A telehealth company operating in a state that enforces the corporate practice of medicine doctrine cannot own the clinical practice that delivers care. Licensed physicians must hold ownership of the practice and control every clinical decision, while a separate management services organization, or MSO, supplies billing, marketing, technology, and other administrative support under a written management services agreement. That arrangement, known as the friendly PC model, became the default architecture for scaling virtual care nationally. A structure that satisfied a state licensing board five years ago can draw an enforcement letter today, because 2025 and 2026 brought the tightest state scrutiny the model has seen.
The Friendly PC and MSO Structure
Under the friendly PC model, one or more licensed physicians form and exclusively own a professional corporation that holds the clinic's license, employs or contracts with its clinicians, and bills for patient care. The MSO, typically the entity that raised capital and built the platform, signs a management services agreement with the PC to handle scheduling, marketing, human resources, technology, and revenue cycle work the PC does not perform itself. The line the doctrine draws is between administrative support and clinical control. The MSO can run the business side. It cannot direct how a clinician treats a patient, and in most states it cannot own the licensed practice outright.
Where MSO Control Crosses the Line
Regulators look past the paperwork to how the arrangement actually operates. An MSO that hires and fires the PC's clinicians, sets their clinical schedules and productivity targets, or controls billing and coding decisions is exercising the kind of authority the corporate practice of medicine doctrine reserves to physicians. Fee structures draw the same scrutiny: a management fee calculated as a percentage of the PC's revenue, or tied directly to patient volume, risks both an unlawful fee-splitting arrangement and a referral inducement under the Anti-Kickback Statute, since the MSO's payment then rises and falls with the volume of patients the PC's clinicians see and treat.
A management services agreement that lets the MSO hire, fire, or pay clinicians based on patient volume is not an administrative contract. It is the arrangement the corporate practice of medicine doctrine was written to prevent.
California's SB 351 and the New Enforcement Era
California signed SB 351 into law on October 6, 2025, effective January 1, 2026, and it is the clearest signal yet of where enforcement is headed. The law bars private equity firms and hedge funds from interfering with a physician's or dentist's professional judgment and from exercising authority over billing, coding, equipment selection, or clinical staff oversight. It voids certain non-compete and non-disparagement clauses in provider employment agreements, and it gives the California Attorney General injunctive relief and fee-shifting remedies to enforce the line. Other states have not gone as far, and some have no dedicated corporate practice statute at all, but the direction of travel is toward more state notice requirements and more direct scrutiny of who actually controls the clinical side of a telehealth platform.
Fee Structures That Survive Scrutiny
The HHS Office of Inspector General's Advisory Opinion 25-03, issued in June 2025, approved an MSO arrangement built around a fixed fee for leased clinical staff and administrative services, not a share of the PC's collections. That structure, fixed or cost-plus fees for defined services, is the pattern telehealth companies can point to when a state board or the Attorney General asks how the MSO is compensated. Marketing arrangements draw a related but separate question, covered in Marketing Arrangements in Telehealth: Where Kickback Risk Concentrates, because a lead-generation fee tied to converted patients raises the same referral-inducement problem as a percentage-based management fee.
Why Early Legal Counsel Is Critical
It is critical that telehealth companies retain experienced healthcare defense counsel before finalizing a PC-MSO structure, and immediately upon receiving a state board inquiry, attorney general notice, or investigative request touching the arrangement. Early legal involvement can determine whether the management services agreement actually reflects fixed, fair-market-value compensation, whether the PC retains real authority over hiring and clinical staffing, and whether the structure will hold up once a regulator asks who controls the practice day to day. Waiting until a state notices the arrangement leaves far less room to restructure it.
How Health Law Alliance Can Help
Health Law Alliance has represented 2,500+ clients across 25+ years defending healthcare companies before state boards, attorneys general, and federal agencies. Our telehealth law and telemedicine attorneys review PC-MSO structures, management services agreements, and fee arrangements against the doctrine in every state where a telehealth company operates, and represent companies once a regulator has already opened an inquiry. Contact Health Law Alliance for a free, confidential consultation before you finalize or defend your structure.
