California AG Challenges the Enforceability of Succession Agreements in CPOM Models in Art Center Amicus Brief

On March 30, 2026, California Attorney General Rob Bonta filed an amicus brief in Art Center Holdings, Inc. v. WCE CA Art, LLC,¹ a case pending before the California Court of Appeal, Second Appellate District. The appeal arises from a 2024 trial court decision finding that defendants had engaged in the unlicensed practice of medicine by controlling a medical practice through a succession agreement that gave them the unfettered discretion to transfer control of the practice “from a doctor they disagreed with to a doctor of their choosing.”²

Since the trial court’s decision, lawyers have questioned whether such arrangements are enforceable under California’s CPOM doctrine. As those in the industry are aware, succession agreements are a common feature of MSO-PC structures, making the Attorney General’s position potentially disruptive  for investors in health care companies and platforms.³ Notably, on April 15, 2026, the California Medical Association (CMA) filed a separate amicus brief responding to the Attorney General’s position, underscoring the stakes by characterizing the case as presenting an “issue of first impression” with the potential for widespread impact on an important features of friendly PC structures.⁴ CMA proposes a principled, fact-dependent approach (rather than a categorical prohibition) to applying CPOM to succession agreements in friendly PC structures to avoid unintended consequences to the industry, noting that investors in CPOM models provide medical practices with much needed capital to expand and evolve and that those investors are incentivized to commit capital and personnel resources if they have adequate assurance that their investments are sound and stable. The CMA cautions against a categorial rule that the mere contractual right giving a management company power to replace a friendly PC physician owner is an automatic violation of the CPOM laws in California. “Erecting rigid barriers in the enforcement of CPOM could have the unintended consequence of stifling innovation and the evolution of healthcare, resulting in significant disruption to many current physician alignments.”

At bottom, both briefs focus on a core question: when do contractual mechanisms governing physician ownership, particularly succession or continuity arrangements, cross the line from permissible safeguards into impermissible control under California’s CPOM doctrine?

The terms of these documents often vary with respect to (i) who has the right to transfer control (the management company or someone else), and (ii) what would prompt a transferring of control. Having an unfettered right to transfer control of the practice, as the defendants did in Art Center, feels materially different from provisions that permit transfer of ownership only upon specified events (e.g., if the physician commits a felony or loses his or her medical license.) Historically, stakeholders have argued that given the investment involved in these businesses and continuity of care considerations, such provisions are prudent rather than indicative of impermissible control. The Attorney General’s brief, however, casts significant doubt on that position. Given this, investors and medical practices alike should reassess their current structures and documents to ensure compliance with California law.

Attorney General Bonta’s brief articulates a notably expansive view of what constitutes impermissible control under CPOM with respect to arrangements that affect physician ownership. The brief suggests that where an agreement grants a corporation the right to replace the physician-owner, “the corporation effectively owns and controls all aspects of the practice,” and further emphasizes that “it is difficult to imagine any circumstance in which a MSO’s contractual retention of the right to strip the equity of the physician-owner would not result in undue influence.”⁵ This is the exact categorical ban the CMAs brief is advocating against. 

In some ways the AG’s position is not surprising, California has long been among the most active states in articulating and enforcing the CPOM doctrine. This approach is reflected in FAQS on the California Board of Medicine’s website,⁶ statutes and regulations (including recent legislation addressing corporate involvement in medical practices),⁷ case law,⁸ and now the Attorney General’s most recent amicus brief in the Art Center case.⁹ In sum, under California law  medical practices must be owned and controlled by licensed physicians, and unlicensed entities may not exercise control over clinical decision-making.¹⁰ The California Board of Medicine identifies a range of activities that may constitute impermissible “control,” including decisions regarding the hiring and termination of physicians employed by the medical practice – an area specifically emphasized in the Attorney General’s brief.¹¹ The brief also highlights succession agreements as a particular area of concern.  In light of the Attorney General’s recent position on this issue, such arrangements may face increased scrutiny and require more careful structuring to withstand challenge. While the CMA brief cautions that CPOM analysis should remain fact-specific and context-driven,¹² the Attorney General’s framing underscores a clear enforcement risk where such provisions create meaningful leverage over physician ownership or employment decisions. Even where stakeholders point to specific transfer triggers (such as loss of licensure or felony conviction), that position carries meaningful risk in light of the Attorney General’s current posture and may undermine assumptions regarding investor and lender protections under existing succession agreements.

Importantly, California does not and has not outlawed MSO-PC structures. In fact, in the Attorney General’s brief there is a footnote that specifically provides that “[n]ot all MSO-PC relationships offer this impermissible degree of control to the nonprofessional corporation” explaining that “[w]hile the contractual terms at issue here violate the ban against CPOM, absent such terms, determining whether an MSO-PC relationship violates the ban requires analyzing the totality of the circumstances.”¹³ Nor does California law prohibit private equity investment in MSOs that operate to support medical practices. Given this, the key issue is not whether private equity firms can invest in MSO models in California, but rather how such investments should be structured in light of evolving regulatory expectations and increased enforcement focus.

Key Takeaways and Implications for Investors

As noted above, these developments raise several practical considerations for investors and MSOs operating in California:

1. Assessment of MSO Authority Is Increasingly Important. MSOs and affiliated stakeholders should evaluate their management services and related agreements to ensure that the MSO’s role remains limited to administrative functions, while physician-owners retain exclusive authority over all clinical matters, including patient care decisions and physician employment decisions. The Attorney General’s focus on the practical effect of arrangements underscores that even facially administrative provisions may present risk if they create leverage over clinical decision-making or physician governance.  Because the boundary between administrative support and clinical influence is not always clear, provisions that are facially administrative may nonetheless raise risk if they can be used to influence clinical outcomes in practice. Accordingly, these arrangements should be assessed based on how responsibilities are exercised in practice, with careful attention to applicable guidance from the California Board of Medicine
2. Ownership Transfer and Succession Agreements for Medical Practices in California Require Closer Review.  Succession agreements should be carefully structured to avoid conferring rights that could be viewed as enabling control over physician ownership. Although common in other jurisdictions, these provisions now present heightened risk in California. In particular, provisions that permit the replacement of physician-owners—especially where tied to termination rights or broadly defined triggers—may be subject to scrutiny as mechanisms of impermissible control. Consistent with the Attorney General’s focus on the practical effect of these arrangements, provisions that permit the replacement of physician-owners—particularly where tied to termination rights or other contractual mechanisms—may be subject to scrutiny as mechanisms of impermissible control and influence of physician judgment and governance. Accordingly, these provisions should be evaluated not only based on their formal structure, but also on how they may operate in the context of disputes or disagreements involving clinical matters.

Conclusion

Ropes & Gray will continue to monitor developments in this case and broader regulatory trends affecting health care ownership structures. Please contact the authors or your usual Ropes & Gray advisor with any questions or for advice on the topics discussed above.