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I ended my last piece on the California AG's amicus brief in Art Center Holdings with a prediction: the brief is the roadmap, and enforcement actions could follow before the appellate court even rules.
They did. Faster than I expected.
Since the AG’s amicus brief, two more documents have landed. Read together, they tell you something no single document could: California is not waiting for a court of appeal opinion to set the architecture of CPOM enforcement. The architecture is being built in parallel — through litigation, through legislation, and now through a stipulated settlement with detailed injunctive terms.
For any company operating an MSO-PC structure in California, the three documents together are the closest thing to an enforcement roadmap you are going to get without subpoenaing the AG's compliance team.
The three documents
1. The AG's amicus brief in Art Center Holdings v. WCE (filed March 30, 2026).
I covered this in depth in the prior piece. The short version: the AG argued that agreements permitting a non professional corporation to replace the physician-owner violate CPOM — not because the right was exercised, but because it exists. The architecture is the violation. The brief also situated its analysis within SB 351, signed October 2025 and effective January 1, 2026, which gives the AG direct statutory authority to seek injunctive relief and recover fees based on that interpretation. The court and the AG operate on parallel tracks. The brief was the opening move.
2. The CMA's amicus brief in the same appeal (filed April 13, 2026).
The California Medical Association filed an amicus brief in support of no party. CMA agreed with the trial court's finding that the MSO's actual exercise of replacement authority over Dr. Surrey violated CPOM. But CMA pushed back on the broader proposition that the mere presence of a removal right always crosses the line. Their position: CPOM enforcement must remain"context- and fact-dependent," not categorical, because"friendly PC" arrangements with built-in removal rights are common, are baked into legitimate alignment structures — PACE programs, Ryan White HIV/AIDS programs, hospital-friendly PCs, and the vast majority of investor-backed arrangements — and a per se ban would, in CMA's words, risk "stifling innovation and the evolution of healthcare, resulting in significant disruption to many current physician alignments."
The CMA brief is a useful read for anyone running an MSO-PC because it is, functionally, the defense playbook. It catalogues the cases (Epic Medical Mgmt., LLC v. Paquette; People ex rel. Allstate Ins. Co. v. Discovery Radiology Physicians, P.C.) and lays out the rationales a court might accept for keeping a properly bounded removal right intact — independent governance layers, fiduciary duties owed to the PC, and physician administrators whose operational authority survives ownership changes.
3. The Aspen Dental Management settlement (announced May 7, 2026, Los Angeles County Superior Court, Case No. 26STCV14023).
The People of the State of California settled with Aspen Dental Management, Inc. for $2 million in civil penalties under Business and Professions Code §§ 17206 and 17536, $300,000 in restitution to identifiable patient classes, a 46-paragraph permanent injunction, and a 36-month independent compliance monitor over the structural injunctive terms.
The settlement is a dental case, not a medical case. But the doctrines the AG used to get there are structural analogs of the rules governing MSO-PC arrangements across the rest of Division 2. The Unfair Competition Law (B&P § 17200), the False Advertising Law (B&P § 17500),the fee-splitting statute (B&P § 650), and the corporate practice of dentistry rules in the Dental Practice Act (B&P § 1600 et seq.) apply with equal force to MSO-PC arrangements in medicine, optometry, chiropractic, and every other licensed profession. The injunction is now a public record of MSO conduct the California AG considers unlawful.
Where the three documents agree
Read together, the AG amicus, the CMA brief, and the Aspen settlement converge on a small set of propositions that operate as settled enforcement priorities in California today.
Actual lay control over clinical decisions is per se unlawful. Every authority, including CMA, agrees that an MSO's exercise of authority over clinical staffing, treatment planning, or care delivery violates CPOM. The Aspen injunction spells this out for the dental context. CMA cites Discovery Radiology and Epic for the same proposition on the medical side.
MSO compensation cannot rise and fall with practice revenue or profit. Aspen ¶ 6.f prohibits service fees based on practice revenue, sales, or profits. SB 351 reinforces the same principle for PE and hedge-fund-backed MSOs. The combined message: percentage-of-collections management fees are a structural CPOM risk, not a fee-splitting technicality under B&P § 650. One nuance worth flagging: B&P § 650(b) does permit percentage-of-revenue fees where consideration is set at fair market value and is not a payment for referrals — but the Aspen complaint suggests that fees subject to unilateral MSO adjustment create additional exposure regardless of structure. Document the FMV analysis and lock the formula.
Indirect financial leverage gets the same scrutiny as direct control. The Aspen injunction reaches further than most operators expect. Practice-level employee incentives tied to revenue or sales are prohibited. MSO reimbursement of such incentives is prohibited. Even MSO loans and advances to practice owners must accrue interest at the greater of the Prime Rate or 4 percent per month, because below-market financing is treated as disguised equity control.
Substance is what gets reviewed; form is not protective. The 36-month independent monitor in Aspen will be reviewing the structural injunctive terms. Documentation that says one thing while operations do another will not protect you. This mirrors what every appellate decision in this line has been saying for half a century — and what I flagged in the prior piece when I said the goal isn't just to document physician clinical independence in theory, it's to make sure the structure actually works that way in practice.
Where they diverge, and where the action is
The unresolved question is the AG's most aggressive position: does the mere presence of an unfettered removal right, with no actual exercise, establish a CPOM violation?
The trial court in Art Center Holdings said yes. The AG, in its amicus, agreed. The CMA brief said the trial court may have gone too far and urged a fact-dependent approach. The Court of Appeal has not yet ruled.
For operators, the practical conclusion is the same regardless of how that question is ultimately resolved: an unlimited, at-will removal right is now indefensible in California. Even CMA's defense-side brief concedes that "an unmitigated contractual right to replace the friendly PC owner for any reason is strong, if not dispositive, indication of improper control over the ownership of a medical corporation." The dispute is about how to evaluate the surrounding facts, not about whether broad removal authority creates exposure.
A note on who this actually changes things for
Companies operating MSO-PC structures that participate in Medicare, Medicaid, or other federal healthcare programs have been living under versions of these constraints for years. The Anti-Kickback Statute, the Stark Law, and CMS conditions of participation already impose FMV requirements on management fees, prohibit compensation structures that vary with referral volume or value, and require that clinical decisions remain with licensed professionals. For those companies, the Aspen settlement's injunctive terms — no revenue-based fees, no product or sales incentives for clinical staff, no below-market financing — are familiar territory. Uncomfortable, maybe, but not new.
The companies that should be paying closest attention are the ones that have been operating outside that framework: cash-pay telehealth platforms, direct-to-consumer health services, commercial-only practices, and the rest of the growing category of digital health companies that structured their MSO-PC arrangements specifically to avoid federal program entanglement. Those companies have never had to run their compensation structures through an AKS analysis. They've never had to document FMV for a management fee. They've never had a compliance officer ask whether a front-desk incentive tied to upsell revenue creates a fee-splitting problem.
The Aspen settlement doesn't care. The California AG's enforcement authority under SB 351 and the UCL applies regardless of whether a single Medicare claim was ever filed. The CPOM doctrine applies regardless of payor mix. What the settlement does is extend to the commercial and cash-pay world the same structural discipline that federal program participants have been required to maintain for decades — and it does so through a public enforcement record that the AG can now point to in the next case.
What to do this quarter
The Aspen settlement’s injunctive terms run 46 paragraphs. Most of them map to five pressure points that show up in virtually every MSO-PC structure. If you're doing a compliance review this quarter, these are the places to start.
- Narrow your replacement and continuity triggers. Remove "for any reason" and "at sole and absolute discretion" language from any continuity, succession, or stock transfer agreement. Tie removal authority to specific, objectively defined triggering events: loss of licensure, retirement, death, disability, conviction of a disqualifying crime, or a defined breach of an arm's-length consulting agreement. Then go one level deeper: who picks the replacement? If the answer is the MSO, you have the same problem in different clothes. The success or selection process needs to sit with the PC — its board, its existing physician leadership — not with the lay entity whose financial interest is what created the removal right in the first place.
2. Reprice your management services agreement. The Aspen injunction offers a workable template for non-dental MSAs: written annual negotiation, a 90-day owner extension right, and an automatic-termination backstop if no agreement is reached. If you haven’t already, move the underlying fee structure off revenue-percentage and profit-sharing. Build fee schedules that are fixed, time-and-materials, or tied to fair-market-value benchmarks for specific identified services, and document the FMV analysis in a defensible record. If you're wondering whether a percentage-of-revenue structure can survive: the statute (B&P § 650(b)) permits it where the fee reflects fair market value and isn't a payment for referrals. But the Aspen complaint makes clear that the AG's concern isn't just the percentage — it's who controls the formula. A management fee that the MSO can adjust at its discretion is a different animal than a fixed percentage tied to a documented FMV analysis. Lock the formula. Document the methodology. Don't leave the number subject to unilateral revision.
3. Audit incentive compensation throughout the entire structure, not just at the executive level. Compensation arrangements for practice employees who interact with patients — front desk, hygienists,technicians, schedulers — that pay revenue-, sales-, or product-based incentives are now squarely in the enforcement zone after Aspen. MSO reimbursement of practice-level incentives is in the same zone. If a revenue-tied incentive cannot be defended on articulable CPOM and fee-splitting grounds, expect it to be enjoined.
4. Operationalize clinical governance, do not just paper it. A reservation of clinical authority that exists only in the management services agreement and never appears in board minutes, policies, treatment-planning protocols, or operational decision-making will be treated as form, not substance. Build the governance layers CMA's brief identifies: independent directors, physician administrators with insulated authority, clinical policy ownership at the PC level. Document them in operation, not just in formation.
5. Restructure brand-led marketing and owner disclosures. Aspen now has to add the disclosure "Aspen Dental is a brand name used by independent dentists who own and control the dental care at their offices and pay for their advertisements" to its advertising. Any MSO operating a brand-led model — which is most of them — should expect the California AG to look for analogous disclosures, owner pre-approval of advertising, owner identification on signage, and owner-controlled call-center scripts.
The bottom line
The first piece asked which MSO-PC contracts are a problem. In less than a month, the AG moved from signaling the answer to operationalizing it through enforcement. The Aspen injunction is the operational record of what California considers unlawful conduct in this space. The CMA brief shows where defensible structures still exist. SB 351 gives the AG the statutory authority to pursue them. The pending appeal in Art Center Holdings will tell us how far the categorical theory goes.
If your formation documents, management services agreement, incentive compensation structures, or brand-level marketing were built before January 1, 2026, they were built to a different set of expectations than the ones California is enforcing today. The cost of updating them now is lower than the cost of a 46-paragraph injunction and a three-year compliance monitor.
If you'd like a structural review against the framework these three documents set out, reach out. We work with healthcare and digital health MSOs in California, at formation and in remediation.