November 5, 2022

Virtual Care Playbook: Setting Up your Virtual Practice

An introduction to the Friendly PC model, a common legal arrangement for healthcare institutions to ensure compliance with corporate practice of medicine laws.

So, you’re starting a virtual care company. Congratulations! Before you do anything, go find a good healthcare regulatory lawyer. As you might imagine, the healthcare regulatory landscape is a bit complex, especially if you’re planning to offer services across multiple states. In this first installment of the Virtual Care Playbook, we'll outline the basics of the “Friendly PC” model, a commonly used legal arrangement for the provision of healthcare services. This article is not legal advice, and should not be used as a replacement for an attorney. It will, however, help you understand what your lawyers are talking about.

Setting up a virtual practice is different than establishing a business because, in many states, there are statutes that forbid the “Corporate Practice of Medicine” (CPOM). These laws are meant to protect patients by ensuring that the medical decisions made by healthcare providers are not subject to influence by non-physician business owners. This means that, in many cases, individuals who are not licensed physicians cannot own or operate an entity that provides healthcare services to patients. To comply with these CPOM statutes, most virtual (and in-person) healthcare companies utilize what is commonly known as  the “Friendly PC” model. 

In the Friendly PC model, a separate legal entity (a “Professional Corporation”) is established that is entirely owned by physicians (this could be one physician or a group). All healthcare services delivered to patients are provided through this entity, and any revenue generated by those services is collected by that entity. The PC establishes a relationship with the non-physician owned entity, known as the “Managed Services Organization” or MSO, through a service agreement (MSOs are usually an LLC, or “Limited Liability Corporation”). The MSO is able to provide administrative support to the PC in the form of services like credentialing, billing support, or technology that do not directly involve providing care to patients. The relationship between the MSO and the PC is outlined through a Master Services Agreement (MSA). Among other things, the MSA outlines how revenue will be shared between the two entities. The regulations around how revenue sharing can be structured vary from state to state (for example, some states prohibit arrangements based on a percentage of patient-generated revenue), so it's important to consider your multi-state strategy when you first set up your PC and MSO.  

The PC vs the MSO

What keeps the PC “friendly” towards the MSO? Usually there is a stock transfer restriction in place that prevents the PC owner from transferring shares of the PC without approval from the MSO. The PC owner may also be required to transfer shares to an individual at the direction of the MSO. The PC owner is often also employed by the MSO. These arrangements can help keep the incentives of the two entities aligned while allowing the medical decisions to remain in the hands of the PC owner.  

The requirements around the relationship between a PC and an MSO will vary from state to state, but generally speaking, the services provided by the MSO do not directly influence the way healthcare is provided by the PC. For example, it would most likely not be appropriate for the MSO to create clinical protocols and require the employees of the PC to follow those protocols. However, the MSO might be able to process payroll and assist with scheduling staff and patients for the PC. Usually, healthcare professionals that are providing direct patient care should be employed by the PC, and clinical staffing decisions (who to hire and who to fire) should also be at the discretion of the PC.  

Why might I need more than one PC?

So you established your PC, and you have your MSA with your MSO, all set right? Unfortunately, like all things involving healthcare, it’s not that simple. If you plan to operate your business in more than one state, you may need to establish multiple PC entities. Each state has its own set of regulations around what types of entities can operate within their borders, how those entities are structured, and the requirements for the owner. For example, some states require that the PC owner must be a resident of that state. Most states require that the owner be licensed to practice medicine in that state. Depending on the state, you may be able to “foreign qualify” your PC to do business there or you may need to establish a “domestic” PC in that state. 

By thinking about your long-term expansion strategy before you begin setting up your PCs, you can minimize the number of different legal entities you’ll need and help reduce the complexity of the various MSAs you might have. 

Where to Start

So you’re ready to build your healthcare business. First: find a great regulatory lawyer. Even if you have in house counsel, you’ll likely want to hire outside regulatory expertise to assist with the complexity of setting up these entities. Here are a few law firms experienced in the digital health space that members of the Source community have worked with:

Foley and Lardner

McDermott, Will, & Emery


Jones Day

Quarles & Brady

In addition to getting great legal advice, finding a physician partner is also a critical step in getting your virtual care company up and running. The PC owner is much more than a legal checkbox-  they’re a foundational member of your leadership team. As your organization grows, the PC owner will establish the culture of your clinical team as well as the clinical standards by which you operate. The PC-MSO relationship is the most important partnership your company will establish, so finding a physician partner who’s aligned with your mission is key. 


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