Guide · Business & Contracts · Healthcare Operations

The Corporate Practice of Medicine in Illinois After Berlin

Illinois corporate-practice analysis is not a one-case slogan. Current statutes expressly identify professional entities and fee-splitting rules, while the core operational question remains who owns and controls the medical practice and professional judgment.

By Lincoln Square Law · 8-minute read

Use Berlin as context, not as the whole rulebook

Illinois discussions of the corporate practice of medicine often begin with Berlin v. Sarah Bush Lincoln Health Center, where the Illinois Supreme Court addressed the enforceability of a restrictive covenant involving a physician and a hospital employer. The case is important historical context for professional practice and employment, but a 2026 structuring analysis should not stop with a shorthand statement that “corporations cannot employ physicians.” Current Illinois statutes expressly authorize specified entity structures and contain detailed ownership and fee rules.

The practical method is to read the governing professional statutes, identify the proposed entity and owners, and then test the management and compensation arrangements. Case law informs the doctrine, but formation and operations need to be tied to current statutory text. That is especially important after legislative amendments affecting professional entities and physician fee splitting.

Section 22.2 is a central operating rule

Section 22.2 of the Medical Practice Act prohibits a licensee from directly or indirectly dividing or sharing professional fees or other compensation for professional services in exchange for referrals or otherwise, except as the section permits.

It also provides that physicians may practice through or within specified legal entities and sets ownership conditions and exceptions. For management structures, subsection (f) is particularly important because it addresses percentage-based payments for marketing, management, network participation, negotiation, and similar arrangements outside permitted owner/licensee payments.

That means corporate-practice analysis is inseparable from economics. A structure can look clean on an organizational chart while the management agreement creates the real compliance problem. Review how every dollar tied to professional services moves: patient or payer revenue, physician compensation, management fees, rent, billing fees, marketing fees, debt service, and distributions. The legal structure and the payment structure should tell the same story.

Professional ownership is not a passive formality

The Professional Service Corporation Act and Professional Limited Liability Company Act impose licensed-professional requirements. For medical PLLCs, section 13 specifies permitted members and requires managers, if any, to be licensed to practice medicine, subject to the statute's detailed categories. These requirements are not solved by naming a physician as a nominal owner while an unlicensed company exercises all meaningful control.

Governance documents should give eligible professional owners the authority the structure represents. Voting rights, manager appointment, admission of new owners, sale of equity, clinical employment, and professional policy should be examined together. Side agreements, proxies, options, debt covenants, or management vetoes should not silently transfer the practical control that professional ownership is supposed to carry.

Separate clinical control from administrative support

A nonclinical management company can support a medical practice without making medical decisions. The services agreement should distinguish administrative functions, including facilities, technology, nonclinical personnel, bookkeeping support, procurement, marketing support, and other business services, from matters reserved to licensed professionals.

Clinical standards, diagnosis and treatment, supervision of professional services, patient-specific judgment, and other licensure-dependent functions should remain with the professional practice and its licensed leadership.

The line is not always captured by a generic clause saying “MSO will not practice medicine.” Review the actual approval rights. Who can terminate a physician? Who sets clinician schedules? Who approves clinical vendors? Who controls medical-record access? Who selects referral relationships? Who can change compensation in ways that influence clinical decisions? Operational vetoes can matter more than labels.

Management fees need a statutory and economic review

Percentage-of-revenue management fees deserve careful review under section 22.2. The statute restricts specified percentage payments from professional service fees, revenues, or profits to nonowners/nonlicensees for management, marketing, network participation, fee negotiation, and similar functions, subject to statutory text and exceptions. A management company should not assume that a common national MSO formula works unchanged in Illinois.

Consider fixed fees, cost-based reimbursement, fair-market-value service charges, or other structures that fit the services and current law. Document what the MSO actually provides and how the fee was derived. The objective is not to create artificial complexity. It is to make the compensation supportable as payment for real administrative services rather than an indirect share of professional fees.

Control the bank accounts and billing flow deliberately

Billing architecture is a control point. Identify which entity is enrolled with payers, which entity bills for professional services, where collections are deposited, who has account authority, and how management fees are paid. Sweeps and lockbox arrangements can be commercially useful, but the professional entity should not become a shell with no practical control over its own receivables or obligations.

Payment mechanics should match contracts and accounting records. If the MSO advances payroll or vendor costs, document the advance. If the practice pays shared expenses, document the allocation. If a bank covenant gives a lender control rights, analyze those rights alongside professional ownership requirements. Financial controls should protect both businesses without displacing legally required professional control.

Employment documents must match the entity model

Physician employment agreements should identify the correct professional employer and align clinical supervision with the practice's governance. The MSO may employ nonclinical personnel and provide administrative support, but mixing clinical and administrative employers without a clear plan can confuse supervision, benefits, restrictive covenants, professional liability coverage, and ownership of work product or records.

Review compensation formulas for referral sensitivity and fee-splitting concerns. Productivity measures may be lawful and commonplace, but the agreement should not reward conduct that conflicts with fraud-and-abuse, payer, or professional rules. The entity model should also address professional liability insurance, tail coverage, credentialing cooperation, patient-record transition, and the consequences of suspension or loss of licensure.

Do not ignore the exceptions

Illinois statutes recognize entities and circumstances beyond physician-owned PCs and PLLCs, including specified hospitals, hospital affiliates, ambulatory surgical treatment centers, nonprofit arrangements, and other statutory categories. A careful analysis identifies whether an exception actually applies rather than forcing every healthcare organization into the same template.

Exceptions should be documented with the facts that support them. If the structure depends on hospital status, nonprofit status, ownership composition, or another statutory characteristic, preserve the relevant organizational and licensing evidence. A business should be able to explain why its structure fits the exception without reconstructing the theory years after formation.

Test every control right in the MSO agreement

Before signature, list each MSO approval, veto, appointment, removal, budget, bank, staffing, contracting, and termination right. Classify it as administrative, economic protection, or potentially professional control. Then revise rights that cross the intended boundary. Long-term exclusive agreements, purchase options, succession mechanisms, and security interests deserve the same review because they can shift practical control even if the equity ownership chart does not change.

Also plan termination. The practice should be able to continue patient care if the management relationship ends. Address access to records, phone numbers, domains, payer data, staff transition, software exports, lease rights, and billing runout.

A structure that preserves professional independence only while the parties cooperate is fragile.

Use a facts-first corporate-practice checklist

For each structure, answer: what professional service is being provided, which entity provides it, who owns that entity, who manages it, who employs the clinicians, who makes clinical decisions, who receives professional revenue, how the MSO is paid, who controls records and bank accounts, which statutes authorize the ownership, and which exceptions are being relied upon. Attach the organizational chart and agreements that support each answer.

That checklist turns corporate-practice analysis from a slogan into an operational review. Berlin remains part of the legal background, but the day-to-day compliance question is whether the current structure, contracts, money flow, and control rights fit current Illinois law. The company should be designed so the answer is visible in both the documents and the actual operations.