Use an MSO to Comply with Federal Anti-Kickback Safe Harbors

Use an MSO to Comply with Federal Anti-Kickback Safe Harbors

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What can an MSO, a Management Services Organization, do to augment your healthcare compliance?

In today’s video, we’ll answer how the MSO can reduce the risk of enforcement and liability for your healthcare venture, by separating out the management and marketing, or business side, from the medical side of your health and wellness operation.  We’ll talk principally about two things:

One, what are the services the MSO can provide.

Two, how can the MSO fit to the federal anti-kickback safe harbor.

I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group.  Since 1999, it’s been our privilege to counsel hundreds and hundreds of healthcare industry clients every year on healthcare and FDA legal compliance issues.

First, the services the MSO can provide.   Key services an MSO can provide include management and marketing services to a medical group, physician practice, chiropractic practice, surgery center, and so on.

Management services can range from services such as the following:

  • Billing and collecting on behalf of the physician practice; front desk/scheduling; sublease of space or equipment to the PMC; hiring and managing staff (although not providing clinical direction/orders); and book-keeping and financial accounting.
  • Marketing services can include advertising, as well as overall marketing strategies and execution, marketing materials, website, social media, and so on.

The MSO must be compensated at fair market value (FMV) for its services.  As previously noted, compensation for marketing services should be a flat fee; whereas in states such as California, compensation for management services can be a percentage of gross revenues, as long as at fair market value. Note that it must be gross, not net.

Next, how can the MSO fit in an anti-kickback safe harbor.

We might have mentioned that in California, the main fee-splitting and anti-kickback prohibition is located in Business and Professions Code Section 650(a); and the safe harbor is in Business and Professions Code Section 650(b).

That safe harbor in 650(b) has three requirements:

One, the compensation is NOT for the referral of patients, but is for definite services.

Two, the compensation is based on a percentage of gross revenues or similar contractual arrangement.

Three, the compensation is at fair market value, and does not vary by value or volume of patients referred.

The federal safe harbor is a bit more complicated and has more elements.  The following must be present:

(1) The management agreement covers all the services the manager provides for the term of the agreement and specifies those services;

(2) The agreement is intended to provide for the services of the agent on a periodic, sporadic or part-time basis, rather than on a full-time basis for the term of the agreement, and if so the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals; that’s very important.

(3) The term of the agreement is for at least one year; And there are some complexities to that, but we won’t get into that in the video, but know that there are complexities.

(4) The aggregate compensation paid to the manager over the term of the agreement is set in advance, consistent with fair market value in arms-length transactions and is not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties;

(5) The services performed under the agreement do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law; and

(6) The aggregate services contracted for do not exceed those which are reasonably necessary to accomplish the commercially reasonable business purpose of the services. Notice that term, “reasonable”.

For a part-time contractor, the second element requires that the dates and times of the proposed services be set forth in the contract, and the exact charge for services in these blocks or chunks.

If you’re providing medical services that are reimbursable by Medicare, then all of the elements of the federal safe harbor ideally should be met.

If your services are not reimbursable by Medicare or another federal healthcare program, then we just apply state law. So in this case we gave you California, for example.

If this sounds like a lot to absorb, we encourage you to book a Legal Strategy with us as a starting point.  That gives us time to assess your business model or proposed arrangements, and provide valuable legal insight as well as recommendations for risk management and mitigation as a first step.

Thanks for watching this video. If you still have questions, click on the link below,, to send us a message or book an appointment. Here’s to the success of your healthcare venture, we look forward to speaking with you soon.


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    Richard Freedland GRAMedical, CEO
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    James Riviezzo Practice On Your Terms

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