5 CPOM Pitfalls Healthcare Startups Must Avoid

Navigating the complexities of CPOM (Corporate Practice of Medicine) compliance is critical for healthcare startups aiming to expand across multiple states. Missteps in structuring PC (Professional Corporation) arrangements or managing physician oversight can lead to costly legal issues, regulatory penalties, or business disruptions. In this post, we highlight five common CPOM pitfalls and offer practical strategies to mitigate these risks.

Pitfall 1: Misclassifying PC Physician Owners as Contractors

Some healthcare startups mistakenly classify their PC Physician Owners as independent contractors. This misstep jeopardizes CPOM compliance because a physician owner must be a legitimate business owner with the authority and responsibility for clinical operations. By treating a physician like a contractor, startups risk violating state-specific CPOM laws, which can lead to enforcement actions or fines.

Why It Happens: Early-stage healthcare companies often adopt contractor-friendly models to minimize overhead and streamline operations. While this approach can be beneficial in purely administrative scenarios, it’s inappropriate for a legally recognized PC owner.

Potential Consequences: If a physician owner is deemed not to have genuine involvement in overseeing clinical services, state regulators may deem the entire arrangement non-compliant. Beyond penalties, the startup could face delays in expansion efforts or damage to its reputation.

Solution: Startups should establish clear ownership structures in alignment with state-specific CPOM regulations. PC Physicians must have genuine ownership roles and defined responsibilities that reflect their role as clinical quality oversight leaders. This includes having a direct say in clinical policies, protocols, staffing decisions, and other practice operations.

Pitfall 2: Failing to Maintain Proper Oversight of Clinical Services

Even when a physician is correctly positioned as a PC Owner, some companies don’t provide the necessary oversight for clinical services. Regulatory bodies expect the PC Physician Owner to actively supervise and guide clinical operations to protect patient safety and ensure that medical decisions remain physician-led.

Why It Happens: As startups grow quickly, they often prioritize scaling administrative functions and technology platforms over strengthening clinical governance. This can leave PC Owners without adequate resources or channels to fulfill their oversight duties.

Potential Consequences: Insufficient clinical oversight can lead to medical errors, patient safety incidents, and possible regulatory intervention. If a state board concludes that the PC Owner lacks meaningful authority, the organization may be seen as engaging in the unauthorized corporate practice of medicine.

Solution: Develop clear oversight policies, protocols, documentation systems, and accountability frameworks. For instance, implementing scheduled check-ins between PC Owners and medical staff can help track clinical quality metrics, address issues promptly, and reinforce physician-led decision-making. Establishing written policies and maintaining robust communication channels also help demonstrate active, ongoing oversight.

Pitfall 3: Creating Weak MSO-PC Agreements

Healthcare startups often use templated or poorly drafted Management Services Agreements (MSAs) that fail to delineate roles and responsibilities. Ambiguities in these agreements can create compliance gaps, exposing both the MSO (Management Services Organization) and the affiliated PC to regulatory risk.

Why It Happens: Limited budgets and time constraints may lead startups to rely on basic contract templates that are not tailored to unique CPOM requirements. These generic documents typically don’t provide sufficient detail for multi-state operations.

Potential Consequences: A poorly structured MSA can undermine the separation of clinical and administrative functions, a cornerstone of CPOM compliance. Regulators may interpret the arrangement as placing control of clinical decisions in the hands of non-physicians, risking penalties and potential invalidation of the entire model.

Solution: MSO-PC structuring should clearly define operational and financial separation to satisfy CPOM regulations. Spell out each party’s responsibilities—financial management, clinical oversight, and administrative duties—along with the mechanisms for decision-making and conflict resolution. Regularly review and update MSAs to reflect evolving regulations and organizational changes.

Pitfall 4: Overlooking State-Specific CPOM Nuances

CPOM laws vary significantly between states. What’s permissible in one jurisdiction may be prohibited in another. Startups that assume a “one-size-fits-all” approach risk non-compliance when expanding into new markets.

Why It Happens: In the rush to scale, companies often focus on broad business strategies without delving into the nuances of local healthcare regulations. This can be especially problematic when venture capital funding drives rapid multi-state expansion.

Potential Consequences: Ignoring these differences can result in costly legal battles, halted expansion plans, or forced restructuring of existing PC arrangements. In extreme cases, operations in certain states may be entirely shut down until the company meets compliance standards.

Solution: Conduct in-depth research into each state’s CPOM regulations or work with legal advisors experienced in multi-state healthcare compliance. A scalable framework that accounts for state-specific nuances—such as corporate ownership limits, required oversight structures, and relevant licensing—is essential for mitigating risk and ensuring smooth expansion.

Pitfall 5: Choosing PC Owners Without Clinical Quality Oversight Experience

Inexperienced PC Owners may lack the background to effectively oversee clinical quality. This can result in subpar patient care standards, reputational damage, or regulatory intervention.

Why It Happens: Healthcare startups sometimes focus more on administrative or entrepreneurial skill sets, assuming any licensed physician can manage clinical governance. This overlooks the specialized expertise required for effective oversight.

Potential Consequences: Without strong clinical leadership, quality metrics may suffer, leading to poor patient outcomes and potential state board scrutiny. Over time, reputational damage can affect investor confidence and limit partnerships.

Solution: Selecting PC Owners with proven experience in clinical leadership, quality oversight, or healthcare administration ensures they can confidently manage governance responsibilities. Investing in leadership development and training for PC Owners—especially those new to multi-state expansion—further strengthens their ability to guide clinical teams.

Conclusion

Avoiding these CPOM pitfalls is crucial for healthcare startups seeking scalable, compliant growth. By proactively addressing these risks, organizations can strengthen their compliance strategies, improve clinical oversight, and ensure smooth multi-state expansion. Taking the time to create robust structures and agreements now can save considerable costs—and headaches—in the long run.

If you are a healthcare startup or know a digital health founder who needs guidance, reach out to schedule a complementary CPOM Strategy Call. We’ll discuss your compliance strategy and explore ways to align operational growth with evolving state regulations.

📞 Need CPOM Compliance Guidance?

Disclaimer: The information in this article is intended for general informational purposes related to CPOM compliance. While MedPath offers guidance and insights to support healthcare startups, this content should not be interpreted as legal advice. For legal questions specific to your circumstances, consult a licensed attorney.