Blog December 20, 2023
The Captive Professional Corporation Model in Healthcare


The Captive Professional Corporation (CPC) model, also known as the Friendly PC model, plays a crucial role in the healthcare system of the United States, especially in regions governed by stringent Corporate Practice of Medicine (CPOM) laws. This essay provides an in-depth examination of the CPC model within the East Coast, Southeast, and Midwest regions, focusing on the legal frameworks, structures, necessary agreements, and their compliance with CPOM statutes.


Overview of CPOM Laws Across Regions

CPOM laws aim to ensure that medical decisions are made by licensed physicians rather than corporate entities. These laws vary significantly across regions:

East Coast States: In states like New York and New Jersey, CPOM laws are particularly stringent, limiting the extent of services that non-physician entities can provide to medical practices. Legal cases in these states have established clear boundaries for permissible arrangements between physicians and non-physician entities[1].

Southeast States: States such as Georgia and Tennessee exhibit varying degrees of CPOM law enforcement. These states focus on ensuring physician control over clinical decisions.

Midwest States: States like Illinois, Michigan, and Ohio adhere to CPOM regulations that mandate physician ownership and control within medical corporations[2].


CPC Model Structures and Required Agreements

Different CPC model structures necessitate specific agreements to ensure compliance:


Traditional CPC Structure: Comprises a Professional Corporation (PC) owned by physicians and a Management Services Organization (MSO) that provides non-clinical services.

Key Agreements:

Management Services Agreement (MSA): Details the services provided by the MSO, including compensation, term, termination rights, and business arrangements. Key terms encompass the scope of services, payment terms that ensure fair market value, and compliance clauses.

Operating Agreement: Governs the operation of the PC, outlining roles, responsibilities, and rights of physician-owners, as well as decision-making processes.

Model Application: This model is ideal when physicians wish to maintain full clinical control while outsourcing administrative tasks.

Uniqueness: Distinguishes itself by the clear separation of clinical and administrative roles, ensuring full clinical autonomy for physicians.

Regulatory Risks: Includes non-compliance with fair market value compensation, the risk of perceived kickbacks, or inappropriate influence over medical decisions.


Hospital Employment Models: Where hospitals employ physicians while ensuring non-interference in clinical autonomy.

Key Agreements:

Employment Agreement: Specifies the terms of employment, covering duties, compensation, and conditions for maintaining clinical autonomy.

Professional Services Agreement: Outlines the scope and compensation for non-clinical services managed by a separate entity.

Model Application: Suitable in states where hospitals can employ physicians directly, particularly within larger healthcare systems.

Uniqueness: This model integrates physician services within the broader healthcare offering of a hospital, ensuring centralized management.

Regulatory Risks: Involves potential conflicts with CPOM laws and risks related to hospital control over physician practices.


Joint Ventures: Entails partnerships between PCs and non-physician entities.

Key Agreements:

Joint Venture Agreement: Establishes the terms of the partnership, detailing contributions, profit-sharing, governance, and operation.

Compliance Agreement: Ensures that the joint venture adheres to CPOM laws and other healthcare regulations.

Model Application: Effective for collaborative projects or expansions that benefit from shared resources and risks.

Uniqueness: Combines resources and expertise from both physician and non-physician entities for mutual advantage.

Regulatory Risks: Encompasses complex compliance requirements, the risk of violating CPOM laws, and potential conflicts of interest.


Compliance and Negotiation in Agreement Drafting

Drafting these agreements necessitates carefully considering CPOM laws and other healthcare regulations. Negotiation points include:

Scope of Services: Defining the scope clearly to avoid overreach into clinical decision-making.

Compensation Terms: Ensuring alignment with fair market value and preventing incentives for referrals.

Term and Termination: Establishing clear terms for the duration and termination conditions.


Regulatory and Compliance Risks

Each model carries distinct regulatory and compliance risks:

Traditional CPC Structure: Risks include non-compliance with fair market value compensation, perceived kickbacks, or undue influence over medical decisions.

Hospital Employment Models: Conflicts with CPOM laws and potential risks of hospital control over physician practices can arise.

Joint Ventures: Face complex compliance requirements and risks of violating CPOM laws, alongside potential conflicts of interest.


Purpose and Benefits of Each CPC Model

Traditional CPC Model:

Purpose and Benefits: Allows for focused clinical practice by physicians while leveraging administrative and operational support from the MSO.

Ideal Use Cases: Best suited for independent practices or groups that wish to retain clinical independence while benefiting from professional management services.

Key Terms in Agreements: In MSAs, terms such as service descriptions, payment models, and performance metrics are crucial. Operating Agreements should clarify ownership structure, governance, and profit distribution.


Hospital Employment Model:

Purpose and Benefits: Facilitates the integration of physician services within a hospital’s infrastructure, providing stability and resources.

Ideal Use Cases: Appropriate for scenarios where hospitals aim to expand their service offerings or for physicians seeking the security of employment.

Key Terms in Agreements: Employment Agreements must detail roles, responsibilities, performance expectations, and compensation structures. Professional Services Agreements should outline the scope of services provided by external entities and their remuneration.


Joint Ventures:

Purpose and Benefits: Encourages collaboration, resource sharing, and risk distribution between physicians and non-physician entities.

Ideal Use Cases: Suitable for innovative healthcare projects, new service line expansions, or regional healthcare collaborations.

Key Terms in Agreements: Joint Venture Agreements must address capital contributions, governance structures, profit and loss sharing, and exit strategies. Compliance Agreements should ensure adherence to healthcare laws and regulations.



The Captive Professional Corporation model in healthcare requires a thorough understanding of CPOM laws and meticulous drafting of various agreements to ensure compliance. The diverse structuring options, from traditional PCs with MSO support to joint ventures and hospital employment models, demonstrate the model’s adaptability across the East Coast, Southeast, and Midwest regions. As the healthcare sector continues to evolve, navigating the complex legal landscape becomes increasingly crucial for healthcare organizations, ensuring that patient care remains the central focus in this dynamic environment.