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Physician practices are the default case this wiki is written around. This page covers what is specific to medicine rather than general: which specialties suit the MSO model, how hospital employment competes with it, and where value-based arrangements complicate the two-entity structure.

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Entity and doctrine specifics

Medicine is where the corporate practice of medicine doctrine originated and where it is most actively litigated and legislated. Everything in The CPOM doctrine applies directly. What’s specific:
  • Medicine is the profession the 2025–2026 legislative wave targeted. Oregon’s SB 951 restricts MSO control of professional medical entities while carving out dental, PT/OT, veterinary, and certain behavioral health. California’s SB 351 covers medical and dental. Vermont’s Act 133 addresses clinical decision-making broadly.1
  • Entity forms vary, PC in California, PA or PLLC for Texas physicians, PC or PLLC in most states. See PC vs PLLC vs PA.
  • Hospital and nonprofit exceptions are most developed for medicine. Berlin v. Sarah Bush Lincoln Health Center, 179 Ill. 2d 1, 688 N.E.2d 106 (1997), recognized a hospital-employment exception in Illinois; Texas has certified nonprofit health organizations under Occupations Code § 162.001.2

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Specialty-by-specialty MSO fit

Not all medical specialties suit the model equally.
Ancillary services are where medicine’s Stark exposure concentrates. An orthopedic group referring to its own imaging or physical therapy is referring for designated health services, requiring a Stark exception, most commonly the in-office ancillary services exception, which has specific supervision, location, and billing requirements. If your PCs refer to each other, this analysis is required. See Stark, AKS, and why comp design is constrained.

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Hospital competition and alignment

Medicine has a distinctive competitive dynamic: hospitals and health systems employ physicians directly, at scale, and in most states may lawfully do so under the hospital exception. This means an MSO-PC group competes for clinicians against an employer that can offer:
  • Salary stability and benefits
  • No practice management responsibility
  • Referral volume from the system
  • Malpractice coverage and administrative support
What an MSO-PC group can offer instead: clinical autonomy, participation in the economics, faster decision-making, and specialty focus. Those are real advantages, and they are the ones to build recruiting around — competing on salary alone against a health system is generally a losing position. Alignment rather than competition is also a strategy: hospital co-management arrangements, service line partnerships, and joint ventures. All carry Stark and AKS analysis.

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Billing characteristics

Standard 837P with CPT and ICD-10, the case this wiki’s payments section describes throughout. Medicine-specific notes:
  • Evaluation and management coding dominates most non-procedural practices, and the documentation guidelines changed materially in recent years. Audit E/M distribution by clinician; an outlier pattern is a common audit trigger.
  • Modifier 25, a significant, separately identifiable E/M service on the same day as a procedure, is heavily used and heavily scrutinized.
  • Incident-to and split/shared billing rules matter wherever advanced practice clinicians are involved, and they are Medicare-specific with commercial variation. See Billing compliance basics.
  • Local coverage determinations from your MAC drive medical necessity denials, and they vary by region.

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Value-based care, at awareness level

Value-based care is increasingly relevant and structurally awkward for MSO-PC groups. The arrangements: Medicare Shared Savings Program ACOs, ACO REACH, Medicare Advantage risk arrangements ranging from shared savings to full capitation, and commercial value-based contracts. Why they complicate the structure:
  1. Who bears the risk? A capitated payment goes to the PC as the contracting entity. But the MSO holds the capital and the analytics. Allocating risk and reward between the entities is a genuine structural question.
  2. Downside risk in the PC is a serious problem — the PC is thinly capitalized by design and cannot absorb a large loss.
  3. The management fee interacts with shared savings. If the MSO’s fee is fixed and the PC keeps shared savings, the MSO captures none of the value it created. If the fee captures the savings, that starts to look like a share of clinical performance.
  4. Data and analytics live in the MSO but drive clinical decisions, which is the boundary CPOM draws. Providing data is fine; directing care based on it is not.
Do not enter meaningful downside risk without structuring how it flows between the entities, and without counsel. A capitation contract signed by an undercapitalized PC with no defined MSO support mechanism can become insolvent after one bad year.

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Launch pitfalls specific to medicine

  1. Assuming CPOM is uniform. Medicine is the most-regulated profession here, and the state variance is the widest.
  2. Missing Stark analysis on ancillaries, imaging, lab, PT.
  3. Underestimating credentialing time for hospital privileges on top of payer credentialing.
  4. Recruiting against health systems on salary rather than on autonomy and economics.
  5. Ignoring the E/M distribution until an audit surfaces it.
  6. Entering risk contracts without allocating risk between the entities.
  7. Building on out-of-network economics in a post-No Surprises Act environment.

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Sources

  1. Or. S.B. 951 (2025); Cal. S.B. 351 (2025); Vt. Act 133 (2026). See the legislation tracker.
  2. Berlin v. Sarah Bush Lincoln Health Center, 179 Ill. 2d 1, 688 N.E.2d 106 (1997); Tex. Occ. Code § 162.001.
Last modified on August 13, 2026

Related topics

The corporate practice of medicine doctrineStark, AKS, and why comp design is constrainedThe No Surprises ActEnroll and contract with commercial payersCredential each new provider you hireCalifornia: CPOM & MSO referenceMedicare (fee-for-service)