Re-Defining “Medical Practice” in PE-Backed Entities

More and more practices are private equity backed. The question this raises is: who actually controls my practice? Doctors may still be the licensed professional in charge of many decisions, many others are now co-opted by the management service organization. These complex business structures can seemingly rob you of the control you are used to. Investors may have more to say about how you run the practice than the doctors actually treating patients. However, private equity can also increase your access to resources and return a healthy profit. It’s important to understand the balances before you make a decision for your practice.

The healthcare transaction attorneys at Daniels, Porco & Lusardi, LLP are ready to help you understand PE-backed healthcare and how it might affect your unique situation. Speak with our dedicated lawyers about how we can help in your individual situation.

Learning More About the Rise of PE-Backed Medical Service Organizations

Private equity firms often organize their healthcare investments using MSOs, which offer administrative services to physician groups. These MSOs may handle:

Staffing
Payroll
Marketing
Billing
Leases
Equipment management
IT infrastructure
Compliance

Under New York Law, MSOs are prohibited from controlling the management of medical practices. New York strictly enforces the corporate practice of medicine doctrine, allowing only licensed physicians to own or control medical practices. Non-physicians cannot employ doctors or share in medical fees (Education Law §§ 6509-a, 6522).

This was recently addressed again in two separate cases.

The Aspen Dental Settlement

The NY Attorney General found Aspen Dental unlawfully controlled practices it claimed were independently owned. Violations included consolidated bank accounts, profit-based compensation, and influence over clinical staff. The settlement barred Aspen from directing patient care, required physician control of revenues, and limited management fees to fixed, fair-value amounts.

Carothers v. Progressive

In Carothers v. Progressive, the Court of Appeals reaffirmed that non-physicians cannot control medical practices. Insurers may deny payment where a practice violates incorporation or licensing laws. In Carothers, excessive MSO control over finances, leases, and operations rendered the professional corporation improperly formed.

Legal Challenges to Corporate Control

States such as California, Oregon, and New York have improved CPOM laws to stop non-physician groups from interfering with clinical judgment. Recent legislation includes:

California’s PE Law (2025): This law prohibits private equity firms and hedge funds from affecting decisions about diagnostics, treatment, or referrals.
Oregon SB 951: Oregon’s law bars MSOs and their affiliates from owning or controlling physician practices or making hiring/firing decisions.
New York’s Disclosure Mandates: New York’s laws require transparency in ownership structures and financial relationships between MSOs and medical groups.

These laws aim to keep doctors independent and safeguard patients from care models focused on profit.

Permissible MSO Arrangements

Non-physician MSOs may provide administrative support—billing, HR, compliance—but cannot influence treatment decisions, control accounts, or hire clinical staff. Fees must reflect fair market value, not a percentage of revenue. Physicians must retain full authority over ownership, finances, and all clinical matters.

Redefining “Medical Practice” in this New Era

Traditionally, “medical practice” referred to the licensed activities of diagnosing, treating, and managing patient care. But in PE-backed models, the boundaries have shifted:

Clinical decisions may be shaped by financial targets, such as patient volume quotas or cost-cutting protocols.
Physician employment terms may be dictated by MSO contracts, limiting mobility and autonomy.
Practice branding and marketing may be controlled by investors, influencing patient perception and provider reputation.

Regulatory Response and Future Outlook

States are responding with:

Enhanced oversight of healthcare transactions
Mandatory disclosures of ownership and control
Stricter enforcement of CPOM laws

Legal experts predict that more states will follow suit, especially as PE-backed entities expand into primary care, behavioral health, and specialty services.

What Healthcare Providers Should Know

If you’re part of or considering joining a PE-backed entity:

Review Contracts Carefully: Understand who controls key decisions and how your clinical autonomy is protected.
Monitor Compliance: Ensure that MSO arrangements do not violate CPOM laws or ethical standards.
Advocate for Transparency: Push for clear disclosures of ownership, financial interests, and decision-making authority.

Work to Understand What PE-Backed Entities Mean for Your Practice

The definition of “medical practice” is changing because of private equity’s increasing role in healthcare. While MSOs provide operational efficiency, they also raise important questions about control, ethics, and legality. As regulators increase oversight, healthcare providers must remain informed and alert to protect their independence and maintain patient-centered care.

Consult with the dedicated healthcare transaction attorneys at Daniels, Porco & Lusardi, LLP for help with your case. Contact us today for a consultation.