What is a friendly PC?

A professional corporation or similar professional entity owned by a licensed physician, which employs the clinicians and controls clinical decisions, while a separate management services organization owned by non-physicians provides administrative services under a management services agreement.

Is the friendly PC model legal?

It is widely used, but whether a particular version is permitted depends on each state's corporate practice of medicine, fee-splitting and, increasingly, MSO-specific laws such as Oregon SB 951 and California SB 351. Counsel must review the arrangement state by state.

Can an MSO charge a percentage of revenue?

Sometimes, but percentage fees draw scrutiny under state fee-splitting rules and, where federal health care program business is involved, the federal anti-kickback statute. Counsel should review the fee method and its fair market value support.

What is a stock transfer restriction agreement?

An agreement limiting the physician owner's ability to transfer the practice's shares and letting the MSO designate a successor owner in defined events. California's Attorney General argued in 2026 that letting a corporation replace the physician owner means the corporation effectively owns the practice.

The Friendly PC and MSO Model, Explained for Operators

In the friendly PC model, a professional corporation (PC) or professional entity owned by a licensed physician employs the clinicians and holds the patient relationships, and a management services organization (MSO), owned by founders and investors, provides everything non-clinical under a management services agreement. The model exists because many states prohibit a company not owned by physicians from practicing medicine or employing physicians. It is common, widely used, and increasingly regulated, and whether a particular version works in a particular state is a question for your counsel, not a template.

What follows explains the moving parts so operators can have a better conversation with their lawyers. None of it is legal advice.

Why do telehealth companies use two entities?

Because of the corporate practice of medicine doctrine. California's version is typical of the strong form: Business and Professions Code § 2400 says that corporations and other artificial legal entities "shall have no professional rights, privileges, or powers," and § 2052 makes unlicensed practice an offense. The Medical Board of California has said that decisions such as ownership of patient records, the content of those records, and coding and billing decisions should be made by a licensed physician. Other states are stricter, looser, or silent. See corporate practice of medicine and telehealth.

Investors cannot own a medical practice in those states, so they own the MSO, and the MSO contracts with a practice owned by a physician.

What does each entity do?

The professional entity (PC, PA or PLLC, depending on the state):

is owned by one or more physicians licensed in the state of formation;
employs or contracts with the clinicians;
holds the provider numbers and payer contracts, and bills for professional services;
owns the medical records;
controls clinical decisions, protocols, and the hiring and firing of clinicians.

The MSO:

owns the brand, the technology platform, and the marketing;
provides administrative services: billing services, scheduling, customer support, HR administration, office space, vendor management;
employs non-clinical staff;
is paid a management fee by the professional entity.

In multi-state telehealth, the professional entity often needs to be registered or qualified in each state where it treats patients, and in some states a separate entity owned by a physician licensed there is used. That is a counsel question too.

Which agreements hold the model together?

Management services agreement. Lists the services, the fee, the term, and termination rights. It should reserve clinical decisions to the professional entity in plain terms.
Stock transfer restriction or succession agreement. Limits the physician owner's ability to sell or pledge the shares and lets the MSO designate a successor owner in defined events. This is the agreement regulators now look at hardest.
Loan or working capital agreement. The MSO often funds the professional entity's start-up costs.
Physician owner and medical director agreements. The owner's duties, pay, and the clinical authority they keep.

How is the management fee set, and why does it matter?

Common models are a fixed fee, cost plus a markup, or a percentage of collections. The choice is not only financial:

Fee-splitting. Many states prohibit physicians from splitting professional fees with non-physicians, especially for referrals. Florida, for example, lists split-fee arrangements for referred patients as grounds for discipline in Fla. Stat. § 458.331(1)(i). Some states read percentage-of-revenue management fees as fee-splitting in some circumstances.
Anti-kickback. Where federal health care program business is involved, payments that vary with referrals or with marketing that generates federal business raise questions under 42 U.S.C. 1320a-7b(b).
Fair market value. Whatever the method, counsel will want support that the fee reflects the value of the services.

Where have states started to restrict the model?

Oregon. SB 951, signed June 9, 2025 and later amended by HB 3410, bars an MSO and its affiliates from owning or controlling a majority of a professional medical entity it manages, limits dual roles (for example, MSO owners or employees serving as directors or officers of the managed practice), and bars MSOs from controlling listed decisions such as clinician hiring, compensation, clinical policies, coding and pricing, according to summaries by McGuireWoods, Epstein Becker Green and others. Law-firm summaries describe the restrictions as applying to new arrangements from January 1, 2026 and to existing ones from January 1, 2029, and Venable's summary describes an exemption for telemedicine practices without a physical location where patients receive clinical services in Oregon. See Oregon SB 951 and telehealth MSOs.

California. SB 351, signed October 6, 2025 and effective January 1, 2026, bars private equity groups and hedge funds involved with physician and dental practices from interfering with professional judgment, including decisions about medical records, payer contracting, coding and billing, and limits noncompete and nondisparagement clauses in their agreements, according to summaries by Foley & Lardner and Sheppard Mullin. On April 1, 2026, California's Attorney General filed an amicus brief in Art Center Holdings v. WCE CA Art in the Second District Court of Appeal arguing that when agreements let an unlicensed corporation replace a practice's physician owner, "the corporation effectively owns the practice."

Expect more. Several legislatures have considered similar bills, and transaction-notice laws in Oregon, California and Washington already give regulators a look at many deals.

How do multi-state companies organize the professional side?

There are two broad patterns, and many companies use a mix:

One professional entity, registered in many states. A single PC or PLLC, owned by a physician licensed in the formation state, qualifies to do business in other states. Simpler to run, but some states require that a professional entity practicing there be owned by physicians licensed in that state, which this pattern may not meet.
State-specific professional entities. A separate entity in each state that requires one, each owned by a physician licensed there and each with its own management agreement. More paperwork, more owners to recruit and keep, and more payer enrollments, but it can fit states with stricter ownership rules.

Which pattern fits which state is a legal question, and the answer drives payer enrollment, malpractice coverage and the number of physician owners you need.

Does a financing or sale change anything?

A financing round or sale is when the structure gets read closely. Investors' counsel will test every state's analysis and the succession agreement. In Oregon, a change in ownership may bring an arrangement under SB 951's new-entity rules earlier than 2029, and Oregon, California and Washington each require advance notice of certain health care transactions. See what investors ask in diligence. Fixing the structure before a raise is cheaper than fixing it as a closing condition.

What should operators bring to counsel?

A list of every state you serve or plan to serve, and the service line in each.
Your current or proposed entity chart and ownership.
Drafts of the four agreements, with the management fee method.
Who decides each of these today: clinician hiring and firing, clinical protocols, which conditions are treated, coding and billing, pricing, payer contracts, medical record content, and marketing claims.
Any physician owner who owns several practices or has another full-time role.
Planned transactions, since a change of control can trigger notice laws and, in Oregon, the new restrictions.

Common mistakes operators make

Assume a structure that works in one state works everywhere. Nobody can honestly promise that.
Let the MSO sign payer contracts or set clinical protocols in its own name.
Treat the physician owner as a figurehead. Regulators and courts look at who actually controls decisions, not only at what the documents say.
Copy another company's agreements. They were drafted for that company's states and facts.

Our Counsel-Ready Structure Packet ($950) collects the facts above for every state you serve, with each state's corporate practice and fee-splitting rules summarized, so your lawyer starts from research rather than a blank page. We do not draft legal structures or give legal advice. See pricing.