Governance and Decision Rights

A clean MSA on paper is not enough. In 2026, California regulators and the Attorney General are looking past the documents to ask a harder question: in practice, who actually controls the clinical enterprise? Governance is where that question is answered, and where many structures that look compliant on paper come apart.

Real Authority, Not Passive Authority

The era of relying on standing orders, nominee physicians, or passive directors who rubber-stamp management's decisions is over. Regulators increasingly treat those arrangements as evidence that clinical autonomy is a fiction and that the MSO is the true decision-maker. The structure must reflect genuine physician control, not a formality layered over investor control.

Board Composition and Decision Rights

Two principles should guide the governance design:

• The PC's board belongs to physicians. Control of the professional corporation—its board and its clinical governance—must rest with licensed physicians who make real decisions about how medicine is practiced.

• The MSO's board can include investors. Investors and non-physician principals can govern the management company and its business operations. What they cannot do is reach across the contract to control clinical practice.

The operating agreement, bylaws, and the MSA should map decision rights explicitly: clinical decisions to the PC, business decisions to the MSO, with the boundary clearly drawn. Where the documents leave room for the MSO to influence clinical judgment—through control over physician compensation, the power to terminate clinicians at will, or de facto control of the practice's finances—regulators will treat substance over form. The governance must be designed to survive that scrutiny, and then practiced that way, day to day.

This article is provided for general informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship. For guidance on a specific matter, contact West Coast Health Law.

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