State crackdowns on ‘corporate medicine’ may be backfiring on independent physicians

A new policy brief from the Pacific Research Institute (PRI) argues that some states’ efforts to rein in the “corporate practice of medicine” are missing the mark and instead making it harder for independent practices to survive.

The issue brief, published Feb. 10 by PRI’s Center for Medical Economics and Innovation, contends that recent laws and proposals aimed at tightening corporate practice of medicine (CPOM) rules are weakening management services organization (MSO) partnerships that many independent groups now rely on for capital and back-office support.

“The U.S. physician market is consolidating at a rapid pace,” wrote economist Wayne Winegarden, Ph.D., the brief’s author, senior fellow and director of the center. “Some states, alarmed by consolidation among health care providers, are responding in ways that risk accelerating market concentration to the detriment of patients and the health care system.”

Between 2019 and 2024, hospitals acquired 7,600 physician practices and 74,500 physicians, according to data from the Physicians Advocacy Institute (PAI). At the same time, Medicare physician payment has lagged far behind practice costs, and hospitals continue to collect higher rates than physician offices for the same services.

“Competition is a prerequisite for affordable, high-quality care,” Winegarden said. “States are understandably concerned about consolidation within their health care markets. Unfortunately, some are responding by implementing policies that risk accelerating market concentration, to the detriment of patients.”

CPOM rules under new scrutiny

CPOM laws are intended to keep clinical decisions in the hands of licensed professionals by limiting the ownership or control of medical practices by nonphysician corporations. Thirty-three states restrict the corporate practice of medicine to varying degrees.

In practice, the brief argues, recent enforcement trends are falling unevenly on independent physicians. Hospitals are often exempt from CPOM restrictions or operate under different regulatory standards, even when employed physicians face strong incentives to refer within the system.

“Payment distortions, regulatory favoritism and uneven enforcement — not physician ownership structures — are pushing independent practices out of the market,” Winegarden wrote.

The report points to Oregon’s Senate Bill 951, enacted in June 2025, as a turning point.

The law bars MSOs — and their shareholders, directors, members, managers, officers and employees — from owning or controlling a majority of the shares in, or serving as directors, officers, employees of or managers for, professional medical entities with which they have MSO contracts.

Lawmakers in Washington, Vermont and North Carolina have considered similar limitations.

By design, those measures are intended to keep nonphysician corporations from exerting control over clinical care. But, as Winegarden argues, broad prohibitions on MSO ownership and governance make it more difficult for independent practices to assemble the scale and infrastructure they need to compete with vertically integrated health systems.

“By limiting the ability of physicians to partner with management services organizations, these policies make it far more difficult for independent practices to access capital, scale and operational support,” he wrote. “The effect of measures like Oregon’s is not to prevent consolidation, but to channel it.”

MSOs in the middle

MSOs have become a key tool for independent practices trying to stay afloat in a market shaped by hospital and private equity consolidation.

Under typical MSO arrangements, physicians retain ownership of, and clinical authority over, the practice while contracting with an MSO for revenue-cycle management, information technology, staffing, contracting and other administrative functions.

“Partnering with an MSO gives physician practices greater access to capital, scale and expertise without robbing them of clinical autonomy,” Winegarden said. “It’s a win-win situation for doctors and their communities.”

During the Medical Economics and Physicians Practice November 2025 expert panel discussion “Does independent medical practice have a future?” pediatrician Andrew Hertz, M.D., co-founder and president of Zest Pediatric Network, described his group’s physician-owned MSO as a way to lower the barriers for physicians who want to leave health system employment.

“With Zest Pediatric Network, I am encouraging doctors to be independent. We are … an MSO, and we really want to work with independent physicians,” he said. “The doctor can see patients and run their own autonomous practice, but they can also have some common services and contracting in a backbone.”

The goal, he said, is to keep the administrative structure “lean, nimble, innovative” while allowing physicians to share data tools, contracting infrastructure and technology they might not be able to afford on their own.

“Newer doctors want work-life balance. They want freedom. They want autonomy,” Hertz added. “An MSO model allows that. It gives them autonomy; it gives them that freedom — but they’re not doing it alone.”

Family physician Melissa Lucarelli, M.D., FAAFP, who operates a solo rural practice in Randolph, Wisconsin, told the same panel that independent practice has clearly been shrinking but remains a lifeline in many communities.

“According to the American Board of Family Medicine, when I was first in independent practice about 25 years ago, 60% of family physicians were independent; now it’s somewhere around 30% to 33%,” Lucarelli said. “What surprised me about the more recent study, though, was that in solo practice situations like mine, about 80% of family physicians are still independent. So that shows the need for independent practices, especially in rural areas.”

Consolidation pressures and payment policy

PRI’s brief places much of the blame for consolidation on federal payment policy. Citing data from the Medicare Payment Advisory Commission and American Medical Association, Winegarden notes that physician payments increased just 12% in nominal terms between 2000 and 2022. Practice costs have climbed nearly 48% over that same period. After adjusting for inflation, Medicare physician reimbursement declined by an estimated 33% between 2001 and 2025.

Most practices simply cannot sustain declining revenue while their costs rise. So, for many, selling to a larger entity such as a hospital or health system has become a financial imperative rather than a strategic choice.

Hospital systems, meanwhile, are paid more than physician offices and ambulatory surgery centers for many of the same services and can bill facility fees.

PRI argues that those differentials, along with access to the federal 340B Drug Pricing Program, give hospitals the cash and financing advantages to buy up practices and then charge higher prices under hospital outpatient rates.

David Eagle, M.D., a hematologist-oncologist in Patchogue, New York, and president of the American Independent Medical Practice Association, described that “unlevel playing field” during the Medical Economics and Physicians Practice panel discussion on independent practice.

“Hospitals simply get paid at higher amounts for many of the same services,” Eagle said. “They have a different fee schedule, collect facility fees and can leverage higher commercial payment amounts from private insurance.”

Those same incentives match what federal watchdogs and claims data have found: When hospitals buy physician practices, prices tend to rise in both primary care and specialty care.

Health economist Christopher M. Whaley, Ph.D., an associate professor of health services, policy and practice at Brown University in Providence, Rhode Island, whose 2018 Health Affairs article on physician consolidation and pricing is cited in the PRI brief, told Medical Economics that site-of-care payment gaps are “the arbitrage opportunity within health care,” noting that hospitals can acquire physician practices, redirect referrals and “double payments for everyone,” creating “a huge financial incentive to go out and acquire physician practices.”

PRI has urged Congress to permanently index Medicare physician fees to inflation and to move more decisively toward site-neutral payment for common outpatient services. The brief also calls for tighter oversight of the 340B program and for CPOM reforms that focus on preserving clinical autonomy rather than banning particular ownership or MSO models.

Private equity, CPOM and physician concerns

Policy makers who support tougher CPOM enforcement often point to private equity’s role in hospital and practice acquisitions. Physicians on the front lines have also raised alarms.

In a recent episode of the “Physicians Taking Back Medicine” podcast, hosted by Rebekah Bernard, M.D., anesthesiologist Marco Fernandez, M.D., president of Midwest Anesthesia Partners in Illinois, described how his independent group lost hospital contracts to private equity‑backed staffing firms, leading to temporary operating room shutdowns and community backlash.

“They consolidate, and then they try to figure out how to reengineer the practice to maximize and extract profits,” Fernandez said. “They raise prices, and they cut expenses by decreasing nursing staff and replacing physicians with nonphysicians.”

Robert McNamara, M.D., FAAEM, professor and chair of emergency medicine at Temple University, founder of the American Academy of Emergency Medicine (AAEM) and co-founder of Take Medicine Back, echoed that the core business model is at odds with patient care.

“They come into an industry, and they create practices to make money that can have negative effects,” McNamara said. “They can shut down hospitals. They do what they can to profit, when the goal for health care is to take care of the patient.”

McNamara also emphasized why CPOM statutes were adopted in the first place.

“In most states, laws exist that say businesses can’t employ physicians. The same thing exists for lawyers,” he said. “You don’t want the business interest between the patient and the doctor.”

Research published in Annals of Internal Medicine in September 2025 showed that hospitals acquired by private equity firms see staff reductions alongside higher mortality and transfer rates in emergency rooms, adding to the public pressure on state lawmakers to police corporate control of care.

Competing models for reform

PRI’s brief does not dismiss concerns about private equity outright. It notes that some MSOs are backed by private equity capital and acknowledges the high‑profile failures of a handful of private equity‑owned hospitals and nursing homes. But Winegarden characterizes private equity as “simply a financing mechanism,” arguing that policy should focus on whether physicians maintain clinical control and whether markets remain competitive.

Winegarden points to a different approach emerging in California, where, in October 2025, Gov. Gavin Newsom signed SB 351 into law, barring private equity groups from interfering with physicians’ professional judgment or exercising control over core clinical matters such as coding, medical records and hiring. That law, PRI notes, aims to protect clinical autonomy without dictating whether practices affiliate with an MSO, hospital or insurer.

“Practices are free to remain unaffiliated or affiliate with an MSO, hospital or insurance company,” Winegarden wrote. “All practice models compete for patients — and negotiate with payers — on equal terms.”

For most independent physicians, the question is whether state and federal policy will move in that direction or continue to close off nonhospital avenues for partnership and investment.

Lucarelli, who is also a longtime editorial adviser to Medical Economics, said independent physicians are already investing significant time in new payment models, chronic care management and accountable care organizations to make the math work. But she described Medicare’s fee schedule as the central pressure point.

“The No. 1 policy goal would be to fix the Medicare Physician Fee Schedule,” she said. “As Dr. Eagle was discussing, hospital reimbursements continue to rise and have continued to rise over the past decade, but inflation‑adjusted physician payments have continued to fall.”

Winegarden closed the PRI brief with a warning for policy makers weighing new CPOM restrictions: “’First, do no harm’ is a fitting maxim not just for physicians but for policy makers as well,” he wrote. “Efforts to restrict the corporate practice of medicine should strengthen competition — not unintentionally extinguish it.”

For practices already operating on thin margins, the details of how states and Congress define “corporate practice” — and which partnerships they allow — are key variables in whether independence remains a realistic option over the next decade.