How the MSO/PC Model Works for Telehealth and Wellness Brands

General information only. This content is not legal, tax, medical or regulatory advice, and reading it does not create an attorney-client, provider or advisory relationship with Melius Wellness LLC. Melius is a business and operational advisory firm, not a law firm, and does not provide legal services. Laws and regulations vary by state and change often, and this content may not reflect recent changes. Consult qualified healthcare counsel and your tax and clinical advisers before acting on it. Last reviewed: October 2026.

Most consumer telehealth and wellness brands are started by people who are not physicians. That raises a question every founder in this space meets early: who is allowed to own and run the part of the business that treats patients? In many states, the answer shapes the whole operating structure. The usual response is to split the company in two: a management services organization (MSO) that runs the business, and a physician-owned professional entity (PC) that practices medicine. Together they are called the MSO/PC model.

Below we explain where the model comes from, how the two sides usually divide the work, and what state regulators have been paying attention to. It is a general overview of the questions operators should expect to work through with their advisers.

The rule behind the model

The model exists because of a doctrine called the corporate practice of medicine (CPOM). The American Medical Association describes the policy concerns behind it: commercial pressure on medicine, a company's duty to its shareholders not lining up with a physician's duty to patients, and the risk that an employer interferes with a physician's independent judgment.

How strictly this applies varies a great deal from state to state. Some states limit ownership of medical practices to physicians, others allow broader ownership with conditions, and some impose few restrictions. The rules can come from statutes, medical board rules, attorney general opinions or court decisions, and several states have changed them recently. Oregon, for example, enacted significant new limits on MSO ownership and control in 2025. Any summary, including this one, can be out of date, so the answer for a specific state should come from healthcare counsel.

A few public sources show how differently states express the rule:

• California. The Medical Board of California publishes guidance listing decisions it expects a California-licensed physician, not an unlicensed person or company, to make. They include which tests are appropriate, referrals, how many patients a physician must see, ownership of medical records, hiring and firing clinical staff on competency grounds, the terms of payer contracts, coding and billing decisions, and the choice of medical equipment. The board says these decisions cannot be handed to a management company, although physicians can consult one.
• Texas. The Texas Medical Board refers to a 'general rule against corporate practice of medicine' in Texas. Under chapter 162 of the Texas Occupations Code, the board certifies certain physician-directed nonprofit health organizations, and it describes nonprofit charitable health centers that employ physicians as an exception to that rule.
• Oregon. Senate Bill 951 (2025) restricts, with exceptions, an MSO and its owners, directors and officers from holding a majority of the shares of a practice the MSO manages, serving as its directors or officers, or controlling the transfer of its shares. It also bars de facto control over listed decisions, such as hiring and pay for clinicians, clinical staffing levels, diagnostic coding, clinical policies, billing policies, pricing, payer contracts and advertising the practice's services under a non-practice name. Some ownership limits do not apply to telemedicine practices without an Oregon clinic location, but the control limits still do. The rules took effect January 1, 2026, for new entities and ownership transfers, and apply to existing arrangements from 2029.

Two practical points follow. First, a national telehealth brand should ask counsel how the rules in every state it intends to serve affect its structure, not only the state where the founders live. Second, whether a service counts as the practice of medicine is itself a real question. Services marketed as wellness, such as hormone support, weight management or IV therapy, may still be medical services under state law.

How the pieces fit together

• The practice (PC or PLLC). Owned by one or more licensed physicians. It holds the relationship with patients, employs or contracts with clinicians, owns the clinical policies and records, and is paid for professional services.
• The MSO. A business company that supplies the non-clinical support the practice needs. In many states it can be owned by non-physician founders and investors, but some states, such as Oregon, now limit how MSO owners and the practice can overlap.
• The management services agreement (MSA). The contract between them. It lists what the MSO provides, what the practice pays, and which decisions remain with the physicians.

For a telehealth brand, the MSO usually holds most of what customers see: the brand, the website and intake flow, the software platform, customer support, marketing, payments support and vendor contracts. Some states limit this. The Medical Board of California says an MSO should not itself arrange for or advertise medical services, and Oregon restricts advertising a practice's services under a non-practice name, so how the brand is licensed to and presented by the practice matters.

Drawing the line in daily operations

An MSO commonly supports a practice with technology and software, brand and intellectual-property licensing, non-clinical staff, scheduling, billing and payment processing, bookkeeping, marketing, administrative support for compliance programs, and vendor management.

The clinical side is different. Public guidance such as the California board's list points to a few recurring themes:

• Medical judgment stays with clinicians. Diagnosis, treatment, prescribing and clinical protocols belong to licensed professionals. A physician who lends a name to the business without real involvement creates risk for everyone.
• Clinical staffing. In many frameworks, final authority to hire, fire, credential and supervise clinical staff sits with the professional entity, even if the MSO helps with recruiting and paperwork.
• Indirect control counts. Decisions that look administrative, such as patient volume targets, equipment choices, coding rules or medical advertising, can affect care. Several states treat control over them as control over the practice.
• Records belong to the practice. When the MSO supplies the EMR, the practice should own its clinical records, with the MSO's access limited to what it needs and covered by a business associate agreement. See Choosing an EMR for a cash-pay telehealth practice.

Paying the MSO

The practice usually pays the MSO for the costs it carries plus a management fee, set either as a fixed amount or as a percentage of revenue. Fixed fees agreed in advance are often viewed as more conservative because they do not rise and fall with patient volume. Percentage fees are simpler to administer but draw more questions and are restricted in some states. Whether a particular fee structure is permitted depends on state fee-splitting rules and payer arrangements, which is a question for counsel.

Advisers usually ask whether the fee reflects fair market value for services actually provided, whether it is tied to referrals, and whether it makes commercial sense on its own. Where federal health program revenue is involved, the HHS Office of Inspector General's compliance guidance is a useful starting point on kickback and referral risk.

What regulators have been looking at

MSO/PC arrangements that give the MSO approval rights over most practice decisions, or leave the practice financially unable to act on its own, have drawn increasing scrutiny from state legislatures and regulators. In a June 2026 settlement announcement, for example, the California Attorney General alleged that Carbon Health used a friendly-PC structure in which the management company's contracts let it replace the physician owner, and in which unlicensed officers directed staffing, advertising and insurance negotiations. The settlement, which is subject to court approval and includes no admission of liability, would require the company to restructure so that physicians control medical decisions and how the practices operate.

Oregon's 2025 law addresses some of the same features directly, including control over share transfers and over clinical staffing, coding and payer contracts. For operators, the lesson is that regulators look at how an arrangement works in practice, not only at what the documents say.

Keeping the structure healthy

• Make the documents match reality. If the MSA reserves clinical policy to the physicians but the growth team edits treatment protocols, the paperwork is not protecting anyone.
• Keep the physician owner engaged. Regular protocol review, supervision and quality oversight are the substance the structure depends on.
• Watch the control provisions. Clauses about replacing the physician owner, restricting share transfers or financing the practice deserve careful review with counsel, especially in states that have recently changed their rules.
• Revisit it every year. Compare the MSA with how the business actually runs, and update one or the other.

Planning for growth

Choices made at formation, such as where the MSO is organized, the entity type and the tax election, affect who can invest later and how the structure extends to new states. A brand planning to operate nationally may use one MSO that owns the brand and technology, working with practice entities or multistate-licensed physicians who can see patients where they live. Those decisions belong with healthcare counsel and tax advisers working together. If outside investment is in the plan, see What private equity looks for in a physician-practice or telehealth platform.

How we help

We help operators with the business side of this model: mapping which functions sit in the MSO and which stay with the practice, designing workflows that respect that line, and fitting the technology and pharmacy pieces to the structure. We work alongside your healthcare attorneys, not in place of them. See how we engage or get in touch.

Frequently asked questions

Does the MSO/PC model work in every state?

It is widely used, but each state applies its own rules about ownership, control and fees, and some have recently tightened them. Whether a particular structure works in a particular state is a legal question for healthcare counsel.

Can non-physician founders own the MSO?

In many states, yes, but some states now limit how MSO owners and the physician practice can overlap or interact (Oregon, for example). Confirm with counsel for each state you serve. Either way, MSO owners should not control the clinical side of the practice.

Who owns the patient records in an MSO/PC structure?

Generally the professional entity, even when the MSO licenses the software. The MSO's access should be limited and covered by a business associate agreement.

What is a "friendly PC"?

An informal name for a physician-owned practice that contracts with an MSO, usually where the physician owner is aligned with the MSO's founders. The physician still has to play a real clinical role, and some states now restrict features common in these arrangements.