A licensed physical therapist can own a physical therapy practice in every state, and that is the simplest and least restricted path to ownership. Whether anyone else can own one, in whole or in part, depends on two things: the state’s corporate practice doctrine, and, if the practice bills Medicare or Medicaid, the federal Stark Law and Anti-Kickback Statute. Roughly 33 states enforce some version of the corporate practice doctrine, which limits non-professionals from controlling clinical operations. The rest allow more flexible structures, often with a licensed clinical director requirement.
Licensed Physical Therapists
A PT with an active, unrestricted license is the default and least complicated owner. No state requires a physical therapist to partner with another type of professional to open a clinic. The owner must stay in good standing with the state licensing board, which means keeping up with continuing education and renewals. If the license lapses or is revoked, the authority to operate the practice goes with it, and most states require divestment or closure at that point because the legal basis for the business disappears along with the credential.
Non-Licensed Owners and the Corporate Practice Doctrine
The corporate practice doctrine is the main legal barrier for anyone who is not a licensed clinician. In the roughly two-thirds of states that enforce it, general business corporations cannot provide professional healthcare services or employ licensed clinicians to do so. The reasoning is that an entity that cannot sit for a licensing exam, meet ethical standards, or be disciplined by a professional board should not be making decisions about patient care.
In those states, a non-licensed investor cannot hold a controlling ownership stake in a clinical practice. Contracts that effectively hand clinical control to a non-professional are unenforceable. Depending on the state, violations can bring administrative fines, loss of the clinician’s license, or criminal penalties for unauthorized practice. Enforcement varies. Some states pursue violations aggressively through case law and board actions, others have the doctrine on the books but rarely act on it, and a handful have no version of it at all.
States That Permit Lay Ownership
Some states allow lay individuals or general corporations to own healthcare clinics, including physical therapy practices, if they meet certain conditions. Those conditions commonly include registering the facility with a state health agency, appointing a licensed clinical director who oversees all patient care, passing background screenings for all owners, and paying application and renewal fees. The clinical director requirement is the key safeguard: even when a non-professional owns the business, a licensed therapist retains authority over treatment decisions.
The practical gap between a strict-doctrine state and a permissive state is wide. In one, a non-PT entrepreneur may have to set up a management company that operates alongside a clinician-owned practice. In the other, that same entrepreneur can own the practice outright, hire PTs as employees, and run the business directly. Check the state’s physical therapy practice act and call the licensing board before committing capital.
Physician Owners and the Stark Law
Physicians can own physical therapy practices, but federal law creates serious complications when the physician also refers patients to that practice. The Stark Law prohibits a physician from referring Medicare or Medicaid patients for designated health services to any entity in which the physician or an immediate family member holds a financial interest.1Office of the Law Revision Counsel. United States Code Title 42 Section 1395nn – Limitation on Certain Physician Referrals Physical therapy is explicitly listed as a designated health service.
The most commonly used way out is the in-office ancillary services exception. All three of these conditions must be met:
- Supervision. The physical therapy services must be furnished by the referring physician, by another physician in the same group practice, or by someone directly supervised by one of those physicians.
- Location. The services must be provided in the same building where the referring physician or group practice regularly sees patients. The office must be open at least 35 hours per week, and a physician in the group must furnish services there at least 30 hours per week.
- Billing. The services must be billed under the physician’s or group practice’s own Medicare billing number.
These requirements come from the implementing regulation, which spells out the hours, location, and supervision standards in detail.2eCFR. 42 CFR 411.355 – General Exceptions to the Referral Prohibition Related to Both Ownership/Investment and Compensation A physician who opens a freestanding PT clinic across town and refers patients there would not qualify. Stark is a strict liability statute, so the government does not need to prove the physician intended to violate it.3Office of Inspector General. Fraud and Abuse Laws
Outside Investors Through a Management Services Organization
For non-professionals who want a financial stake in a physical therapy business without triggering ownership restrictions, a management services organization is the standard structure. An MSO is a separate company that handles the business side of a practice: billing, marketing, human resources, lease management, and equipment purchasing. The clinical practice stays its own legal entity, owned entirely by licensed physical therapists who retain full authority over patient care. Non-licensed investors can own 100 percent of the MSO.
The MSO earns revenue through a management fee paid by the clinical practice, and that fee is where the legal risk lives. It must reflect fair market value for the administrative services actually provided. Regulators treat an inflated management fee as disguised profit-sharing with non-professionals, which can violate both the corporate practice doctrine and federal anti-kickback rules. Fixed fees tied to specific services are the most defensible. Revenue-based fees, where the MSO takes a percentage of collections, raise red flags because they look like fee-splitting. Most practices using this structure hire an independent appraiser to set the fee and document the basis for it.
The MSO contract also has to draw a clear line between administrative functions and clinical decisions. If the MSO controls hiring and firing of therapists, dictates treatment protocols, or sets patient scheduling policies based on revenue targets, regulators will argue the MSO is really practicing physical therapy without a license.
The Anti-Kickback Statute
Any ownership arrangement in a practice that bills Medicare or Medicaid also has to clear the federal Anti-Kickback Statute. The law makes it a felony to knowingly offer, pay, solicit, or receive anything of value to induce referrals for services covered by a federal healthcare program. Penalties reach up to $100,000 in fines and 10 years in prison per violation.4Office of the Law Revision Counsel. United States Code Title 42 Section 1320a-7b – Criminal Penalties for Acts Involving Federal Health Care Programs
Ownership matters here because an equity stake in a practice is itself a form of remuneration. If a physician or other referral source holds an interest in a PT practice and refers patients there, that interest can be treated as an illegal inducement unless it fits within a recognized safe harbor. Across most safe harbors, financial transactions between referring parties and the practice must be conducted at fair market value. Discounted rent, below-market buy-ins, and distributions tied to referral volume are the arrangements that attract federal scrutiny.
Which Legal Entity Can Hold the Ownership
The entity form a practice can use varies by state and shapes who is allowed to hold shares. Some states require physical therapists to form a professional corporation or professional limited liability company, which limits ownership to licensed individuals. Others take the opposite approach and bar physical therapists from using professional entities, requiring a general business corporation or standard LLC instead. A few states allow either, depending on the circumstances.
Where professional entities are required, the bylaws or operating agreement must restrict transfer of ownership interests to other licensed professionals. If an owner dies or loses their license, the governing documents need a mechanism to buy back or reassign that person’s interest to a qualified licensee. States that use general business entities still regulate PT practice through the licensing board and practice act, even if the corporate form itself does not restrict ownership.
Medicare Enrollment and Ownership Disclosure
Any physical therapy practice that wants to bill Medicare must enroll through the CMS Provider Enrollment, Chain, and Ownership System, known as PECOS.5Centers for Medicare & Medicaid Services. Manage Your Enrollment Group practices submit a CMS-855B application and must disclose every individual or organization that holds a 5 percent or greater ownership interest in the practice.6Centers for Medicare & Medicaid Services. Medicare Enrollment Application for Clinics/Group Practices and Certain Other Suppliers CMS-855B Partners in a partnership must all be disclosed regardless of their ownership percentage. The application also requires an organizational structure diagram showing how all owners and entities relate to each other.
Before enrolling, screen every owner and employee against the OIG’s List of Excluded Individuals and Entities. Anyone on that list cannot receive payment from federal healthcare programs for any items or services they furnish, order, or prescribe. A practice that employs or contracts with an excluded individual faces civil monetary penalties on top of losing the revenue from every federal claim tied to that person’s work.7Office of Inspector General. Exclusions Program Run the check before closing any ownership deal and periodically for existing staff.
What Happens When the Ownership Structure Is Wrong
Ownership problems do not stop at the state licensing board. When a practice with an improper structure bills Medicare or Medicaid, every claim submitted can become federal liability. Under the False Claims Act, each claim filed for payment that the submitter knew or should have known was false carries civil penalties between $14,308 and $28,619 per claim, plus up to three times the government’s actual loss.8Federal Register. 3Office of Inspector General. Fraud and Abuse Laws Anti-Kickback Statute violations add criminal exposure of up to $100,000 and 10 years per violation.4Office of the Law Revision Counsel. United States Code Title 42 Section 1320a-7b – Criminal Penalties for Acts Involving Federal Health Care Programs
Anyone considering buying into or starting a physical therapy practice should have a healthcare attorney review the proposed ownership against both the state practice act and the federal fraud and abuse laws before the first claim goes out.