Drug manufacturer Eli Lilly has filed suit against four companies involved in making, prescribing, and/or selling compounded versions of its weight loss and diabetes drugs ZEPBOUND® and MOUNJARO®.

Lilly’s drugs, injected under the skin, are the only FDA-approved medicines containing tirzepatide in the United States.

Two complaints, filed April 23 in the U.S. District Court for the Northern District of California, contend that the founders and chief executive officers of Mochi Health Corp. (“Mochi Health”) and Fella Health exerted control over multiple affiliated entities, including medical groups, in violation of California law prohibiting unlicensed individuals and corporations from practicing medicine (generally known as the “Corporate Practice of Medicine” or “CPOM” laws). The plaintiffs allege unfair competition and false advertising under state law and the Lanham Act; and assert state CPOM claims through supplemental and/or diversity jurisdiction.

This latest development on the drug compounding front comes at a time when states are keeping a sharp eye on private investment in the health care space—increasingly proposing legislation to strengthen CPOM laws and also increase oversight on corporate transactions involving health care entities. The majority of U.S. states have some form of CPOM restriction, and some, including Oregon, Texas, and Washington, are considering taking steps advocates say will strengthen theirs—with proposals, for example, to prevent private equity groups or hedge funds from interfering with health care decisions and limiting or eliminating common forms of affiliation with professional medical practices.

Though it was eventually vetoed by the governor, California’s AB 3129 would have explicitly prohibited activity that would likely already violate the state’s CPOM laws (see a previous EBG blog post on the subject) and current California AB 1415 has resuscitated many of those provisions for the current legislative session. Oregon’s proposed HB 4130, which did not pass the state Senate, would have strengthened requirements for professional corporations organized to practice medicine (see another previous blog post). Earlier in 2025, we explored the current landscape of proposed U.S. state legislation with respect to health care corporate structures, some with CPOM provisions. Here, we discuss the CPOM aspects of the Eli Lilly lawsuits, below.

Mochi Health

Mochi Health prescribes and sells compounded tirzepatide to patients. Neither of Mochi Health’s two owners—who are husband and wife—are licensed physicians. Yet the latter, who serves as CEO of Mochi Health, has allegedly represented that she has experience as a doctor and that her business was developed by doctors. The Mochi suit includes in its state law unfair competition claim 1) unlawful corporate control of practice of medicine and prescription practices; 2) the issuance of prescriptions without a medical indication; and 3) unlawfully holding the CEO out as a licensed physician.

As the lawsuit states, California law restricts unlicensed individuals and corporations from engaging in the practice of medicine. The complaint alleges violations of California Business and Professions Code § 2052 prohibiting the unlicensed practice of medicine and covering those who advertise or hold themselves out “as practicing, any system or mode of treating the sick or afflicted…or who diagnoses, treats, operates for, or prescribes” for any physical or mental condition.

The complaint also alleges violations of § 2054, prohibiting individuals from holding themselves out as a physician if lacking a valid license. Unlicensed persons, whether individuals or corporations, cannot employ physicians or engage in the practice of medicine under §§ 2400 et seq.; a corporation cannot hold a medical license. The California Medical Board has also determined that certain decisions—including the need for diagnostic tests, the need for referrals, control of medical records, hiring/firing of medical staff, and alterations to prescriptions—may only be made by a physician.

The complaint alleges that defendants are “entangled in and exercise control over multiple entities” involved in tirzepatide prescribing, compounding, and distribution activities. These include 1)  Mochi Medical, an affiliated medical services provider to which Mochi Health refers patients (the wife is allegedly the CEO of both Mochi Health and Mochi Medical, and the appointed director of the latter is reportedly the wife’s father); 2) a pharmacy that supplied Mochi Health’s patients with compounded tirzepatide (the pharmacy is allegedly owned indirectly by the husband); and 3) a distributor that imports weight loss drugs to the pharmacy from China (the wife reportedly serves as governor of the distributor).

The complaint alleges this corporate arrangement violates California law, noting that “Mochi Health and its unlicensed owners exercise undue influence and control over, among other things, the prescribing decisions of physicians at Mochi Medical and, as a result, engage in, and aid and abet, the unlawful corporate practice of medicine,” the plaintiffs contend.

The plaintiffs further claim that Mochi Health—without patient specific or medical reasons—switched dosages and prescriptions for patients, which involved ordering changes to the additives mixed in with the compounded tirzepatide drugs and changing dosages “to non-standard doses that have never been studied.” The complaint alleges that these changes were made en masse and were performed to improved the “business’s bottom line and [in] the mistaken belief that [such] alterations would all [the business] to continue selling—and making money from—knockoff tirzepatide.”    

Fella Health

Fella Health prescribes and sells compounded tirzepatide to patients. The lawsuit against Fella Health claims that company is “engaged in the unlicensed practice of medicine on multiple fronts,” with non-physicians offering unlicensed medical advice to patients and also modifying prescriptions without a patient consultation or a prior determination by a physician that the modification is medically necessary.

Fella Health allegedly directs its customers to Fella Medical Group, P.A., a Florida professional association and Fella Medical Group, P.C., a California professional corporation, which Fella Health advertises as “independent medical groups.” The nonphysician founder and CEO of Fella Health is also the CEO of Fella Medical Group P.A. and the lawsuit alleges that he exercises control over both “independent medical groups.”

The complaint further alleges that this nonphysician CEO, and other nonphysician employees communicate directly with patients through social media, text, and phone calls. The communications reportedly included giving medical advice, increasing dosages of patient medications, changing prescriptions without good faith examination by a licensed professional or medical indication; and accelerating titration schedules for financial gain.

“Under California state law, unlicensed persons cannot own and control medical practices, Bus. & Prof. Code §§ 2400 et seq., § 2052, or exercise undue control or influence over clinical decisions and doing so constitutes unfair competition,” the complaint states, asserting later: “Beyond [the] control over Fella Medical Group, Fella also engages in the corporate practice of medicine by allowing non-physicians to offer medical advice to customers and by modifying patient prescriptions for business reasons, not medical ones.”

The claims against Fella include unlawful corporate control of practice of medicine and prescription practices in violation of the California Unfair Competition Law, false advertising in violation of the same law; false or misleading advertising promotion in violation of the Lanham Act; and civil conspiracy claims.

Takeaways

Entities operating in the health care space, especially those using a “friendly PC” or “captive PC” affiliation model, need to exercise caution to prevent non-physicians from exercising unlawful control over physician decision-making. This lawsuit demonstrates that all companies need to evaluate whether their business model complies with state CPOM restrictions – and provides a theory by which competitors may allege claims for financial damages related to a company’s actual or alleged non-compliance. Non-physician entities—whether telemedicine companies, private equity groups, medical spas, etc.—affiliated with medical groups need to evaluate whether they have appropriate controls in place to separate the administrative functions of the platform and the business operations from the clinical decision making at the medical practice.  As alleged in this suit, compliance is a question of “on the ground” operational fact as much as it is one of appropriate legal structure and documentation.

Christopher R. Smith, Erin Sutton, William Walters, and Ann W. Parks contributed to this article