Tennessee Practice Structure Guide: The Medical Professional Corporation Rule, Fee Limits and the Medical Spa Registry

Entity and Ownership

Tennessee's Professional Corporation Act limits a professional corporation to one profession unless each licensing law permits more, and limits shares to persons licensed in the profession, with narrow combinations for physicians with physician assistants, podiatrists or chiropractors. Names may include P.C., P.A. or S.C. The Board of Medical Examiners' rule 0880-02-.20 on medical professional corporations requires owners to be licensed physicians or entities they own, requires directors and most officers to be eligible owners, and says the charter need not be filed with the Board. It limits physician owners, officers and directors to the authority an employing entity may exercise over diagnosis, treatment and referral, and says a physician may not sign an arrangement giving the entity more control. The Board can serve a notice of violation with a 60-day cure period and then certify to the Attorney General for judicial dissolution.

Attorney General Opinion 07-116 concluded that nurse practitioners, nurses and physician assistants may not own and operate a professional corporation for medical services and that a physician may not be an employee of a non-physician provider merely to supply supervision. It left a narrow door that we do not rely on.

The Corporate Practice Position

The Attorney General opinion describes the licensing provisions as undergirded by the common-law rule of State ex rel. Loser v. National Optical Stores (1949), which says a corporation cannot practice a learned profession, and we relied on the opinion's description. The practice act lets listed employers, such as hospitals, community mental health centers, federally qualified health centers and employers for their own workforce, employ physicians, and bars employer interference with medically appropriate decisions. Subsection letters have shifted since 2007, so confirm current lettering. A 2025 law expanded hospital employment of certain specialists in smaller counties, which does not help a clinic MSO. We found no reported enforcement against a management structure.

The Management Agreement and Fees

Section 63-6-225 makes it an offense for a physician to divide a fee with anyone without the payer's knowledge and consent, and allows paying an independent contractor that provides goods or services a percentage of fees if the percentage is reasonably related to the value of those goods or services. Payments for referrals are prohibited. In Cookeville Regional Medical Center v. Cardiac Anesthesia Services (Tenn. Ct. App. 2009) a contract sending 80% of collections to a hospital was held an unlawful fee split, and the percentage exception did not apply because the split bore no relation to the services. Our reading is that a fair-market fee tied to services is supportable and a blunt percentage of all profit is exposed.

Records must be kept ten years, and on sale or closure transferred to a physician or entity held to the same confidentiality standard, with patients seen in the prior 36 months notified within 30 days. Physician non-competes are permitted by statute within limits: signed writing, two years or less, and a county or ten-mile radius or facility-based limit. A 2026 general non-compete law adds a $70,000 earnings floor, and we could not confirm how it interacts with the physician statute.

The Medical Spa Registry

A medical spa is defined as an entity, however named or organized, that offers cosmetic medical services. It must have a medical director or supervising physician who is an MD or DO with an active Tennessee license and an active Tennessee practice, and the director's name and board certification status must be displayed on site and in advertising. The registry also reaches physician-owned practices that advertise as medical spas or primarily perform elective cosmetic services, so a mostly cosmetic physician-owned practice should assume it must register. Registration is before operating and renewed every 12 months, and operating unregistered is unprofessional conduct for the director. We could not verify a test that one source described around the share of cosmetic patients.

How We Structure It

As a rule we set up a professional corporation owned by the licensed physician, with no exceptions for what looks like a more flexible state. Patients pay the physician-owned practice. The practice pays the management company a fixed monthly fee under a written management services agreement. The management company pays MedGrid a fixed monthly retainer for consulting. The MSO never practices medicine, and the physician makes every clinical decision. In Tennessee the management fee is fixed and tied to defined services, and a mostly cosmetic practice is registered as a medical spa with a Tennessee-licensed director.

Disclaimer

This article is general educational information, not legal advice. Entity and corporate practice rules change, and parts of this summary rest on secondary sources, so have health care counsel in the state confirm the structure before you form or sign anything.