Healthcare entities face increasing scrutiny as states tighten rules on who can own and operate medical practices. With new legislation taking effect in Oregon and California on January 1, 2026, understanding the Corporate Practice of Medicine (CPOM) doctrine is more critical than ever. Non-compliance can lead to severe penalties, including criminal charges.

Why States Regulate Healthcare Businesses

From physicians to pharmacists, state licensing authorities across the U.S. have clear (well, sometimes clear) rules for individuals to maintain active licensure to provide patient care. Every state prohibits practicing medicine without a license, and for good reason. Patient safety, compliance with the standard of care, and a commitment to evidence-based medicine are all logical motivations for these prohibitions.

But in many states, the restrictions go one step further and apply to the business—the corporate entity itself—that employs physicians or delivers healthcare to patients.

The goal of regulating businesses in this way is similar to regulating individual licensees: regulators want to ensure that licensed clinicians—not business executives—make healthcare decisions. The belief is that patients receive better care when decisions impacting patient care are made by providers through a clinical lens, rather than by non-licensed individuals motivated by profits. Of course, many assumptions are baked into those conclusions, but it is the regulators who are writing (and enforcing) the rules.

Ownership Restrictions and Entity Types

The CPOM doctrine varies by state but generally prohibits non-physicians (individuals without an active license to practice medicine in the state) from owning or holding a majority interest in any entity that employs physicians or delivers healthcare services. In some states, the doctrine also extends to additional types of healthcare providers.

States may:

• Limit the types of entities that can provide healthcare
• Dictate who can own the corporate entity (spoiler alert: usually physicians or other healthcare licensees)
• Dictate who can serve as officers or directors
• Restrict certain revenue models (in particular, management services organization (MSO) arrangements)

These rules often include exceptions and nuances, making compliance complex.

Just this year, Oregon and California passed legislation that will implement new CPOM requirements on January 1, 2026. Oregon’s new law significantly curbs private equity and MSO control over physician practices, and legal and healthcare analysts widely consider it the nation’s strictest. Washington introduced—but did not pass—similar legislation in 2025. It is expected that CPOM legislation will be reintroduced in Washington in the near future.

The Risks of Non-Compliance

With updated laws comes a renewed focus on enforcement. Failing to comply with CPOM requirements can have serious consequences, including:

• Civil fines
• Action against clinician licenses
• Criminal charges

If you are a physician—or even if you’re not—and you want to deliver healthcare in a state that regulates CPOM, it is essential to understand the applicable regulatory requirements before forming that Delaware C-corp.

Need guidance on structuring your healthcare business? Our team can help you navigate state-specific CPOM requirements and avoid costly penalties.