, marketing) to the PC in exchange for a management fee that often captures most of the revenue. This MSO charges 7% or 10% of the profits and lends money to the entities at a high interest rate. It provides the staffing which is paid for by the medical practice. For intents and purposes the doctors work for private equity.

You can see this a lot in Telehealth Startups, To comply with CPOM, the technology company (the "corporation") sets up a separate, physician-owned PC that actually employs the doctors and holds the clinical responsibility for the telehealth treatments provided. The software is controlled by the corporation as is billing, scheduling and advertising. All the doctors do is appear on a screen, see the patients and write session notes. The practice is usually simple - prescribing ED drugs, ADHD medications or other prescription based medicine where the prescriptions are then filled (at a profit) by pharmacies which are likewise controlled by the corporation.

Medical Spas (Medi-Spas) are another "red flag": A non-physician-owned spa offers Botox. CPOM laws require that a licensed physician or a Professional Corporation owns the medical side of the business, oversees the services, and supervises nurses or physician assistants, rather than the spa owner making clinical choices. We have seen spas where one physician "owns" over a dozen spas throughout the State of California. In these cases the doctor may never visit the spa, is not consulted on any regular basis and may not even be known to the staff. The structure is set up by the management company and the doctor is merely a figurehead.

CALIFORNIA's STRICT LAWS

California is considered one of the strictest and most actively enforced CPOM states.

Violations can lead to criminal penalties, license issues, contract invalidation, or enforcement actions by the Medical Board of California.

This rule protects the physician-patient relationship by keeping clinical judgment independent of business interests. Physicians often run into conflicts with hedge fund controlled or non-profit owned (501(c)(3)) corporations as maximizing income can conflict with the best patient care.

The laws on CPOM are a meaningful focus of more restrictive regulations. Effective January 1, 2026, California law now strictly governs the influence of private equity and hedge funds over clinical operations, following Governor Gavin Newsom’s signing of SB 351.

This statute represents a significant pivot in California’s regulatory landscape. While Governor Newsom previously vetoed legislation targeting private healthcare acquisitions in 2024, the enactment of SB 351 reinforces the state’s commitment to the Corporate Practice of Medicine (CPOM) doctrine by insulating medical decisions from profit-driven administrative interference.

New laws lead to new criminal and civil prosecutions. There is a lag time as the government agencies learn to work with and use the new laws. SB 351 was enacted just months before this was written (April 22, 2026) and we expect court actions to be delayed until the third quarter of this year. The key specific rules that were previously Medical Board standards and regulations are now codified. These changes are summarized as follows:

1. Direct Prohibition of "Clinical Interference"

The law explicitly lists clinical decisions that PE groups and hedge funds are now legally prohibited from influencing, even if they own the practice’s assets. These include:

Diagnostic & Treatment Choices: Determining which diagnostic tests are appropriate or the necessity of referrals and consultations.
Patient Volume Quotas: Mandating how many patients a provider must see in a given day or setting specific hour requirements.
Ultimate Care Responsibility: The fund cannot be responsible for the "overall care" of the patient or dictate specific treatment options.

Telemedicine practices with prefilled screens for MD's and OD's to sign off on will be a target. Any billing decisions made corporately will be subject to close scrutiny.

2. Statutory Control Over Practice Management

SB 351 carves out specific "administrative" functions that were previously gray areas and mandates they stay under the control of licensed clinicians. Private equity groups can no longer:

Own Medical Records: Control over or ownership of patient medical records must remain with the licensed professional.
Clinical Personnel Decisions: They are barred from hiring or firing physicians, dentists, or medical assistants based on clinical competency or proficiency.
Billing & Coding: They cannot make the final decisions regarding coding and billing procedures for patient services.
Equipment Selection: They are prohibited from having the final say in the selection of medical equipment and supplies.
Contractual Parameters: They cannot set the "parameters" under which a practice enters into contracts with third-party payers (insurers) or other providers if those parameters relate to clinical proficiency.

Prewritten explanations as to the risks for certain procedures will be reviewed as being "plain vanilla" and designed to have patients "informed" of the risks but "ignore" them. E.g. this is a corporate sales procedure rather than an individualized warning.

As always, the purpose of equipment must have a MEDICAL and financial basis - corporate choices based solely upon profitability will be prosecuted.

Medical record control is a key issue. Who "owns" the patient. As harsh as that sounds it is a key issue when a corporate entity sanctions, disciplines or terminates an MD/OD.

Key Pillars of SB 351

The law primarily restricts physician and dentist management platforms in two ways:

Codification of CPOM Restrictions: Previously, many restrictions on corporate influence existed only as interpretive guidance or case law. SB 351 codifies these rules, explicitly mandating that clinical decision-making and treatment protocols must remain under the exclusive control of licensed health care providers.
Prohibition of Targeted Noncompete Clauses: The law further restricts the use of specific noncompete agreements within these management structures. This is designed to prevent private equity groups from using restrictive covenants to exert undue leverage over practitioners or to limit patient mobility.

A recent CPOM case illustrates how complex this issue can be as it gets interwoven with other legal practice issues. Kalu v. Okeani (Cal. Ct. App., Sept. 18, 2025, is an unpublished case and cannot be cited as authority. But its fact pattern as described below by the court shows how CPOM gets intertwined with a myriad of other more standard issues.

"In 2012, Kalu and Okeani formed IAM Medical Corporation (IAM). Kalu owned 51 percent of the company and Okeani owned 49 percent. Kalu served as the company's medical director, but Okeani claims this was only a title and Kalu “did not maintain oversight and control of IAM, as required by law.” According to Okeani, IAM was expressly created to illegally circumvent regulations prohibiting the unlicensed practice of medicine and Kalu was an absentee director who “allow[ed] her name and medical license to be used so [that IAM] would appear compliant with applicable laws and regulations.”

Indeed, in 2018 the Medical Review Branch of the Department of Health Care Services (DHCS) investigated IAM and determined that Kalu was not providing the supervision and oversight required by a state law that prohibits the corporate practice of medicine. DHCS also determined that IAM's tax return for 2017 indicated that Okeani owned 100 percent of the company in violation of Corporations Code section 13401.5, which barred Okeani from owning more than 49 percent of IAM's shares. The state suspended IAM's National Provider Identifier, effectively eliminating IAM's ability to bill Medicare and insurance companies. As part of her appeal of that decision, Kalu submitted a shareholders’ agreement, drafted in 2019, but backdated to 2014, that purported to show Okeani only owned 49 percent of IAM's shares in compliance with the Corporations Code. The suspension was upheld on appeal. On July 13, 2020, Kalu filed this case against Okeani."

Kalu v. Okeani (Cal. Ct. App., Sept. 18, 2025, No. B334198) 2025 WL 2679574, at *1, reh'g denied (Oct. 10, 2025)

So here you have DHCS investigating using the CPOM as the starting point for a greater inquiring into billing and economic practices. The concept is that when a business runs a practice it is incapable of making medically based decisions and is utilizing the system for corporate gain.

In a federal case the CPOM status was used in an attempt to deny payment of claims. The allegation was:

" Defendants presented false claims to the government because they engaged in the corporate practice of medicine, in violation of state law prohibiting corporate entities from practicing medicine"

United States Ex Rel. Harrison v. Valley's Best Hospice, Inc. (C.D. Cal., Sept. 3, 2025, No. 2:20-CV-11218-AH (EX)) 2025 WL 3085608, at *6

Another case raises the same issue:

" the relator, proceeding under a theory of implied false certification, alleged that the defendant, a woman in charge of three health care businesses—a clinic, a home healthcare provider, and a hospice, submitted Medicare claims in violation of the Arizona common law prohibition on the corporate practice of medicine, the Stark Act, and certain Medicare regulations. 616 F.3d at 999. "
Stenson v. Radiology Ltd., LLC (D. Ariz., Jan. 14, 2025, No. CV-19-00306-TUC-JGZ) 2025 WL 89751, at *7

This CPOM status (preventing submission of a valid claim) will be increasingly seen in Hospice cases where there is a large corporate presence. Read a White Paper on CPOM which is excellent. [In 2011, the PALTmed Public Policy Committee formed the Corporate Practice of Medicine (CPOM) Workgroup.]

Our office does not encourage this corporate practice of medicine. What we have seen are physicians who need work and get drawn into these practices only to face medical board discipline, civil lawsuits and even criminal charges due to their involvement with these schemes. If you are a physician whose corporate employer (real or tacit) is interfering with your medical judgment, call our lawyers at (925) 283-1863. We can help.