The Intersection of Wall Street and the Exam Room

By John Gallagher

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In an era of increased financial pressures, practices struggle to remain independent. The result has been a huge upswing in consolidation, as some practices conclude that it is no longer feasible to remain a solo operation. “We saw hospitals get into the outpatient space in the 2010s. Then retailers came in, and then insurers,” says WSMA CEO Jennifer Hanscom. “Now it’s private equity.”

The growing presence of private equity in medicine has sparked a debate about the corporate practice of medicine, or CPOM for short. CPOM is the legal concept that prohibits corporations, unless they are owned and controlled by physicians, from practicing medicine or dictating what physicians can do. Prompted by publicity about the negative effects of some private equity investments in health care, CPOM has become the focus of interest among legislators and physicians. A bill introduced in the Washington state Legislature last session would have placed stringent restrictions on the structure of corporate investment in practices in some instances. While the bill did not pass, it will be reintroduced in next year’s session. (A bill with similar restrictions on CPOM was successfully passed by the Oregon state Legislature this year.)

Two resolutions introduced at the 2025 Annual Meeting of the WSMA House of Delegates in September also address the issue. One resolution called for “increased transparency, oversight, and regulatory safeguards for corporate and private equity acquisitions in health care.” One of the sponsors of that resolution, Jose Flores-Rodarte, MD, a family physician who works in a federally qualified health center, says that private equity represents a unique threat to health care.

“I find it very concerning where Wall Street has reached out to acquire physician practices,” says Dr. Flores- Rodarte. “The whole point is to turn the practice over and strip it for profits. If that’s effective for a jewelry store, so what? While it’s not a great practice, that’s the economy we work in. Health care is different. It’s a right.”

At the same time, financial stresses are leaving practices with few options. “Some practices feel private equity investment is important for maintaining the viability of their organizations,” says Sean Graham, WSMA’s senior director of government affairs and policy. “It’s a huge challenge for independent physician groups to maintain their viability in the face of all the pressures we know about.”

CPOM: the law and the structures

As of 2024, 33 states have some form of CPOM law. Washington state’s CPOM doctrine is based on case law and not legislation-yet is still generally considered to be one of the nation’s strongest legal prohibitions. The fact that legislation was introduced last year to address CPOM indicates that, for some legislators and proponents, moving beyond case law to codifying in legislation is needed to strengthen the law further.

“This is a judge-made law,” says attorney Luke Campbell, a member of the Health Law Section of the Washington State Bar Association. That said, there have been only a limited number of cases testing it. “It seems only to be infrequently applied right now by private litigants trying to avoid obligations, or by the Department of Health when there are threats to patient care,” Campbell says.

Even so, says Campbell, the case law imposes limits. “There are only a handful of cases, but the courts have clearly stated that the CPOM doctrine exists and applies in Washington-this isn’t some theoretical concept,” he says. “What we don’t have is published case law in Washington applying it to these modern private equity arrangements.”

“Under Washington case law, courts look at the substance of the transaction and the reality of the business relationship to see what’s really going on,” Campbell says. If there is a question that the management company is too closely involved with the entity providing professional services or maintains a beneficial ownership interest in the practice, courts can-and have-intervened. In one example, a dentist and nondentist bought a building together that housed the dental practice. They structured the arrangement as a lease, with the dentist paying the nondentist “rent” equal to 50% of the practice’s net profits-an amount that far exceeded the market rate for the building. When the dentist stopped paying, the case ended up in court. The court ruled that the percentage-based rent was really disguised profit sharing that gave the nondentist an illegal ownership interest in the dental practice itself, violating Washington’s prohibition on nondentists owning or operating dental practices.

The existing case law would also suggest that the courts would closely scrutinize “friendly doctor” structures. Campbell has written that the structures “present material risks in Washington because, as described above, the courts have shown a willingness to look beyond formalities and into the essential nature of the relationship. For example, if the payments from the practice to the management company do not reflect fair market value for services but instead appear to reflect a return on an ownership interest, a Washington court may find that the relationship violates the CPOM doctrine.”

The structures in place for CPOM are supposed to address the issues raised by the law.

The most common structure used by private equity investors gives physicians practice ownership while effectively transferring some functions and control of the practice to the management company through contractual relationships. Under this arrangement, the professional practice remains solely owned by licensed health care professionals, while the management company-which may include unlicensed investors-takes over some business operations. The practice transfers tangible assets and contracts to the management company, including real estate and equipment leases, while the management company provides administrative services such as billing, contracting, and strategic planning.

When private equity investment works

That common structure of private equity investment in a practice can be attractive in a market where there are limited financial options available. Moreover, practices sometimes feel the other available option is worse.

“When I have talked to physician practices, they went to private equity because they didn’t want to sell to the local hospital system,” says Hanscom. “A lot of times, the only option to stay independent is private equity. If you want a competitive marketplace and can’t afford to make a go of it on your own, you need a funder.”

The right partnership can work well, supporters of private equity investment say. Jarrod Durkee, MD, is medical director at RAYUS Radiology in Washington state, a subspecialty provider for advanced diagnostic and interventional radiology services with locations in more than 15 states. A separate entity, CDI Management Corp., is responsible for the nonclinical side of RAYUS.

The arrangement has been in place for almost 20 years. “They never tell us what to do clinically,” says Dr. Durkee. “We make those decisions, we make those protocols. They never say to us, you need to see more patients, you need to perform more imaging. There’s none of that going on.”

What the management company does is handle the business side of the practice, including regulatory changes, infrastructure upgrades, and contracts. “I’m trained as a physician,” says Dr. Durkee. “I’m not trained in building patient portals to see images and reports online. I don’t know how to make those things happen. The same with talking to payers. That is their expertise.” Because of the combined influence of RAYUS, Dr. Durkee says that his practice is able to get better deals than would otherwise have been the case.

Those savings can help patients. “As an independent physician group, we are at a minimum 30% to 40% less in what it costs patients than if they were to go to a hospital or closed system,” says Dr. Durkee. “If you take away independent practices, patient access is going to be way more expensive.”

The devil in the details

As in the RAYUS example, these structures have been in place in Washington state for years, typically involving individual arrangements between parties. But private equity is raising a whole new set of issues as its presence in health care increases rapidly, and, as investment in medical practices grows, private equity systematizes these arrangements and implements them broadly across multiple practices. An analysis earlier this year by the American Medical Association found that 6.5% of physicians said that their practice was private equity-owned, a jump from 4.5% since 2022. While the overall number is small, some specialties, such as orthopedics and ophthalmology, have seen substantial growth in private- equity investment over the past several years. By contrast, more than a third of physicians report working in hospital- owned practices.

For many observers, the devil can lie in the details of the management agreement. In some arrangements, particularly those using a “friendly doctor” structure, the management company gains substantial control through stock transfer restriction agreements or succession agreements. These provisions can restrict the physician from taking certain actions without the management company’s consent, including hiring and firing employees-or even selling their ownership interest. In some cases, the agreements allow the management company to effectively remove and replace the physician owner if they don’t comply with business directives. (This structure would have been barred under the proposed Washington state legislation.) Not all arrangements go this far. Some relationships maintain clearer boundaries between clinical autonomy and business management. The result is a sliding scale of control, with some physicians retaining meaningful independence while others may find themselves with ownership in name only.

While the law in Washington may be strong on its face, it is largely untested. For one thing, cases so far have largely involved disputes between two parties in an agreement. The potential pressure from a management company on a practice presents a more complicated scenario. “The reality is that the DOH [Department of Health] only responds to claims and is most concerned about harm to patients,” says Campbell. “Unless it receives a complaint involving actual or potential patient harm, it doesn’t seem that the DOH is interested in investigating these management company relationships.”

Private equity has attracted a lot of attention primarily since much of the industry is so focused on profits. Some private equity investments in health care, particularly in hospitals, have resulted in widespread negative media coverage chronicling staffing shortages and bankruptcies at facilities that were bought out. Moreover, a study in the Journal of the American Medical Association in 2023 found that adverse events, including surgical infections, central line infections, and bed sores, skyrocketed among Medicare patients in the three years after a private equity fund bought a hospital. Another study showed significant price increases in 8 out of 10 practices acquired by private equity.

Such stories prompt worries among some physicians that CPOM has gotten out of control. Kim Ha Wadsworth, DO, a family physician who has a direct family care practice in Olympia, introduced a resolution at the September WSMA House of Delegates calling on the WSMA to support policy and legislation to strengthen CPOM restrictions in the state.

“Do we want lay people to have majority ownership of medical clinics?” she says. “If you have majority ownership, you make the decisions. That’s really the crux of this policy question.”

Dr. Wadsworth consciously chose a direct practice model so that she could focus on patients. “I want more of my colleagues to be able to enjoy medicine as it was meant to be before CPOM,” she says. “We talk about the physician- patient relationship. When you are able to restore that connection, it brings back the joy of medicine. I’m looking at my colleagues who are suffering, and I know that there is a better way. We’ve done CPOM for 30 or 40 years, and how is that working for us? Physicians are burning out and talking about moral injury.”

Dr. Flores-Rodarte echoes that sentiment that patients are suffering as a result. “These are questions about the quality of care that are at odds with what we do, which is our relationship with our patients,” he says. “We’re trying to do things in the best interest of the patient, when we’re also trying to maximize profits for a private company. We’ve all had a favorite brand taken over by new owners, they extract the profit from it, and they destroy it. I don’t want that to happen to our health care system.”

Navigating the changing landscape

Dr. Durkee is sympathetic to physicians worried about corporate influence. “I understand and I agree that we don’t want corporations telling us what to do as physicians, because that’s not their area,” he says. At the same time, he worries that too broad a crackdown on private equity will harm practices that actually do benefit from it.

“Are there bad actors out there? I’m sure there are. But don’t throw everything out because they’re under a certain label. That would cause more damage. Don’t bring a shotgun when you need a surgical scalpel.”

In point of fact, says Campbell, CPOM is now so embedded in the business of medicine that rolling back by the regulators may be impossible. “That ship seems to have sailed,” he says. “Is the DOH going to suddenly take an aggressive enforcement position against these management-type service agreements? It seems unlikely that DOH will be the party to draw a line in the sand.”

The main issue is how to maintain physician control over clinical decisions as the business of medicine continues to transform. “We all want clinical autonomy, first and foremost,” says Hanscom. “But we also want to protect the workforce we have so that patients have access to the care they need. There’s a lot of corporatization of health care. We need a comprehensive approach to it, something nuanced to the practice environment now, so as not aggravate problems and cause practice closures.”

The likelihood of another CPOM bill being introduced in the Legislature next year will keep the issue front and center. “It’s a new and complex issue,” says Graham. “In my experience, what WSMA members are thinking about is that physicians should be in control of delivering care to patients.”

The question is whether legislation can address physician concerns without creating new problems. “We don’t want to make it more difficult for people to make the business decisions they want to make,” says Hanscom. “We don’t want to create a problem for physician owners who are already in relationships with private equity that they like.”

No matter what happens in the next legislative session, the debate is unlikely to end. “We’re all trying to struggle with how do we approach this,” says Dr. Flores-Rodarte. “I don’t think we have the answer, but we should be thinking about it.”

John Gallagher is a freelancer specializing in health care.

This article was featured in the November/December 2025 issue of WSMA Reports, WSMA’s print magazine.