In an estimated 18 states in the United States, a veterinary practice must be owned by a licensed veterinarian. You may be thinking: How do corporate consolidators solve this regulatory conundrum and operate successfully there? The short answer is that there are creative legal structures in place (that originated in the 1990s with for-profit, human healthcare corporations) that allow corporations to navigate around this requirement.

Before describing the legal structure used, it’s worth pointing out those states that require licensed veterinarians to own practices. Politically, the states include some of the bluest states– New York, Washington, and Minnesota– as well as some of the most “business friendly” (supposedly least regulated) red states– Texas, Idaho, North Carolina, Nebraska, Kansas, Iowa, Ohio, and Alabama. There is no clear logic to understanding which states that don’t allow corporations to directly own veterinary practices and those that do. Ultimately, it’s a state-by-state lobbying and regulatory issue and, practically speaking, it doesn’t matter because there are legal workarounds!

Below is a general outline of the legal structure used by most corporate consolidators to operate within states where corporate ownership of veterinary practices is prohibited:

  1. A ‘friendly’ professional corporation (PC) is formed by the corporate consolidator that is solely owned by veterinarians affiliated with the corporation. These DVMs are technically the practice owners.
  2. The PC buys or controls the medical assets of the business– including prescription drugs, lab equipment, and, most importantly, employs veterinarians and licensed technicians.
  3. A separate legal entity owned by the corporation, sometimes called a management services organization (MSO), owns the non-medical assets. These include computers, phones, among others. Usually, the MSO also controls the property through the lease with the landlord.
  4. All the revenues go through the PC that the veterinarians control (since revenues must flow through an entity owned by a veterinarian). The PC also has expenses. 
  5. One big expense of the PC is a management or administrative services fee charged by the MSO to the PC. The goal of the fee is to ‘sweep’ all the excess cash from the PC to the MSO. The way the fees are set varies by state regulation and corporation, but the end goal is to have the PC break even and all the profits to flow through the MSO.

While this structure solves the legal issue from the state, there are major risks the corporate groups take on. One risk in particular: All the revenues flow through an entity that they do not own. To mitigate this, the consolidator will utilize veterinarians that are “friendly” to the corporation, with additional controls put in place to constrain the PC owner from “going rogue” and trying to capture profits in the PC.

Each corporation has slightly different “flavors” of this structure based on their lawyer’s views of the regulations. Regardless, they all include the three core aspects: a ‘friendly PC’, the MSO owned by the corporation, and a management or administrative services fee for moving money.

This type of legal manuever has been around for about 30 years and it’s used by corporate groups to own tens of thousands of human and veterinary medical facilities. This structure has rarely been challenged, and it’s likely to continue.