PART ONE

The MSO-PC Foundation

California prohibits corporations and non-physicians from owning medical practices or employing physicians to deliver care. This rule, the corporate practice of medicine (CPOM) doctrine, exists to keep business and investment interests from overriding a physician's independent medical judgment. It is also the reason a private equity firm, a layperson entrepreneur, or a management company cannot simply purchase a medical clinic in California the way they might in many other states.

The MSO-PC structure is the established workaround. It splits a healthcare business into two separate, independently owned entities:

• The Professional Corporation (PC). A professional medical corporation owned by licensed physicians. The PC holds the clinical practice. It contracts with patients, employs or contracts with the clinicians, holds the provider agreements, and owns every decision that touches patient care.

• The Management Services Organization (MSO). A business entity—typically a limited liability company or a corporation—that may be owned by non-physicians, including investors. The MSO handles everything that is not the practice of medicine: billing and collections, human resources, payroll, marketing and branding, real estate and equipment, scheduling, IT, and back-office administration.

The two entities are not parent and subsidiary. They are independent businesses connected only by a contract—the management services agreement—under which the MSO provides administrative services to the PC in exchange for a fee. This separation is the heart of the model. Done correctly, it lets investors build, fund, and profit from a healthcare enterprise while leaving clinical ownership and clinical control with licensed physicians, exactly as California law requires.

Choosing the MSO's entity type is a strategic decision that turns on tax treatment, the ownership and investor structure, and long-term exit plans. Because the MSO performs no clinical function, it is not bound by the Moscone-Knox Professional Corporation Act and has flexibility a PC does not. That flexibility is precisely why getting the information in the next three blogs right matters so much!

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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