California Physician PC Owner & CPOM Guide

The Medical Board states that at least 51% of a medical corporation’s shares must be owned by one or more licensed physicians and surgeons. Corporations Code §13401.5 permits specified other licensed professionals to hold the remaining shares, subject to a combined 49% ceiling and a shareholder headcount restriction. This minority allowance does not permit an ordinary unlicensed investor or MSO to own those shares. Medical Board ownership FAQCorporations Code §13401.5

The eligible minority categories are podiatrists, psychologists, registered nurses, optometrists, marriage and family therapists, clinical social workers, physician assistants, chiropractors, acupuncturists, naturopathic doctors, professional clinical counselors, physical therapists, pharmacists, licensed midwives, and occupational therapists. Verify the individual license, ownership proportions, and shareholder count before issuing or transferring shares. Corporations Code §13401.5

BPC §2408 also regulates directors and officers, with exceptions supplied by the professional corporation statutes and for assistant secretary and assistant treasurer positions. Corporate formation, shareholder eligibility, governance, and any required fictitious name permit are separate checks. A medical corporation is not simply an ordinary LLC with a physician named as medical director. BPC §2408Medical Board ownership FAQMedical Board practice guidance

BPC §2400 provides the baseline restriction on corporations and other artificial entities exercising professional medical powers. A lawful professional corporation is one authorized structure; specific statutory exceptions also exist. An MSO-PC arrangement must satisfy the applicable exception and preserve licensed professional judgment. The label “friendly PC” does not itself establish legality. BPC §2400BPC §2408

Medical Board guidance reserves diagnosis, appropriate tests, referrals, treatment options, and decisions about patient volume and physician work hours to physicians. It also identifies business decisions affecting medical control: records, staffing decisions based on clinical competency, payer contracting parameters, coding and billing procedures, and medical equipment or supplies. Administrative assistance must preserve physician responsibility and approval. Medical Board practice guidance

An MSO can support administration and implementation while the physician practice retains the decisions that require professional authority. The management services agreement should identify the services, decision rights, fees, and termination terms. Corporate bylaws, shareholder agreements, banking arrangements, credit agreements, and actual workflows must be consistent with that allocation. A clinical independence clause has limited value if other documents remove the physician’s authority. Medical Board practice guidanceSB 351 chaptered lawAttorney General Art Center amicus brief

Review succession agreements, stock transfer restrictions, proxies, options, and security interests together. A structure that lets the MSO replace the physician owner at will, while the physician cannot change the MSO without losing ownership, raises the control issues described in the Attorney General’s 2026 Art Center brief and Carbon Health action. These are fact-specific documents to evaluate, not a universal approved template. Attorney General Art Center amicus briefCarbon Health proposed judgment

California has specific employment exceptions rather than a blanket exemption for every hospital or nonprofit. BPC §2401 addresses qualifying medical education clinics, specified clinics and narcotic treatment programs, narrowly defined charitable pediatric hospitals, and federally certified critical access hospitals. Each provision has its own conditions and preserves professional judgment. Confirm the exact statutory authority for the employer and facility before relying on an exception. BPC §2401 employment exceptions

The new district-hospital exception in AB 2311 is described separately below because it begins in January 2027. An employer’s nonprofit status, hospital affiliation, or choice of corporate name alone does not establish that a particular exception applies. BPC §2401 employment exceptionsAB 2311 chaptered lawCalifornia Constitution, article IV §8

SB 351 added Health and Safety Code §§1190–1192. It applies to private equity groups and hedge funds involved with a physician or dental practice doing business in California, including investment in the practice or its assets. Its defined terms have exclusions, including specified passive contributors, hospital-related entities, public agencies, and, for hedge funds, debt-only financing entities. Identify the actual investors and controlling entities before determining coverage. SB 351 chaptered lawOfficial 2026 legislative alert

Covered investors may not interfere with tests, referrals, overall care, patient volume, or physician work hours. They may not control records; clinically based hiring or firing; payer contracting parameters; clinical competency parameters for contracting with other physicians or dentists; coding and billing decisions; or approval of equipment and supplies. Contracts enabling prohibited control, including covered controlled-entity arrangements, are prohibited, and offending provisions are void and unenforceable. SB 351 chaptered law

The law permits assistance or consultation when the physician or dentist retains ultimate responsibility or approval. It expressly preserves existing CPOM restrictions. An MSO outside SB 351’s private equity or hedge fund scope must still comply with California’s baseline ownership and clinical control rules. SB 351 chaptered lawBPC §2400

Covered management and asset or real estate agreements cannot bar a provider from competing after termination or resignation, or from commenting on quality, utilization, professional ethics, or the investor’s revenue strategies. The statute preserves otherwise enforceable sale-of-business noncompetes and legitimate confidentiality provisions, subject to its exceptions. A sale agreement cannot operate as an employee noncompete. SB 351 chaptered law

The Attorney General may seek injunctive and other equitable relief and recover attorney’s fees and costs under SB 351. The bill does not create a general automatic fine for every MSO or a new Medical Board audit program. Other licensing, unlicensed practice, consumer protection, and referral laws may create additional consequences depending on the conduct. SB 351 chaptered lawBPC §2400BPC §650

BPC §650(a) prohibits compensation or inducements for referring patients. Section 650(b), however, permits percentage-of-gross-revenue or similar compensation for services other than referrals when the amount is commensurate with the services’ value or fair rental value of premises or equipment. California therefore has no blanket rule that all percentage management fees are unlawful. BPC §650

The fee method alone does not establish compliance. Document the services and valuation, examine referral incentives and other applicable state and federal requirements, and confirm that payment terms do not transfer clinical control. A fixed fee can also be problematic if it disguises referral compensation or gives an unlicensed entity control. BPC §650BPC §2400

Effective January 1, 2026, AB 1415 expands Office of Health Care Affordability oversight to “noticing entities,” including private equity groups, hedge funds, MSOs, entities created to transact with a health care entity, and specified entities owning or controlling providers. The statutory MSO definition includes provider rate negotiation or revenue cycle management and excludes entities owning certain hospitals. Not every business called an MSO necessarily meets this definition. AB 1415 chaptered lawOHCA AB 1415 FAQ

Material asset, ownership, operational, or governance changes can require a filing. OHCA’s portal directs noticing entities to provide notice at least 90 days before closing for covered transactions closing on or after April 2, 2026. Whether a transaction is covered depends on the statute, current regulations, entity and transaction thresholds, and exemptions. Do not assume a small physician practice exempts every related MSO transaction. AB 1415 chaptered lawOHCA transaction notice portalOHCA current CMIR regulations

OAL’s official actions list records approval of the revised CMIR emergency package on October 2, 2026. Check the current regulations and OHCA instructions when planning a transaction, particularly management agreements, physician-owner arrangements, changes in control, and investor rights. A cost and market impact review can extend the transaction timetable. An OHCA filing is separate from CPOM legality and does not establish that an ownership or management arrangement is lawful. OAL October 2, 2026 approvalOHCA current CMIR regulationsAB 1415 chaptered law

In People ex rel. Allstate Insurance Co. v. Discovery Radiology Physicians, P.C. (2023) 94 Cal.App.5th 521, the Court of Appeal reversed dismissal of claims arising from alleged lay control of medical entities. The opinion explains that an unlicensed person can unlawfully practice medicine through control over a medical practice without personally examining a patient. Alleged control over physician selection, employment terms, referrals, and fees mattered. Discovery Radiology published opinion

This was a published decision about whether the pleaded claims could proceed, not a trial finding that every allegation was proven. It supports evaluating who actually controls the practice; it does not establish that every management services agreement is unlawful. Discovery Radiology published opinion

In Art Center Holdings, Inc. v. WCE CA ART, LLC, appellate case B338625, the Attorney General filed an amicus brief on March 30, 2026. The brief argues that an MSO’s unilateral power to replace a physician owner, combined with restrictions preventing the physician from replacing the MSO without losing ownership, can amount to prohibited de facto control even if the power has not been exercised. Attorney General Art Center amicus brief

The official appellate docket reviewed for this guide shows the appeal fully briefed in May 2026, with no final appellate opinion identified as of October 5, 2026. The Attorney General’s brief states an enforcement position; it is not a new appellate holding. Operators should nevertheless examine the ownership and succession rights it challenges. Official appellate docket — search B338625Attorney General Art Center amicus brief

On June 26, 2026, the Attorney General announced a settlement, subject to court approval, with Carbon Health, affiliated medical corporations, and a co-founder. The allegations included control of physician ownership and medical practice decisions through friendly PC contracts. The announcement described $4.4 million from Carbon Health and $100,000 from the co-founder; the action also involved consumer billing, advertising, and contract issues, so these amounts should not be presented as a standalone CPOM fine. Attorney General Carbon Health announcement

The published proposed judgment addresses management authority, share acquisition rights, and restrictive financing terms. It is marked proposed, contains an unsigned approval line, and describes a compromise without adjudication of fact or law or an admission of liability. This guide treats those terms as a negotiated enforcement signal, not a final merits ruling or binding precedent for all MSO arrangements. Carbon Health proposed judgment

AAEM-PG’s July 24, 2024 announcement reports that Envision exited California and that the parties reached a confidential settlement of litigation challenging its practice structure. This was a party-reported settlement and withdrawal from the market. It should not be described as a court decision invalidating every friendly PC or MSO model. AAEM-PG July 24, 2024 announcement

AB 2311, signed September 18, 2026, adds a narrow physician employment exception beginning January 1, 2027 and lasting until January 1, 2037. It covers qualifying health care districts, or qualifying nonprofits with a district as sole corporate member, that own or control an acute care hospital. The hospital must have received a Distressed Hospital Loan Program award before January 1, 2025, or have a combined Medicare/Medi-Cal payor mix above 75% as calculated as of January 1, 2025; the payor-mix route also applies that test to the hospital’s health care system, if any. Required safeguards include medical staff approval, independent medical judgment, existing-position protections, and a contracting alternative for prospective employees. Annual reporting begins in 2028. It is not a general exception for private MSOs or every district hospital. AB 2311 chaptered lawCalifornia Constitution, article IV §8

SB 25, signed February 10, 2026, creates an additional California Attorney General filing for qualifying federal Hart-Scott-Rodino premerger notifications filed on or after January 1, 2027. Covered filers must provide the federal form within one business day when the California principal-place-of-business or sales test is met. This antitrust notice is another transaction planning requirement, separate from both CPOM and OHCA. SB 25 chaptered law

AB 3129, the earlier proposal for additional Attorney General review of private equity health care transactions, was vetoed September 28, 2024. Its proposed approval regime is not California law. Use the chaptered text of SB 351, AB 1415, and subsequent enacted provisions rather than an earlier bill summary. AB 3129 official veto messageSB 351 chaptered lawAB 1415 chaptered law

Before selecting a physician PC owner, verify California licensure and ownership eligibility, define the physician’s decision rights and responsibilities, and review every document affecting ownership or control. Confirm access to the information needed to make clinical decisions and the ability to exercise the authority promised in the contracts. Compensation and workload should reflect the actual role rather than merely providing a name for corporate filings. Corporations Code §13401.5BPC §2408Attorney General Art Center amicus brief

Have healthcare counsel review clinical control, management and succession terms, fee valuation and referral restrictions, investor coverage under SB 351, and OHCA notice obligations before signing. Revisit the arrangement when investors, services, management rights, ownership, or financing change. Recruiting an eligible physician is one part of the operating structure; it does not by itself establish compliance. BPC §2400BPC §650SB 351 chaptered lawAB 1415 chaptered law