Indiana’s corporate practice of medicine doctrine prohibits non-physicians and general business corporations from owning medical practices or controlling clinical decisions. The rule flows from a simple premise in the Indiana Medical Practice Act: only a licensed individual can practice medicine, a corporation cannot hold a medical license, and so a corporation cannot practice medicine or direct those who do. Hospitals, nonprofits, and physician-owned professional corporations are the legal vehicles; management services organizations can supply administrative support to physician-owned practices, but they cannot cross into clinical control. When an arrangement blurs that line, the physicians involved face felony exposure, board fines, and license revocation.
Why Indiana Bans Corporate Ownership of Medical Practices
Indiana Code 25-22.5-8-1 makes it unlawful for any person to practice medicine or osteopathic medicine without a license or permit.1Indiana General Assembly. Indiana Code Title 25 Section 25-22.5-8-1 – Unlawful Practice Because a business corporation cannot obtain a medical license, that prohibition sweeps in corporate entities that try to practice through licensed employees.
The definition of medical practice reaches further than diagnosing or treating patients in an exam room. It covers maintaining a place for examining or treating patients and providing diagnostic or treatment services to Indiana residents under a regular agreement. That breadth is what turns the licensing statute into a structural constraint on ownership. A non-physician investor, private equity firm, or general business corporation cannot simply hire doctors, run the practice, and bill patients. The billing entity and the employer of the physicians has to be structured so that licensed physicians hold clinical decision-making authority.
Who Can Own a Practice: Professional Corporations
The standard vehicle for physician-owned practices in Indiana is the professional corporation under the Indiana Professional Corporation Act, Indiana Code Title 23, Article 1.5. Shares in a professional corporation may only be issued to individuals authorized to render the professional services described in the corporation’s articles of incorporation, to partnerships composed entirely of such authorized individuals, to other qualifying professional corporations, or to trustees of qualified trusts.2Indiana General Assembly. Indiana Code Title 23 Section 23-1.5-3-1 – Issuance of Shares For a medical PC, the shareholders must be licensed physicians or entities composed of licensed physicians.
The point of the ownership rule is to keep non-physicians from acquiring stakes that translate into clinical influence. A hospital administrator, a venture fund, or a retail chain cannot buy shares in a physician PC and start shaping how patients get treated. The physician owners carry the clinical and legal responsibility.
Indiana also prohibits fee-splitting arrangements that are not proportional to the professional services rendered. That rule blocks a non-physician entity from pulling revenue out of a medical practice through inflated management fees or profit-sharing that effectively transfers clinical income to non-clinical owners.
Hospital and Nonprofit Exemptions
Indiana carves out two significant exceptions. Healthcare entities are expressly excluded from the licensing prohibition, so hospitals and healthcare facilities can directly employ physicians.3Indiana General Assembly. Indiana Code 25-22.5-1-2 – Exclusions Modern hospital care depends on coordinated physician employment for emergency, surgical, and inpatient services, and the exemption reflects that reality.
Nonprofit corporations get their own path. Under Indiana Code 23-17-4-1, a nonprofit incorporated under the state’s nonprofit statute may engage in any lawful activity, and Indiana law allows nonprofits to employ physicians provided the organization does not interfere with the professional judgment of those physicians.4Indiana General Assembly. Indiana Code 23-17-4-1 – Authorized Activities Community health centers and charitable clinics use this exemption to reach patients where private practice is not economically viable.
Both exemptions carry the same limit: the employing entity cannot interfere with a physician’s independent clinical judgment. A hospital can employ a physician and set schedules, but it cannot dictate which treatments to prescribe or push physicians toward unnecessary procedures for revenue reasons. Employment that crosses into clinical control loses the protection of the exemption.
Management Services Organizations
MSOs are the most common route for outside capital to participate in Indiana healthcare without running into the corporate practice bar. In a standard arrangement, a physician-owned PC handles all clinical operations and employs the doctors, and a separate management company, which can be owned by non-physicians, provides administrative and operational support under contract.
What an MSO can legally provide is limited to non-clinical services: billing and revenue cycle management, human resources and payroll, IT, office management, vendor negotiations, marketing, and regulatory compliance support. A well-drafted MSA states plainly that the MSO plays no role in patient care and exercises no control over clinical decisions, clinical staffing, or treatment protocols.
MSO arrangements get into trouble at the boundary between administrative convenience and clinical control. An MSO that dictates how many patients a physician must see per hour, controls which specialists the practice refers to, or sets a clinical budget that forces physicians to cut corners is practicing medicine indirectly. Enforcement actions elsewhere have targeted arrangements where the MSO controlled staffing decisions, scheduling, and billing while restricting physician autonomy through non-compete and non-disparagement clauses.
The “friendly PC” model is especially risky. There, an outside investor installs a hand-picked physician as the nominal owner of the PC while the MSO runs nearly everything. If the physician-owner has no real authority and the MSO sets the practice’s direction, regulators and courts can look past the paper structure. Employment agreements between the PC and its physicians should guarantee broad clinical autonomy, and the MSA should limit the MSO to business operations.
Federal Rules Every Indiana Structure Must Also Clear
Indiana’s corporate practice rules sit alongside federal self-referral and anti-kickback laws. A structure that satisfies state law can still fail federal scrutiny, and vice versa.
Stark Law
The Stark Law prohibits a physician from referring Medicare or Medicaid patients for designated health services to an entity with which the physician has a financial relationship, unless the arrangement fits a statutory exception.5Office of the Law Revision Counsel. 42 USC 1395nn – Limitation on Certain Physician Referrals The bona fide employment exception requires compensation consistent with fair market value for the services actually performed, pay that is not calculated based on the volume or value of the physician’s referrals, and an arrangement that would be commercially reasonable even if no referrals were made.
A PC, hospital, or nonprofit employing physicians and billing Medicare needs its compensation structure to satisfy those requirements. A bonus tied to referrals into the employer’s imaging center or lab violates the Stark Law even if it clears Indiana’s CPOM rules. Productivity bonuses based on services the physician personally performs are permitted, so compensation tied to the doctor’s own patient volume is workable.
Anti-Kickback Statute
The federal Anti-Kickback Statute separately prohibits offering or receiving anything of value in exchange for referrals of patients covered by federal healthcare programs. The safe harbor for personal services and management contracts requires a written agreement, specification of the services, a term of at least one year, and compensation set at fair market value using a methodology established in advance that does not vary with the volume or value of referrals.6eCFR. 42 CFR 1001.952 – Exceptions A separate safe harbor covers bona fide employees.
For MSO deals, the AKS adds scrutiny to management fees. Compensation structured as a percentage of practice revenue rather than a flat fee for defined services can be treated as disguised kickbacks, especially if the MSO is involved in steering referrals. Fees should reflect the fair market value of the administrative services actually delivered and should not rise and fall with patient volume.
Penalties for Violations
Indiana treats unlawful medical practice as a serious criminal offense. A person who knowingly or intentionally practices medicine or osteopathic medicine without a license commits a Level 5 felony for offenses committed after June 30, 2014, carrying a sentencing range of one to six years with an advisory sentence of three years.7Indiana General Assembly. Indiana Code Title 25 Section 25-22.5-8-2 Violations involving temporary medical permits that do not amount to unlawful practice are misdemeanors.
The Indiana Medical Licensing Board can impose administrative sanctions on top of any criminal charge. The board’s fine schedule defaults to 50% of the statutory maximum, or $1,000 when no statutory maximum applies, with a floor of $100, and aggravating factors can push fines higher.8Cornell Law School Legal Information Institute (LII). Indiana Administrative Code 844 IAC 11-4-10 – Fines and Civil Penalties The board can also suspend or revoke a physician’s license for knowingly violating any state or federal statute regulating the profession, which reaches participation in an arrangement that violates corporate practice restrictions.9Indiana General Assembly. Indiana Code 25-1-9-4 – Standards of Professional Practice A physician who allows their name or license to be used in connection with someone rendering services beyond their competence faces discipline under the same statute.
Enforcement is not limited to the board. The Indiana Attorney General, a county prosecuting attorney, or a private citizen in the county where the violation occurs can seek a court injunction to stop an unlicensed person or entity from practicing medicine. A corporate arrangement deemed unlawful can be shut down through civil litigation, independent of any criminal case or board action.
Private Equity Pressure Points
Private equity investment in physician practices is the most active pressure point for Indiana’s corporate practice rules. PE firms typically use the MSO model, buying the non-clinical assets and entering a management agreement while a physician-owned PC keeps nominal clinical control. The paperwork can comply, but when the MSO controls the budget, sets productivity targets, and ties the physician-owner’s compensation to financial performance metrics, the distinction between administrative support and clinical control gets thin.
Structural features that draw scrutiny under Indiana law include:
- Restrictive covenants such as non-compete clauses and stock transfer restrictions that limit physician autonomy and mobility and can trap physician-owners in arrangements the MSO effectively runs.
- Revenue-based management fees that scale with practice income rather than reflecting fair market value for defined administrative services, which starts to resemble prohibited fee-splitting.
- Serial acquisitions structured so that individual deals fall below federal antitrust reporting thresholds, allowing cumulative consolidation without regulatory review.
Indiana has not enacted PE-specific legislation as of 2026, but the existing CPOM framework and fee-splitting prohibition give regulators tools to challenge arrangements that cross into clinical control. Physicians considering a PE deal should make sure the MSO agreement preserves genuine clinical autonomy and that compensation structures satisfy both state fee-splitting rules and federal Stark and Anti-Kickback requirements.
Structuring a Compliant Practice
For physicians forming or restructuring a practice in Indiana, a few requirements are non-negotiable. The entity that employs physicians and bills for clinical services must be a professional corporation or another entity owned by licensed physicians, unless it qualifies as an exempt hospital or nonprofit. When outside capital comes in through an MSO, the management agreement has to draw a clear line between business operations and clinical decisions.
Key structural elements for MSO arrangements:
- A written MSA that lists the specific administrative services the MSO provides and states that the MSO has no role in patient care, clinical staffing, or treatment protocols.
- Management fees based on the actual cost and value of administrative services rather than a percentage of clinical revenue, to satisfy both Indiana’s fee-splitting prohibition and federal AKS review.
- Physician autonomy provisions in employment agreements between the PC and its physicians, guaranteeing that the employer cannot control clinical decision-making and patient treatment.
- Real governance authority for the physician-owner of the PC over hiring and supervising clinical staff, developing clinical policies, and directing patient care, not just nominal ownership while the MSO runs operations.
Compliance is not a one-time exercise. As the practice adds service lines, brings on partners, or renegotiates MSO terms, each change needs to be checked against both Indiana’s CPOM framework and federal referral and anti-kickback rules. The physicians whose licenses are on the line carry the ultimate risk if an arrangement is later found to violate these restrictions.