Friendly PC Model: 3 Key Ancillary Agreements for CPOM Compliance
By Dustin Plumadore
Health Care Attorney
Dickinson Wright
Original Publish Date: August 5, 2025
With the rebound of private equity ("PE") activity in healthcare across the United States, the Corporate Practice of Medicine and Dentistry ("CPOM" or "CPOD") has likewise experienced renewed focus by state legislatures and enforcement agencies in 2025.i However, despite this rekindled attention, the often-referenced "Friendly PC" model remains the best structural strategy to ensure post-closing compliance with CPOM and CPOD regulations in most jurisdictions. Constructing a compliant “Friendly PC” structure will probably require the support of expert legal counsel to draft and negotiate the series of agreements necessary for its proper implementation. However, the following paragraphs identify some key considerations for three ancillary agreements, outside of the base transaction documents, commonly used to ensure compliance with CPOM and CPOD.
Friendly PC Model
In the most general sense, the term "Friendly PC" model in PE healthcare deals most often refers to a business arrangement where a physician-owned Professional Corporation ("PC") sells all of its non-clinical assets to an entity owned by the PE buyer who then takes responsibility for the PC's non-clinical business operations. This model complies with CPOM and CPOD laws, which restrict non-physicians from owning or controlling medical practices, because it prevents the PE buyer from owning clinical assets or unduly controlling the clinical operations and decision-making of the providers. Here, the parties designate a single clinical professional to serve as the sole owner of the PC post-closing, referred to as the friendly physician or dentist ("Friendly Provider"), who is then expected to cooperate with the PE buyer in accomplishing its business goals. In order to structure such a deal, a series of agreements must be drafted and agreed upon to accomplish the necessary purposes of the arrangement. Although this series of agreements may vary based upon preference and applicable state law, below is a brief description of a few commonly used agreements, and their most necessary elements, to ensure the practice’s compliance with CPOM and CPOD laws following closing.
Ancillary Agreements:
1. Administrative/Management Services Agreement
First in line in terms of importance is the Administrative/Management Services Agreement ("MSA") entered into between the practice and the management services entity owned by the PE buyer. Through this agreement, the PE buyer's management services entity is responsible for providing and arranging for certain non-clinical administrative, business support, and back-office services on behalf of the practice. Oftentimes, the MSA will plainly state that the management entity shall not play any role in the care of patients, and to that end will specify the limitations of the actual services to be provided so as to ensure it won't fall within the applicable state's definition of the practice of medicine or dentistry. However, it is also of great importance that this agreement defines the independent contractor nature of this arrangement and seeks to avoid creating a de facto partnership between the management entity and the practice.ii Overly lengthy initial contract durations, requirements for minimum operational hours per period, the ability to negotiate agreements without the practice's consent, and compensating the management entity through a percentage of the practice's profits are all commonly mishandled deal points that could create an unintended partnership in the eyes of a reviewer.iii As such, counsel must carefully tailor these provisions to avoid such a problematic presumption.
2. Employment Agreement
Of the three ancillary agreements discussed, this one is often viewed as being the most important by the medical professionals who are divesting their interest in the practice due to the compensation elements and restrictive covenants found within. Legal counsel should ensure that the Employment Agreement also contains specific provisions or guarantees that the clinical professionals will maintain broad autonomy in all clinical decision-making and treatment of patients post-closing.iv Under no circumstances may the employer exercise any undo control over this aspect of their clinical professional employees’ job performance, and expressly stating as such within this agreement may help the arrangement survive future scrutiny.v
3. Clinical Liaison Agreement
Lastly, the Clinical Liaison Agreement ("CLA"), typically entered into by the PE management entity and the Friendly Provider, is a frequently used means to outsource the development and implementation of the medico-administrative services of the practice. As a licensed professional in the state of operation, the Friendly Provider is the only party legally authorized to provide such services as the supervision of clinical staff, the development of clinical policies, and the leadership of patient-centric initiatives. The existence of such an arrangement is therefore imperative for the post-closing clinical management of the practice. As with the other agreements, the CLA should involve a reasonable term length and consideration for the clinical provider’s time and effort, and it should also protect the Friendly Provider's necessary autonomy to perform their duties as outlined therein.vi
Conclusion
As scrutiny of "Friendly PC" deals increases, the need for proper separation of clinical and non-clinical management following closing is probably more important now than in years past. As such, PE buyers and their counsel must pay close attention to these frequently overlooked ancillary agreements to ensure that the truly independent nature of their post-closing relationships.
About the Author
Dustin Plumadore is a healthcare attorney in Dickinson Wright’s Washington, D.C. office, where he focuses on transactions and regulatory matters in the healthcare space. He works with providers, networks, and investors on issues ranging from joint ventures and acquisitions to HIPAA, Stark, and CPOM compliance. Before joining the firm, Dustin led multi-million dollar healthcare deals and previously served as a U.S. Army Captain, where he developed strong leadership and strategic planning skills.
i https://sourceonhealthcare.org/corporate-practice-of-medicine-bills-full/
ii See Warren J. Apollon, D.M.D., P.C. v. OCA, Inc., 592 F. Supp. 2d 906; and OCA, Inc., et al . Kellyn Hodges, D.M.D., M.S., et al., 615 F. Supp. 2d 477.
iii Id.
iv The definitions of “Practice of Medicine” and “Practice of Dentistry” vary by state, however, guidance provided by the Medical Board of California provides an example of the types of rights and privileges of licensed providers that must not be interfered with or influenced by unlicensed persons or entities. (See https://www.mbc.ca.gov/Licensing/Physicians-and-Surgeons/Practice-Information/).
v Id.
vi AMA J Ethics. 2025;27(5):E341-345. doi: 10.1001/amajethics.2025.341. (https://journalofethics.ama-assn.org/article/physician-engagement-private-equity-firms/2025-05).