Greatly related to Corporate Practice of Medicine (CPOM) laws in each state, MSOs are quickly becoming a staple in the healthcare industry.
What Is An MSO?
An MSO is exactly what the name implies: a company that handles the management side of a healthcare practice or other entity. Most MSOs exist in states where the CPOM laws forbid a particular person from owning (or wholly owning) a medical practice, but that person still wants to make money from that practice. For example, a non-licensed entrepreneur cannot have any ownership of a medical practice in states like California, Michigan, Arizona, or Texas. So, he starts an MSO and gets paid for running all non-medical aspects of the business. Instead of being paid as a W2 employee, the practice pays the MSO as a 1099 contractor. Sometimes, a licensed person, such as a nurse, is only allowed minority ownership in a practice, so the nurse could also start an MSO and make extra income managing the business of the practice. Some MSOs are owned by people who have no interest in medical practice ownership but simply want to make money in the healthcare industry by providing business services.
MSO Services
The services an MSO can provide vary depending on what the practice needs and what the MSO has the capacity to do. Services can include:
- Office management,
- Billing
- Accounting
- HR
- Recruiting of staff and other personnel
- Contract management
- IT support
- Business development
- Marketing & Advertising
Documentation
Because the Practice-MSO relationship is so tightly regulated, the arrangement between these two entities requires very detailed documentation. The parties must execute a Management Services Agreement (MSA), as well as some other documents to ensure legal compliance. Chris Esseltine at our firm has personally represented clients who were audited by state Boards of Medicine or Divisions of Corporations who had to prove they had all the necessary elements of a proper MSA. Our clients have included MSO owners who previously had poorly written MSAs who were found in violation of state MSO requirements and heavily fined. It is vital that the Provider-MSO relationship is set up in compliance with the particular state’s law and that the MSA is written with specificity and detail.
Compensation
The way a practice compensates an MSO is the trickiest element of the arrangement, and the one that could land both parties in legal trouble if done wrong. States have different laws governing compensation. Obviously, the purpose of starting an MSO is to somehow share in the profits of a medical practice. So, compensation is the key consideration for an MSO owner. However, some states have very specific requirements and restrictions for MSO compensation. For example, New York, Washington, and North Carolina do not allow compensation based on a percentage of medical practice revenue. This strictly violates their fee splitting laws. Massachusetts requires that the MSA contain a written minimum and maximum compensation. California and Texas allow a percentage, but California requires a calculation based on gross revenue, and both states have limits on what that percentage can be, based on fair market value.
The bottom line is that you are going to need help navigating the mine field that is an MSA. One wrong step can be disastrous. KAP specializes in MSOs.
Call us today for the expert guidance and legally compliant documents you need to be safe and help make your MSO a thriving success!