Online care is caught in the crossfire as states crack down on corporate medicine

STAT News – Tuesday, June 2, 2026
By Katie Palmer

In less than a decade, telehealth has expanded from a sideshow of health care to an industry worth tens of billions of dollars. Companies like Hims & Hers and Teladoc have become household names, their ads interrupting streaming TV and flooding social media feeds with the promise of quick, convenient care.

Despite their popularity, few patients understand who’s actually taking care of them when they click through a telehealth site.

National telehealth brands present a unified front to patients across the country. But in more than 30 states, it’s illegal for corporations to practice medicine. So behind the scenes, telehealth companies work with distinct, independent medical groups. Owned by physicians — who often hold 50 state licenses at once — those practices are meant to act as a firewall, making sure that clinical decisions are driven by patients’ needs, not the profits of the corporations they deal with.

A growing legislative movement is concerned that those kinds of arrangements aren’t adequately protecting patients from profit-motivated care. In the last two years, several states have moved to strengthen the corporate practice of medicine laws that govern relationships between physician-owned medical groups and lay companies.

These proposals, written with an eye toward in-person care provided in hospitals, physician clinics, and nursing homes, also have strong, if unintended, implications for online care. They aim to lower the risks associated with corporate investment in health practices, shining a light on emergency rooms that outsource to national staffing firms and private equity-owned facilities that can cut corners to patients’ detriment. But the business model they target also undergirds many telehealth companies, from public behemoths to venture capital-backed startups that have popped up to meet overwhelming demand for GLP-1 weight loss drugs.

As those states’ moves threaten a model that has proven fundamental to the virtual prescription boom, leading telehealth companies and trade groups have pushed back and gotten concessions for virtual care. But the pressure isn’t letting up. Most recently, they’ve faced a new test from California’s attorney general that’s leaving telehealth lawyers scrambling to reassess their agreements. What will happen next?

Peering behind telehealth’s digital facade

For many of today’s telehealth companies, the pitch is the convenient platform. No more waiting for hours for an appointment you made weeks ago: A telehealth company can set you up with a virtual visit in minutes, whether it’s for a sore throat or a substance use disorder. Some direct-to-consumer businesses focus on efficient, Amazon-esque checkouts for common medications. Online forms collect patients’ health information so the appointment goes as quickly as possible.

Sometimes, “the patients barely get a sense that they’re working with a doctor at all,” said Christopher Robertson, professor of health law, policy, and management at the Boston University School of Public Health. “Their interface is almost this company and a form they fill out, and a prescription pops out the other side.”

Much of that digital streamlining is managed by the telehealth company itself — what lawyers call the management services organization, or MSO. But the patient care and prescriptions still need to come from clinicians licensed to practice around the country. Those clinicians work for a separate professional corporation, or PC — a physician-owned medical group whose name is often buried in long-winded terms and privacy practices.

How those two groups work together has defined the rapid growth of virtual-only telehealth businesses. In telehealth, a PC and an MSO often sprout up side by side, designed to interlock.

The MSO can build or maintain the software that underlies the clinical practice, like the clinicians’ electronic health record and the patient-facing website. Sometimes, the physician who owns the professional corporation might also be employed by or have an ownership stake in the MSO. All those affiliated medical groups have created a need for physician owners who are licensed to practice in every state and Washington, D.C., spawning a cottage industry of “51ers.”

The tight linkage between telehealth brands and medical groups can appear in their agreements. Certain terms give the MSO the right to remove and replace the PC’s owner. Some stop the physician from selling their ownership in a practice without the MSO’s approval. Physicians that own practices under these kinds of conditions are often called “friendly.”

Others, though, call them “captive.” While PC-MSO arrangements are intended to preserve clinical autonomy, critics say these restrictive ownership terms can enable nonclinical corporations across health industries to influence and direct care — with potentially harmful effects for patients.

This is “the predominant model used by both private equity and other corporate investors in physician practices,” said Erin Fuse Brown, director of the Health Policy & Law lab at Brown University, and they’re becoming increasingly common. In a perspective in the New England Journal of Medicine in 2023, she and her colleagues argued that the friendly or captive PC model gives corporations “de facto ownership and control of physician practices.”

In telehealth, direct-to-consumer businesses that market specific drugs have raised questions of corporate influence. “As you scale up and almost turn this into a mechanized, industrialized process of generating sales of drugs, it’s hard to know if the physician is really continuing in a substantive role to make sure that patients are getting the best care,” said Robertson. “Part of what we’re seeing with this telemedicine direct-to-consumer effort is to take what’s not a new legal workaround and put it on steroids.”

Sometimes physician owners in telehealth aren’t just friends: They’re family. Michael Karagas, the father of Thirty Madison co-founder Demetri Karagas, owns medical groups affiliated with the telehealth company. Rana Ahmad owns the affiliated medical groups for Mochi Health; his daughter Myra Ahmad is CEO. And Dale Lensing owns medical groups affiliated with white label telehealth company OpenLoop, whose CEO is his son Jon Lensing.

Close relationships between a medical group and a corporation aren’t inherently problematic. Industry members say they’re critical to maintaining clinical standards. But legal experts said they can also open the door for more corporate control over medical decision making, in particular when a physician owner is acting as a figurehead.

“If you actually mean that you want physicians and other licensees in control of medical practices,” said Hayden Rooke-Ley, an attorney and senior fellow at Brown University School of Public Health, “this is clearly an end run around that.”

Telehealth gets caught up in a rising legal tide

In California, Attorney General Rob Bonta at the end of March appeared to agree with that stance. In an amicus brief filed on a dispute between a fertility practice and its MSO, he wrote that features of friendly PC models — including those that give the MSO the power to replace, hire, and fire the physician owner — risk violating the state’s corporate practice of medicine doctrine, already one of the strongest in the country. In his eyes, the mere existence of those terms is a problem.

“The relationship that poses the greatest risk of violating the ban on CPOM (and conflict between the MSO’s profit motive and the physician’s duty to patients) occurs when an MSO selects a so-called ‘friendly’ physician to serve as the PC’s nominal owner,” Bonta wrote.

The California AG’s stance, which builds on a new law that codifies and allows the AG to enforce many of the state’s guardrails protecting clinical autonomy, could have implications for many types of health businesses. “All of the common tactics where the MSO is used to control the friendly physician, those could be subject to scrutiny,” said Fuse Brown. And since every national telehealth company treats patients in California, they need to pay attention.

“This is a threat to all parties in the ecosystem,” said Rebecca Gwilt, who advises telehealth companies as managing partner at Elevare Law. According to Bonta’s interpretation, it’s not just corporate entities that are violating the law, she said — but the physician owners themselves. In his opinion, they’re “aiding and abetting the unlicensed practice of medicine” by signing those agreements, said Gwilt.

While Bonta’s brief on its own is not enforceable, legal experts say it is a strong signal of the AG’s intent. Over the past several weeks, Gwilt has been reviewing telehealth management agreements to align with the brief. “What the AG’s office really wants to see is that there is real autonomy for physician decision-making,” she said.

It’s not a simple undertaking. Medical group ownership for telehealth companies can be especially complex because of their national reach. They need medical branches in every state, and have to make sure those practices are compliant with each state’s unique laws. One state changing or reinterpreting the rules can make those standard structures a lot more difficult to execute.

Those sands have threatened to shift several times in recent years.

In 2025, Oregon lawmakers proposed a bill that targeted elements of the friendly PC model. “Over the last 10 or 15 years, we have seen a very rapid escalation in corporate ownership over medical practices,” said state Rep. Ben Bowman, who introduced the bill. “What we discovered is that the reason for this is a series of loopholes and workarounds within the regulatory framework.”

The telehealth industry came out in force, including the lobbying arm of the American Telemedicine Association, ATA Action. Members like virtual substance use disorder company Ophelia testified against the bill. Bowman took over a dozen meetings with telehealth companies, he said, including ATA Action members Hims, Amazon, and Teladoc.

“Telemedicine has asked multiple times for blanket exemptions to everything,” said Bowman. “We’re not trying to eliminate telemedicine by any stretch of the imagination. But some of these gigantic, multibillion-dollar companies, I think, would prefer to have fewer regulations than more.”

A spokesperson for Hims & Hers said the company “engaged constructively” on the Oregon legislation “in support of the bill’s core goal to establish clear guardrails against corporate influence over clinical decision-making, while preserving the administrative and operational support the MSO model provides.” The spokesperson added that “all providers on our platform make independent clinical decisions based on their comprehensive evaluations of individual patients.”

ATA Action showed up in Vermont, too, when lawmakers there considered similar measures this year. The proposed legislation included a requirement that physicians show “meaningful ownership” of a practice and be physically present in the state. “This legislation would upend the established physician corporation and management services organization framework that many telehealth entities utilize,” testified ATA Action’s head of state government relations Hunter Young to Vermont legislators.

Critics of this legislative trend say that many innovative and necessary health care businesses rely on the capital that’s enabled by PC-MSO relationships — and restrictions on that model risk throwing the baby out with the bath water.

To fund telehealth businesses, ATA Action has argued, investors need some assurance that their affiliated medical groups will have consistent leadership and won’t go belly-up. “Not a single investor would support or be comfortable with this model and this legislation, because it allows no input into medical leadership,” ATA CEO Kyle Zebley testified to Oregon lawmakers. Telehealth companies would flee the state, and new ones would be less likely to launch in Oregon.

The argument landed. Oregon passed its bill in June last year, but not before exempting telehealth businesses. Vermont’s bill, which is still in progress, got a similar carveout after the ATA’s pushback. So did a bill in Washington before it failed to advance this year.

But challenges keep popping up. Several other states are looking to put up more guardrails around corporate involvement in medical practices and the friendly PC model. ATA Action is raising objections to new bills as they emerge.

“We do not believe that private investment and PC-MSO arrangements are incompatible with safe, high-quality care, and the existence of a management services relationship does not mean an MSO is controlling clinical decisions,” said Zebley, who also serves as executive director of ATA Action. “We will continue to support legislative frameworks that preserve physician authority over clinical decision-making and provide clear, workable standards for the health care marketplace.”

The future of telehealth’s ‘friendly PC’ model

While trade groups lobby to protect the business structure of nationwide telehealth companies, insiders say the risk of corporate control over virtual care is not theoretical.

“The whole role of the PC owner is to make sure companies don’t skirt corporate practice of medicine laws,” said Suneer Chander, who co-founded a company to train 50-state-licensed physicians for telehealth leadership roles. “But yet a lot of times these companies hire PC owners and skirt corporate practice of medicine laws.”

Several physician owners described a market where doctors can be paid a certain amount to serve as owners in name only. “I’ve seen it where PC owners are completely hands off,” said a physician owner who spoke under the condition of anonymity. “All they have to do is just help with the filings and the yearly reports. And it’s kind of all done for them.”

STAT’s review of physician ownership records for telehealth medical groups shows those owners can be prolific. A single physician can simultaneously own medical groups that work with several telehealth brands. “That person might own and operate hundreds of practices across the country, which is seemingly impossible,” said Fuse Brown.

Physician owners are typically expected to oversee clinical practice to some degree, but without specific criteria in place, that oversight can vary widely. A physician’s clinical expertise may have little to do with the telehealth practices they own. One doctor has owned PCs for an online anti-aging clinic, a telehealth company under fire for overprescribing Adderall, a startup offering virtual birth control prescriptions — shuttered after settling allegations of Medicaid fraud — and an at-home care company focused on remote monitoring of chronic conditions.

Lawyers that advise telehealth companies suggested that it was rare for physician owners to cede all clinical leadership, and that many take the responsibility to exercise medical oversight very seriously. “There are built-in ways that this model can be done right,” said Elevare Law’s Gwilt. “And there are ways in which this model can be taken advantage of to violate state law.”

It’s not just states that are taking notice. Corporate practice of medicine statutes have recently been invoked against telehealth companies in court cases involving patients and pharmaceutical companies.

Four ongoing cases have come from Eli Lilly and Novo Nordisk, which filed similar complaints in 2025 against the telehealth companies Fella Health and Mochi Health and their affiliated medical groups. Both companies had been prescribing compounded versions of the weight loss medications developed and commercialized by Lilly and Novo — and the drugmakers alleged that telehealth companies exerted “undue influence” over those prescriptions. Mochi CEO Myra Ahmad said providers maintain their clinical autonomy in a 2025 interview after the Lilly suit was filed; Fella Health did not respond to a request for comment.

Just before the close of the year, publicly traded Hims & Hers was hit with two lawsuits that invoke its corporate structure. In Massachusetts, former Hims physician Adam Kawalek alleged that its physician-owned medical groups “did not exercise independent operational authority.” And in Washington, the parents of 19-year-old Luke Tyler sued Hims, its medical groups, physician owners, and the clinicians who treated Tyler alongside his fraternity in a wrongful death suit.

“From what I have seen across multiple platforms, the shell PC model is being abused, to the disadvantage of the physician-patient relationship, and more importantly, to patient outcomes, which are at risk if this is allowed to continue,” said Kawalek.

The Tyler lawsuit alleges that Hims’ medical groups are “a mere alter ego controlled and used by Hims & Hers Health, Inc. to fraudulently circumvent the corporate practice of medicine doctrine.” The complaint alleges the actions of Hims, its medical groups, and its providers constitute a civil conspiracy that led to Tyler’s death when he overdosed on bupropion prescribed by a Hims provider for depression. Hims declined to comment on pending litigation.

Lawsuits and legislation on their own don’t establish how corporate practice of medicine doctrine will be enforced. But some of the new laws are already being put to the test.

This spring, emergency room physicians in Oregon sued to stop a health system from replacing them with a national chain. In early May, PeaceHealth reversed course after the judge indicated in hearings that the staffing change violated Oregon’s new law prohibiting MSO control over clinical decisions.

A day later, California’s attorney general announced the first major enforcement action under its new law. It alleged that a dental company violated the state’s ban on corporate practice of dentistry and engaged in false and misleading advertising, settling the case for $2.3 million.

“We will likely see more litigation and enforcement action being taken under this more aggressive posture” in California, said Fuse Brown. And while those cases don’t involve telehealth, that doesn’t mean the industry is immune.

Oregon’s Bowman was clear that he did not exempt telehealth from the state’s law “because I think they don’t warrant scrutiny,” he said in a public hearing. Instead, he said it was because it’s a relatively new field that warrants its own conversation. Corporate-scale telehealth, with companies valued in the billions, is barely a decade old. Time will tell how the law catches up.

Access this article at its original source.