The California Attorney General filed an amicus brief in Art Center Holdings, Inc., et al. v. WCE CA Art, et al., a case before the California Second District Court of Appeal, B338625. The case involves a dispute between a physician who owned a medical practice and a private equity-backed management services organization (MSO).
The dispute arises from a “friendly PC” (professional corporation) model arrangement common in healthcare, where a physician-owned professional corporation (PC) contracts with a management services organization (MSO) for administrative and non-clinical support.
The case involves WCE, a management services organization (MSO). Under a management services agreement, WCE provided management and administrative services to the Southern California Reproductive Center (SCRC), a California professional corporation providing women’s health, reproductive, and fertility services.
In 2019, the physicians and their affiliated companies sold a 51 percent stake in their fertility practice to WCE in exchange for immediate cash and deferred/contingent consideration. WCE and its affiliates were to provide non-clinical services in exchange for fixed percentage fees.
After BC Partners acquired WCE in 2020, disputes arose. The plaintiffs alleged that WCE mismanaged the practice — under-collecting accounts receivable, causing staff departures, and underinvesting in equipment. They further alleged the MSO asked the PC to terminate some physicians, and when it refused, WCE terminated the Consulting Agreement as a pretext to change ownership of the PC.
The plaintiffs moved for the appointment of a receiver. The trial court found that WCE had engaged in the unlicensed corporate practice of medicine by exercising undue control over SCRC. The court reasoned that because WCE had the contractual ability to remove Dr. Surrey from his position whenever they disagreed with his clinical decisions, WCE effectively had undue control over the physician-owner — it could replace any doctor-owner at will with one more compliant with its wishes.
The heart of the case concerns whether specific contractual mechanisms in the “friendly PC/MSO” structure violated California’s longstanding corporate practice of medicine (CPOM) doctrine. This doctrine (rooted in the Medical Practice Act, Business and Professions Code §§ 2000 et seq., Corporations Code §§ 13400 et seq., and related provisions) prohibits unlicensed corporations and non-physicians from directly or indirectly practicing medicine, owning medical practices, or exercising undue control over licensed physicians’ clinical judgment, including decisions on hiring, firing, disciplining, or retaining physicians based on clinical matters. MSOs may provide administrative support but cannot control clinical operations or create “captive” PCs where nominal physician ownership masks corporate dominance.
The AG frames this structure as a “captive PC” — one where the physician is the nominal owner on paper, but the MSO holds effective control through contractual leverage. The AG describes this as part of a broader pattern in which private equity-backed MSOs use continuity agreements, assignable options, and stock transfer agreements to maintain de facto ownership and control of medical practices while technically complying with the requirement that only licensed physicians own PCs.
The AG concludes that the trial court correctly held that these captive PC arrangements violate California’s CPOM laws, and urges the Court of Appeal to affirm that legal standard rather than adopting the more permissive frameworks proposed by either party.
According to a May 2024 California Health Care Foundation report, private equity investment into health care totaled about $83 billion nationally and $20 billion in California in 2021. While the majority of overall private equity dollars has been directed at biotechnology and pharmaceuticals in recent years, private equity acquisitions of health care service providers (such as clinics, hospitals, and nursing homes) make up a significant portion of all private equity health care deals.
In California, acquisitions of providers totaled $4.31 billion dollars between 2019 and 2023, and represented roughly a third of all deals. Available data, while limited, show that private equity has gained a small but meaningful ownership foothold among certain kinds of providers.
Private equity firms now own approximately 8% of all private hospitals in the U.S. and approximately 6% of private hospitals in California. Higher charges, which are often passed along to patients, have been documented in clinics, hospitals, and nursing homes. Twenty-seven studies reviewed found 12 with a harmful impact on quality of care, nine found a mixed impact, and three found a neutral impact.
One rigorous study found that private equity acquisitions led to an 11% higher mortality rate during short-term nursing home stays.
This appellate case will scrutinize the “friendly PC” model commonly used by private equity firms to invest in physician practices. The case was part of a broader wave of scrutiny in California that ultimately led to the passage of SB 351 in October 2025, which codified prohibitions on the corporate practice of medicine and restricted private equity groups from interfering with physicians’ clinical decision-making.