MSO-PC Structures in the Crosshairs: California AG Takes Aim at Continuity Agreements

At a Glance

• A pending California appellate case — Art Center Holdings, Inc. v. WCE CA Art, LLC — is testing the limits of California’s corporate practice of medicine (CPOM) doctrine as applied to MSO-PC continuity agreements.
• The California Attorney General’s Office filed an amicus brief arguing that certain continuity agreements may violate California’s CPOM doctrine by giving MSOs indirect control over physician ownership.
• The California Medical Association filed a competing brief urging a facts-and-circumstances approach, cautioning against categorical prohibition.
• Two recent acts (SB 351 and AB 1415) signal a clear legislative trend toward tightening nonphysician control over California health care operations.
• Telehealth platforms using MSO-PC arrangements should review their continuity, management, and related agreements now considering the heightened scrutiny.

Background: What Is at Stake in Art Center Holdings

The pending California appellate case, Art Center Holdings, Inc. v. WCE CA Art, LLC¹, is drawing significant attention for its implications on management service organization-professional corporation (MSO-PC) relationships statewide. At issue is whether California’s corporate practice of medicine (CPOM) doctrine prohibits continuity agreements — sometimes called succession or stock transfer restriction agreements — that give a management service organization (MSO) structural leverage over ownership transitions within a physician-owned professional corporation (PC)².

Two recent amicus briefs — from the California Attorney General (AG) and the California Medical Association (CMA) — have staked out competing positions, and the appellate outcome will shape how these arrangements are documented and governed across California’s health care sector.

What the Trial Court Held

The trial court ruled that a private equity-backed MSO engaged in the unlicensed practice of medicine by controlling a physician-owned PC through a continuity agreement that granted the MSO broad discretion to transfer control of the practice.

This ruling disrupts the status quo. Continuity agreements are a foundational tool for MSO-PC platforms — used to protect investor interests, ensure operational continuity, and manage physician succession. The ruling puts common succession structures in a difficult compliance position and raises legal risk for similar arrangements across California’s health care sector. This could have national implications because many organizations tailor their structural agreements to comply with California and New Jersey law for simplicity’s sake, to avoid having divergent structures in place to operate a professional corporation in 50 states.

Many investor-affiliated health care platforms — including private equity and telehealth businesses — rely on MSO-PC structures and management agreements to comply with CPOM while preserving operational and financial continuity.

The AG’s Position: Strict Interpretation of the CPOM Doctrine

The AG’s amicus brief urges the California Courts of Appeal to adopt a strict interpretation of California’s CPOM doctrine as applied to MSO-PC arrangements. Under the AG’s theory, contractual mechanisms that allow an MSO to effectuate a physician ownership change is sufficient to raise CPOM concerns — regardless of whether clinical decisions are directly affected or what conditions or events the agreement is intended to address.

The brief suggests that a continuity agreement that gives an MSO meaningful influence over physician succession or practice governance could be viewed as conferring impermissible indirect control over the PC.

If adopted by the appellate court, the AG’s position could substantially limit the use of continuity agreements in California MSO-PC structures.

Legislative Context: SB 351 and AB 1415

The AG’s brief does not exist in a vacuum. It tracks a broader legislative trend in California toward tightening nonphysician involvement in health care governance:

• Senate Bill 351 (effective January 1, 2026): Codifies California’s CPOM prohibition and specifically targets investor groups — including private equity and hedge funds — from exercising control over defined clinical and operational functions. Covered functions include the content of patient medical records, physician hiring, and controlling PC’s contractual relationships.
• Assembly Bill 1415 (effective January 1, 2026): Expands regulatory oversight by requiring private equity groups, hedge funds, MSOs, and certain newly formed entities established for health care deals to provide at least 90 days’ advance notice to the Office of Health Care Affordability before closing certain material change transactions involving health care entities.

Together, these actions signal that the California legislature is not waiting for the courts to act.

The CMA’s Counter-position: Facts and Circumstances Matter

The California Medical Association (CMA) filed its own amicus brief on April 15, 2026³, offering an important counterweight to the AG’s expansive stance.

Rather than endorsing a categorical prohibition, the CMA advocates for evaluating continuity agreements on their specific facts — asking whether an agreement in practice vests clinical control in a nonphysician entity, rather than condemning any agreement that grants an MSO structural leverage over ownership transitions. The CMA also acknowledges the role that outside capital plays in modernizing and scaling health care delivery, and cautions against treating every continuity agreement as a per se CPOM violation.

The CMA’s position provides grounds for a more nuanced ruling, but it remains uncertain which framework the court will adopt.

Telehealth-Specific Implications

Telehealth platforms operating in California should pay particular attention to these developments. Most California telehealth businesses rely on MSO-PC arrangements: the MSO provides technology infrastructure, billing, and administrative support to a physician-owned PC that employs or contracts with licensed providers. Contracts between the PC and MSO should be reviewed to ensure that the MSO may make recommendations, but the PC has final approval authority with respect to certain functions. In addition, continuity agreements are a standard tool in these structures to protect platform continuity and investor interests.

The Risk Is Specific to California

A continuity agreement that functions without issue in other states may face heightened scrutiny under the AG’s theory. And telehealth platforms — often organized to scale rapidly across states — may not have built their California-specific governance with the AG’s structural standard in mind.

Practical Guidance for Companies Operating in California

For MSOs, investors, and telehealth platforms operating in California:

1. Don’t assume your existing agreements are automatically unlawful. Art Center Holdings and the AG’s brief raise compliance questions — they do not render MSO-PC arrangements per se illegal. The CMA’s brief preserves room for a more tailored result.
2. The highest-risk provisions are those granting unchecked authority. Regulatory scrutiny is focused on agreements that give nonphysician entities unrestricted power to replace physician-owners or override clinical decision-making. Agreements that preserve meaningful physician independence are better positioned.
3. Audit your agreement portfolio now. Investors, MSOs, and telehealth platforms should review existing and future management, succession, and related agreements to confirm that business support does not cross into clinical control — and that physician independence is genuinely maintained, not merely stated.
4. Document the substance, not just the form. Structural compliance is necessary but not sufficient. Operational practices, governance protocols, and decision-making records matter too.
5. Plan for the appellate timeline. A ruling that adopts the AG’s categorical approach would create immediate pressure to renegotiate or restructure existing agreements. Building contingency plans now avoids a reactive scramble later.

Looking Ahead

We are actively monitoring the Art Center Holdings appeal and related legislative developments. A ruling is expected in the coming months.

For More Information

For further information, you may contact the authors.