Michigan’s corporate practice of medicine doctrine bars ordinary business corporations from practicing medicine or employing physicians to treat patients. A private medical practice in the state can be owned only by licensed professionals, and only through two specific entity types: a professional corporation or a professional limited liability company. A narrow exception lets nonprofit hospitals employ physicians directly. Everything else — investor-owned practices, for-profit corporate employment of doctors, management arrangements that quietly hand clinical control to unlicensed owners — sits on the wrong side of the line, and the line is enforced with felony penalties.
The Two Legal Structures for a Private Practice
Michigan law recognizes exactly two entity forms through which physicians can run a private practice.
Professional Corporation
Any corporation formed to provide services in a learned profession must organize under the professional corporation chapter of the Michigan Business Corporation Act. A standard business corporation cannot simply add medical services to its offerings.1Michigan Legislature. Michigan Compiled Laws 450.1281 – Incorporation as Professional Corporation A PC is taxed as a C corporation by default; shareholders can elect S corporation treatment by filing IRS Form 2553.
Professional Limited Liability Company
The Michigan Limited Liability Company Act offers a parallel option. A PLLC providing health services covered by the Public Health Code must have all members and managers licensed to render the same professional service.2Michigan Legislature. Michigan Compiled Laws 450.4904 – Rendering Professional Services; License or Legal Authorization A PLLC carries pass-through tax treatment by default.
No other Michigan entity form allows a for-profit private practice to operate lawfully.
Who Can Own a Michigan Medical Practice
Ownership is where the doctrine has real bite. Every shareholder of a medical PC and every member of a medical PLLC must hold a valid license to provide the professional services the entity offers.3Michigan Legislature. Michigan Compiled Laws 450.1284 – Professional Corporation Shareholder Requirements An unlicensed investor, a venture capital fund, or a standard business corporation cannot hold equity in a Michigan medical practice.
Some multidisciplinary flexibility exists. Physicians licensed in medicine, osteopathic medicine, podiatric medicine, or chiropractic may co-own a PC or PLLC.3Michigan Legislature. Michigan Compiled Laws 450.1284 – Professional Corporation Shareholder Requirements Since July 2010, physician assistants may also hold ownership alongside physicians, but a PA cannot form a professional entity alone. At least one physician must be a co-owner.4Michigan Legislature. Michigan Compiled Laws 333.17048 – Organization as Professional Service Corporation or Professional Limited Liability Company
The Nonprofit Hospital Exception
Michigan Attorney General Opinion No. 6770, issued in 1993, concluded that nonprofit hospitals and other entities organized under the Nonprofit Corporation Act may provide medical services through employed physicians.5vLex United States. AGO 6770 The reasoning turned on purpose. The doctrine was built to keep laypeople from commercializing medicine, and that risk is at its highest when a physician answers to profit-seeking shareholders. A nonprofit organized to promote health does not raise the same concern.
The exception is narrow. It reaches entities organized under the Nonprofit Corporation Act, not for-profit hospital chains or investor-owned healthcare companies. A for-profit corporation still cannot employ physicians to practice medicine in Michigan, regardless of how the deal is papered.
Management Services Organizations
Non-physicians can participate in the business side of a practice through a Management Services Organization. An MSO contracts with a physician-owned PC or PLLC to handle billing, marketing, human resources, IT, payroll, and equipment leasing. The physicians run the clinical side. The MSO runs the office.
The line between permissible administrative support and impermissible control is where most MSO arrangements get into trouble. An MSO cannot dictate clinical protocols, influence treatment decisions, control medical records, or make hiring and firing decisions based on clinical performance. When it crosses those boundaries, the structure starts to look like a corporation practicing medicine through a physician front, which is what the doctrine prohibits.
Fair Market Value and Fee-Splitting
Fees paid by the practice to the MSO must reflect fair market value for services actually delivered. Overpaying an MSO can be treated as disguised profit-sharing with an unlicensed entity, which implicates Michigan’s prohibition on fee-splitting. The state’s criminal code makes it illegal for a physician to divide fees with or pay commissions to another physician or surgeon for referrals.6Michigan Legislature. Michigan Compiled Laws 750.428 – Fee Splitting The broader principle against routing practice revenue to unlicensed parties through inflated management fees remains central to CPOM analysis.
Defensible arrangements document compensation methodology in advance, price services to what a willing buyer and seller would agree to at arm’s length, and keep records showing the services were actually delivered. Independent valuations help if the arrangement is later scrutinized.
The Friendly Physician Model
Private equity investment in healthcare has produced the “friendly physician” or “friendly PC” model. A private equity firm creates an MSO that services a physician-owned PC. A cooperating physician holds the PC’s stock under a restricted stock agreement that gives the MSO control over dividends, liquidation, mergers, and stock transfers. The physician owns the practice on paper. The economic value flows to the MSO.
The Michigan State Medical Society flagged these arrangements in a 2023 letter to Attorney General Dana Nessel, arguing that they undermine the CPOM doctrine by handing de facto control of medical practices to unlicensed investors. Whether a specific structure survives scrutiny depends on how much clinical independence the physician actually retains. When the MSO controls compensation, staffing, treatment protocols, and the physician’s ability to leave, the corporate shield may not hold, whatever the paperwork says.
Federal Rules That Apply on Top
If patients are covered by Medicare, Medicaid, or another federal healthcare program, two federal statutes apply alongside Michigan’s rules.
The federal Anti-Kickback Statute makes it a felony to knowingly offer or receive anything of value in exchange for referrals of federally covered patients. Penalties reach $100,000 in fines and 10 years in prison per violation.7Office of the Law Revision Counsel. 42 USC 1320a-7b – Criminal Penalties for Acts Involving Federal Health Care Programs The personal services and management contracts safe harbor can protect MSO agreements that are in writing, run at least one year, specify the services, and use a compensation methodology set in advance that reflects fair market value and does not vary with the volume or value of referrals.
The Stark Law bars a physician from referring Medicare patients for designated health services to an entity in which the physician or an immediate family member has a financial relationship, unless a specific exception applies.8Centers for Medicare and Medicaid Services. Physician Self-Referral Designated health services include clinical labs, physical therapy, and imaging, among others. Practices with MSO involvement need to confirm that money flows do not create a prohibited financial relationship.
Penalties and Enforcement
Practicing a health profession without a license, or under a suspended, revoked, or fraudulently obtained license, is a felony under the Public Health Code. It carries up to four years in prison, a fine of up to $5,000, or both.9Michigan Legislature. Michigan Compiled Laws 333.16294 – Unauthorized Practice of Health Profession; Violation; Penalty A corporation that effectively practices medicine through employed physicians outside the nonprofit exception exposes both the entity and its principals to these penalties. A professional corporation that fails to keep all shareholders properly licensed also faces potential dissolution.
The Michigan Department of Licensing and Regulatory Affairs oversees professional licensing and investigates complaints about unauthorized corporate practice through its Bureau of Professional Licensing. The Michigan Attorney General has independent authority to investigate and prosecute unauthorized practice.
Enforcement has picked up. The U.S. Attorney’s office in Detroit has used Michigan’s CPOM doctrine as a basis for prosecuting fraudulent medical clinics owned by non-physicians. The Michigan Radiological Society sued Oakland MRI in 2018 over an imaging center owned by non-physicians. At the federal level, the FTC has begun challenging private equity structures that function as corporations practicing medicine.
The Corporate Form Does Not Shield Clinical Negligence
Practicing through a PC does not protect a physician from malpractice liability. The Business Corporation Act says so directly: forming a professional corporation does not change the law governing the professional relationship between a provider and a patient.10Michigan Legislature. Michigan Compiled Laws 450.1285 – Professional Corporation Liability
Every officer, agent, and employee of a PC remains personally and fully liable for negligent or wrongful acts committed while providing professional services, and for the conduct of anyone under their direct supervision. The corporation itself is liable up to the full value of its property for acts committed by its professionals on the entity’s behalf.10Michigan Legislature. Michigan Compiled Laws 450.1285 – Professional Corporation Liability The corporate form shields physicians from each other’s business debts and contractual liabilities. It does not shield them from their own clinical negligence.