The corporate practice of medicine (CPOM) refers to a set of laws developed over the last century to prevent unlicensed entities from influencing the delivery of medical decision-making. These laws were designed to preserve the clinical autonomy of physicians and other healthcare workers. As state legislatures have enacted these laws, health care business practices have evolved, and CPOM laws have been stretched and reshaped to keep up with these changes. Recently, legislators, policymakers, and other stakeholders have proposed refinements to CPOM laws to address widespread concerns about private equity investments in the health care sector. While these efforts may serve as a temporary deterrent to future investments, the addition of more legislation seems unlikely to resolve the plethora of existing issues that are associated with current CPOM restrictions. Furthermore, the complicated corporate structures and contracts that are likely to evolve in response to any modifications to CPOM laws may further obfuscate corporate investment and ownership stakes in physician groups.

As discussions about the future of CPOM gain momentum, the complexities surrounding the topic have also grown. This brief introduces the history of CPOM and outlines the various perspectives on how to address its challenges. Specifically, this brief discusses the evolution of laws restricting corporate oversight of physician practices, examines the current variation among states in terms of legislation, and describes some of the corporate structures that have evolved to allow investor ownership of physician practices. Finally, it concludes with an over view of potential options for amendments to existing state CPOM laws.

Key findings from the brief include:

The CPOM doctrine was developed to prevent the unlicensed practice of medicine, but views about how it has impacted physician markets have been mixed. CPOM grew out of state medical practice acts in the early 1900s which made licensure a prerequisite for the practice of medicine. Since its inception, the American Medical Association (AMA) and the Federal Trade Commission (FTC) have debated the practice of CPOM. The AMA has continuously advocated for CPOM while the FTC has fought against it, considering CPOM to be an anticompetitive practice that violates antitrust laws.

State CPOM laws vary widely. While every state now dictates that only licensed providers can practice medicine, thirty-three states presently interpret this prohibition to prevent nonprofessional corporate entities from employing physicians. Nevertheless, most states currently allow physicians to form professional medical corporations (PC) to practice medicine while limiting personal liability with varying stances among the states on how the PC should be structured or lead. States also vary in exceptions to the prohibitions on corporate ownership, with some allowing non-profits or HMOs to employ physicians. California currently has some of the strongest restrictions on CPOM in the country and there are current legislative efforts to increase them.

The friendly PC model developed to permit corporate investment in medical practices. The friendly PC model allows private investors, like corporations or private equity firms, to control physician practices without technically violating CPOM laws. In the friendly PC model, the investor selects a physician to lead the PC and then establishes contracts with that physician to align their financial interests and restrict the ability of the physician to transfer control or ownership to any other party. State legislatures in California, Connecticut, Massachusetts, and Oregon considered bills in recent sessions that would limit who can control physician practices and place restrictions on contract terms between physicians and equity investors.

While efforts by state legislatures to refine and strengthen CPOM restrictions may ward off some harmful private equity investments in physician practices, alternative policy interventions may be more effective at furthering the goal to decouple clinical decision-making and profit motives. These alternatives include increased transparency of the ownership interests in medical practices, enhanced transaction review by state officials, and retracting CPOM restrictions that prohibit employment of physicians by corporations, so long as they are equipped with appropriate guardrails to protect physician’s ability to make clinical decisions.