MSO-PC Models Under Scrutiny: What Digital Health Companies Should Know About the Federal CPOM Proposal and California Developments in 2026
The regulatory landscape surrounding the Management Services Organization -- Professional Corporation model – otherwise known as the “MSO-PC model” is shifting.
In September 2026, federal lawmakers introduced the Stop Corporate Takeovers of Physicians Act of 2026, which, if enacted, would establish a federal Corporate Practice of Medicine (CPOM) framework and impose significant new restrictions on certain MSO-PC arrangements. H.R. 10444 was introduced on September 16, 2026, and referred to the House Committee on Energy and Commerce and the House Committee on Ways and Means. As of September 28, 2026, it remains proposed legislation.
At the same time, California is already increasing scrutiny of these arrangements through Senate Bill 351, recent Attorney General enforcement activity, and expanded oversight by the Office of Health Care Affordability (OHCA).
For digital health companies, investors, founders, and physician leaders, these developments do not necessarily mean the end of the MSO-PC model. But they do reinforce an increasingly important principle: physician ownership and professional independence must truly exist in substance, not just on paper.
What Would the Stop Corporate Takeovers of Physicians Act Do?
The proposed Stop Corporate Takeovers of Physicians Act of 2026 would establish a federal CPOM standard in an area historically governed by state law.
Subject to specific exceptions, the bill would prohibit an entity that is not majority-owned and controlled by licensed healthcare professionals (“licensees”) from: owning or controlling a medical practice; employing or contracting for the professional services of a licensee; or engaging in the practice of medicine. To satisfy the bill's “majority-ownership-and-control” standard, licensees would need to hold at least a majority of the ownership interests and constitute a majority of the entity's governing body. This is generally consistent with how states typically enforce CPOM as well, though some states require 100% ownership of the entity by licensees.
Importantly, the proposal would establish a federal floor rather than replacing stricter state CPOM laws. States could continue to impose equal or more stringent ownership, control, and MSO restrictions. For digital health platforms operating in multiple states, this could add another layer of compliance to the state-by-state CPOM analysis companies already undertake.
Why Does the Federal Proposal Matter for Today’s MSO-PC Models?
The federal legislation goes beyond prohibiting direct corporate ownership of medical practices, specifically addressing the relationship between MSOs and physician-owned professional entities.
If passed, the bill would restrict an MSO's ability to
own, acquire, or finance interests in a medical practice;
control or restrict transfers of practice ownership; and
exercise de facto control over certain administrative, business, or clinical operations in a manner that affects the nature or quality of medical care.
The bill specifically addresses ultimate decision-making authority over matters such as clinician hiring and termination, compensation and scheduling, staffing levels, billing and coding, pricing, clinical standards, and third-party payor contracting.
These provisions are particularly relevant to traditional “friendly MSO-PC” structures, where an MSO may use stock transfer restrictions, succession arrangements, or other contractual mechanisms to preserve continuity of physician ownership and protect the broader enterprise by preventing a disgruntled physician owner from taking their practice and patients elsewhere.
The proposed bill would also require physician/licensee owners to be licensed and present in a state where the practice is substantially engaged in delivering medical care. If enacted, this provision could have significant implications for national telehealth organizations that rely on one physician, or a small group of physicians holding licenses across multiple states, to own professional entities supporting a national clinical footprint.
The bill also includes restrictions addressing management agreements and certain non-compete, non-disclosure, and non-disparagement provisions, further signaling federal scrutiny of the broader economic and contractual relationship between MSOs and licensed healthcare professionals.
California has already Increased Scrutiny of MSO-PC Models
While the federal legislation remains a proposal, the state of California is already taking action.
California has long maintained a restrictive CPOM framework under which certain professional and business decisions affecting the practice of medicine must remain under physician control. The Medical Board of California has identified areas such as
clinical hiring and termination
medical records
referrals
payer relationships
coding and billing
as functions that should remain in the hands of the physician owner.
Effective January 1, 2026, SB 351 added an additional layer of oversight for private equity groups and hedge funds involved with physician and dental practices. Among other things, the law prohibits these entities from interfering with a physician’s professional judgment or exercising control over specified functions – including certain professional staffing, payer contracting, coding and billing, and medical equipment decisions – and makes contractual provisions that violate those restrictions void and unenforceable. The law also gives the California Attorney General express enforcement authority.
California’s Attorney General has taken several notable actions in 2026 that provide insight into how the state is viewing MSO-PC arrangements.
In Art Center Holdings, the Attorney General filed an amicus brief involving a private-equity-backed MSO and physician-owned medical practice. The Attorney General took the position that an MSO's contractual ability to replace a physician-owner can itself create impermissible control, even if that right has never been exercised.
In the Aspen Dental matter, the Attorney General reached a settlement involving allegations that a private-equity-backed dental support organization crossed the line from administrative support into impermissible control. The settlement includes $2 million in penalties, $300,000 in restitution, and extensive restrictions addressing practice ownership, clinician hiring, management fees, advertising, and other operational matters. Although Aspen involves dentistry rather than medicine, it provides a useful indication of how California regulators are analyzing the distinction between legitimate management support and professional control.
In June 2026, the Attorney General announced a settlement with Carbon Health Technologies, affiliated medical groups, and its co-founder resolving allegations that Carbon Health’s MSO-PC structure gave the MSO impermissible control over its physician practices. The challenged arrangements included the ability to replace physician owners and influence staffing, advertising, and insurance negotiations. The settlement requires restructuring so that the nonmedical management company cannot control or hold ownership interests in physician-owned medical practices, thereby allowing physicians to retain independent control over medical decisions and practice operations.
The above matters are fact-specific and do not establish universally applicable rules for every MSO-PC arrangement. Collectively, however, they indicate that California regulators are looking beyond who technically owns the PC to the totality of the contractual, financial, and operational relationship between the PC and MSO.
OHCA adds another layer of oversight
California’s OHCA is also proposing revisions to its Cost and Market Impact Review (CMIR) regulations to implement AB 1415, which expanded the material-change notice framework to include certain private equity groups, hedge funds, and MSOs. The proposed rules would meaningfully expand the information available to OHCA in covered transactions. For example, the proposal would require private equity groups and hedge funds to identify healthcare entities and MSOs directly or indirectly owned, controlled, or financed by participating asset managers and the funds they manage. The proposed regulations would also require documentation sufficient to show the debt-to-enterprise-value or debt-to-equity ratio, source of debt, and post-recapitalization debt ratio for an acquired healthcare entity or MSO. MSOs themselves would face additional disclosure obligations, including documentation identifying healthcare entities to which they provide management and administrative support services. As of September 28, 2026, the September revisions remain proposed emergency regulations. For digital health companies contemplating California investments, acquisitions, recapitalizations, restructurings, or other material transactions, OHCA considerations should be addressed early in the transaction process.
What should Digital Health Companies with a Clinical Arm Do Now?
Taken together, these developments make this an opportune time for digital health companies to pressure-test their existing MSO-PC structures before regulators do.
Key areas to review include:
PC ownership and succession arrangements, including stock transfer restrictions and the MSO's rights following a physician owner's departure;
MSA governance and reserved powers, particularly authority over clinicians, payors, billing and coding, scheduling, compensation, and other professional matters;
Termination rights, including whether the PC owner can realistically replace its MSO without jeopardizing physician ownership;
Management fees, financing, loans, liens, and other financial relationships with the MSO that may create practical control of or dependence by the PC; and
Actual operating practices, to confirm that physician independence reflected in the MSO-PC documents is also actually occurring in practice.
For multistate organizations, these issues should be reviewed both at the enterprise level and against state-specific CPOM requirements, particularly in states such as California where enforcement is evolving quickly.
Well-structured MSOs can continue to provide valuable technology, infrastructure, capital, administrative support, and operational expertise while preserving the independence of the professional entities they support.
Frequently Asked Questions (FAQs)
What is the MSO-PC model in digital health?
The Management Services Organization–Professional Corporation (MSO-PC) model is a corporate structure used in healthcare to comply with state Corporate Practice of Medicine (CPOM) laws. Under this model, a physician-owned Professional Corporation (PC) delivers medical services and employs clinicians, while a business entity (the MSO) provides non-clinical administrative, management, software, and operational support in exchange for a fair-market-value fee.
What is the "Stop Corporate Takeovers of Physicians Act of 2026"?
Introduced in September 2026 as H.R. 10444, the Stop Corporate Takeovers of Physicians Act is a proposed federal bill that would establish a national baseline prohibition on the corporate practice of medicine. It restricts non-physician-controlled entities from owning medical practices, limits MSO authority over clinical and financial operations, and requires physician practice owners to be actively engaged in patient care within the state where services are delivered.
How will California SB 351 affect MSOs and private equity?
California SB 351, which took effect on January 1, 2026, restricts private equity groups, hedge funds, and affiliated management platforms from exercising control over clinical decisions and core operational functions. It invalidates contractual terms that give non-physicians control over clinician hiring, payor contracting, coding/billing, patient volume mandates, or medical equipment choices.
Can an MSO still replace a physician-owner under new CPOM enforcement guidance?
Unilateral rights allowing an MSO to immediately swap out a physician owner ("friendly PC succession") are under heavy regulatory scrutiny. Recent enforcement, such as the California AG’s intervention in Art Center Holdings and the Carbon Health settlement, indicates that contractual powers granting an MSO de facto control over practice ownership can trigger CPOM violations, even if never exercised. Succession mechanisms must be carefully structured to preserve independent professional judgment.
Does federal CPOM legislation replace state CPOM laws?
No. The proposed federal framework establishes a national compliance baseline ("floor"). It explicitly preserves state authority to maintain or enact stricter CPOM requirements. Digital health platforms must continue to navigate a multi-state compliance model that meets both federal baselines and specific state statutes like those in California, Texas, and New York.
How can Nixon Law Group help?
If your company uses an MSO-PC model, is launching into new states, or has not revisited its structure recently, now is a good time for a compliance check. The Nixon Law Group team regularly helps companies evaluate and form compliant MSO-PC structures, governance documents, MSAs, succession arrangements, and operating practices. We can help identify areas that may warrant adjustment in light of these developments. Contact Nixon Law Group today to schedule a consultation with our team.
This article is for informational purposes only and does not constitute legal advice. The Stop Corporate Takeovers of Physicians Act and certain OHCA regulatory changes discussed above remain proposals as of September 28, 2026 and may change.