In the realm of healthcare, there is a noticeable proliferation of Management Services Organizations (MSOs). These entities are versatile, serving diverse purposes and assuming various forms. The esteemed legal team at Holt Law takes pride in creating MSOs nationwide (with co-counsel under the ethics rules of local jurisdictions not in direct practice) while providing exceptional advisory services to a myriad of clients. Our experts strategically guide our clients on leveraging an MSO to achieve their business objectives.
What is a Management Services Organization (MSO)?
A Management Service Organization (MSO) is an entity that extends non-clinical services to entities like medical practices, ambulatory care facilities, or alternative healthcare providers. These provided services might encompass any or all of the following:
– Revenue Cycle Management
– Billing and Collection Processes
– Accounts Payable Functions
– Payer Negotiations and Credentialing Services
– Non-Clinical Staff Employment Provision
– IT Solutions
– C-Suite Administrative Support
– Human Resource Operations
– Marketing Initiatives
– Space and Equipment Leasing
-DME & Drug Supply Chain Services
Predominantly leveraged as a means for non-medically trained individuals to lawfully own an operation providing administrative support to medical practices, MSOs can also act as a supplementary revenue channel for medically trained practitioners preparing to retire from active clinical practice.
Key functions of MSOs include:
- Offering specified practice management along with varied administrative assistance including billing/collection, delivering EHRs, payer credentialing, employing and managing non-clinical staff members plus other operational services.
- Their ownership structure may incorporate physicians only, non-medically trained personnel only or possibly both categories in tandem.
- Procuring business critical assets such as office space or equipment then leasing these assets back to a specific practice.
- Tailoring strategies combining group buying power potentially leading towards malpractice insurance discounts, data aggregation possibilities thus enabling economies of scale beyond what solo operations could achieve sans their intervention.
Finally maintaining focus on alleviating affiliated practices’ burdens by shouldering additional administrative responsibilities ensuring clinicians remain focused primarily on high quality patient care delivery appears central among key benefits associated with engaging MSOs in professional medical contexts.
Why create a Management Services Organization (MSO)?
Management Services Organizations (MSOs) are constituted under a multitude of circumstances. However, their primary purpose remains the delegation of non-clinical, administrative facets pertaining to medical practices or facilities to an independent business unit which can legally be owned by non-licensees – individuals Management Service Organizations (MSOs) are established for various reasons, predominantly to delegate the non-clinical, administrative operations of a medical practice or facility to an entity that can legally be possessed by non-licensed individuals, such as non-medical professionals. In several jurisdictions, ownership of medical practices is restricted solely to licensed physicians and other certified healthcare providers. This substantially narrows down the pool of potential investors in a medical practice and consequently restricts its financial valuation.
Contrarily, an MSO which provides strictly non-clinical services may have owners who are not license holders. These may include venture capitalists, private equity investors or hospitals, or kinfolk of doctor-owners within a particular practice. The adaptability concerning ownership possibilities renders MSOs preferential under various circumstances:
- To cultivate value in a firm potentially owned by external investors or non-physician associates aligned with the practice.
- As an asset preservation measure aimed at mitigating overall exposure faced by a medical establishment due to malpractice liability risks.
- During estate planning
- To centralize the administrative functions across multiple practices for achieving improved cost efficiency through economies of scale.
- For streamlining administrative functions ahead of selling stakes to private equity firms within large group practices.
- To establish “captive practices” or “friendly physician” frameworks in regions with stringent laws governing corporate medicine practices.
How to create a Management Services Organization (MSO)?
A Management Service Organization (MSO) can be established either as a Limited Liability Company (LLC) or as a General Business Corporation. The selection of the entity type is typically influenced by legal and accounting factors. Furthermore, an MSO may be instituted in a jurisdiction outside the state where the medical practice operates. To illustrate, due to Delaware’s favorable business laws, numerous MSOs choose to incorporate their businesses either as LLCs or corporations within this state.
Following the formation of an MSO, it becomes necessary to outline ownership documents that will regulate the rights and duties of its investors. Plus, for developing any potential business relationships including management fees between itself and practices/facilities in question (as mentioned below), an MSO would have to ink a Management Services Agreement(MSA).
If there were non-clinical employees whose responsibilities are assumed by the practicing facility along with space equipment or IT services then such items must be transferred from the practice onto the MSO post-agreement taking shape. It should also note that leases could potentially get assigned out to these newly formed entities with assets being contributed towards operations through various forms like purchasing stakes into companies and contributory measures alike.
A Management Service Agreement (MSA) is a formal document that limits the conditions of business engagement between a Management Services Organization (MSO) and a medical institution or other healthcare economy. This comprehensive agreement provides express clarification on all tasks expected from the MSO, including explicit omission of duties such as clinical services.
It’s critical for parties involved to distinguish clearly between the health institution’s clinical roles and non-clinical functions undertaken by MSOs. Let it be known that essentially, MSOs exist merely as service providers for these institutions. In most jurisdictions, clinics must demonstrate autonomy, particularly regarding clinical services.
However, both parties often aspire to empower MSOs with authority substantial enough to effectively manage institutional operations while producing management fees conducive to generating returns for its investors. The drive towards this objective often propels those involved into establishing an extensive MSA complete with stringent obligations specifically for the institution along with long-term commitments potentially lasting five years or more.
An archetypal MSA might encompass:
– Duration and Cessation Provisions
– Limiting Conditions
– Indemnity Provisions
– A provision where an asset security interest is conferred upon the practice’s accounts receivable in favor of the MSO contingent upon legal consent.
– An inventory of managerial activities
-A pricing chart indicating charges corresponding to each administration service provided by the MSO.
How to do private investors (non-healthcare professionals) get involved with a Management Services Organization (MSO)?
Investors in private equity intent on amassing revenue within the heavily regulated healthcare sector require an instrument that steers clear of breaching the prohibition against ownership of medical practice by non-physicians. The MSO model provides a conduit through which these firms can purchase the tangible assets of a practice, subsequently lease them back to it, whilst proffering administrative functions for an agreed management fee.
Medical practices that have successfully entrenched this MSO approach present a more appealing prospect for private equity investors due to their pre-existing infrastructure and reporting mechanisms. This not only simplifies due diligence procedures but also potentially shortens the timeframe needed to finalize a transaction.
Legal Considerations for a Management Services Organization (MSO)?
The feasibility of proposing an MSO model necessitates careful evaluation, taking into account a range of Federal and State regulations. Investors are strongly recommended to engage legal counsel experienced in these respective laws which include, but is not limited to:
Corporate Practice of Medicine Doctrine (CPOM)
The prohibition on the “corporate practice of medicine” (“CPOM”) serves as a safeguard to prevent commercial interests from encroaching upon the independent clinical judgment of licensed practitioners. Central to this restriction is the concept that laypersons, in comparison to regulated medical professionals, are more likely swayed by financial gains. Consequently, professional groups solely owned by physicians comply with CPOM guidelines.
In jurisdictions strictly adhering to CPOM regulations, it is prohibited for a Management Services Organization (MSO) to employ clinicians including physicians; whereas jurisdictions with lenient CPOM statutes may permit an MSO’s employment of such personnel given there is no incursion into their clinical decision-making autonomy.
Subsequently, if it is discovered that non-licensed individuals exert control over medical practices, they could be liable for:
- Disciplinary measures due to unauthorized engagement in medical practices or infractions against laws pertaining fee-splitting and self-referral prohibitions.
- Contestations brought forward by payors questioning the structure of these practices— potentially leading all claims submitted by this entity deemed fraudulent — inducing considerable monetary recoils.
Fee splitting rules
Beyond the prohibitions established under the Corporate Practice of Medicine (CPOM) doctrine, several states also prevent physicians from sharing revenue derived from their healthcare services with non-medical practitioners. Similar to the CPOM restriction, this prohibition on fee-splitting is founded on the principle that financial incentives should not overrule patient care decisions which impact individuals’ health and well-being.
Stark Law
The Stark Law, officially known as the Federal Physician Self-Referral Legislation, outlines stringent provisions prohibiting physicians from referring patients to healthcare entities for specific designated health services (DHS) that are subject to payment by Medicare or Medicaid when there exists a financial relationship between these mentioned entities and the physician themselves or their immediate kin. This law is applicable unless an appropriate exemption is identified. For the clarity of this statute, it should be noted that said ‘financial relationships’ comprise both ownership stakes as well as remunerative configurations.
Anti-Kickback Statute (AKS)
The Anti-Kickback Statute (AKS) introduces punitive measures for those who consciously and deliberately propose, administer, entreat or accept any form of compensation either; (A) as an exchange for directing an individual to a third party for the provision or orchestration of any items or services eligible for payment which is partially or fully covered by a Federal Healthcare Program (inclusive of Medicare and Medicaid), or alternatively; (B) in reciprocity for acquisition, leasing, requisitioning, organizing ,or advocating the procurement, rental or ordering of any goods, amenities, services/options that are eligible partial/complete payment under a Federal healthcare scheme. The term “compensation” encompasses broadly any transferable value directly/indirectly significant as tangibly/materially valuable monetarily/in-kind rewards including clandestine exchanges. Breaching the protocols set out by AKS constitutes a criminal offense potentially leading to severe penalties such as fine(s) amounting up to $25k per violation incident along with sentencing up-to 5 years imprisonment terms if found guilty. Conviction could lead also disqualification from participation in government-funded programs.
Invest in experienced legal counsel in this area to avoid legal pitfalls.