Healthcare Business and Transaction Issues for Medical Practices

Healthcare Business and Transaction Issues for Medical Practices – Part One

New and existing medical practices need experienced healthcare business and compliance lawyers – from the start of their practice through the lifetime of their practice. A skilled healthcare lawyer will help the practice address what business structure should be used to help comply with federal and state regulations.

The correct business structure and the correct best business practice policies can help separate the different functions of the medical practice. The main functions of a medical practice include the practice of medicine, the administrative control of the medical practice and the marketing of the medical practice.

  • It’s critical to separate these practice components to reduce the risk of Stark and Anti-Kickback Statute (AKS) violations.
  • It’s critical to separate the various functional parts of the medical practice to reduce the risk of FDA and FTC complaints as well as complaints from other federal and state agencies.
  • The correct practice structures also help ensure that that practice isn’t charged with the corporate practice of medicine or the unauthorized practice of medicine.

In addition to regulatory compliance issues, the correct business structure for you medical practice can help clarify:

  • The daily protocols for operating the medical practice
  • Who controls the medical practice and who controls the business practice
  • Business and medical practice succession issues when a physician leaves or enters the practice or when a doctor dies or becomes incapacitated
  • The rights and limitations of creditors
  • Many other legal, business, and medical issues

Why should your medical practice consider a Managed Service Organization (MSO)?

An MSO, according to Cope Health Solutions, provides a variety of administrative and management functions for health care practices. Two of the core reasons health practices should consider using an MSO are:

  • To reduce the risk that their referral arrangements and business relationships will violate Stark Law, the AKS law, and other fee-splitting arrangements.
  • To reduce that medical decisions and operation decisions will overlap resulting in a charge that the practice is in violation of state corporate practice of medicine laws and laws regulating the unauthorized practice of medicine.

MSOs, and the services MSOs offer, come in many different sizes and shapes. “The governance, structure and functionality of a MSO is unique to the risk bearing entity, such as a health system, IPA (and in California Restricted Knox Keene entities) or medical group it is designed to serve.” Health practices can use an MSO for a solitary function or for a range of functions.

In considering the type and extent of an MSO, the health practice needs to consider different factors including:

  • IT and other infrastructure needs
  • Marketing and advertising needs
  • Operational needs
  • Vendor contracts
  • Multi-payor arrangements
  • General planning and assessment needs and requirements

The main idea behind an MSO is that the medical practice (physicians, nutritionists, chiropractors, mental health provider, physical therapy, or other health care service provider) should be set up so that the health providers can focus on the clinical side of the practice while the MSO manages the administrative side of the practice.

What are the advantages of an MSO?

The skilled healthcare lawyers at Cohen Healthcare Law Group, PC, understand the advantages and disadvantages of using a managed service organization.

Some of the advantages include:

  • Cost and quality benefits. An MSO can help standardize the delivery of medical care management across the medical practice. This includes stratifying risk, managing care delivery, managing staffing, health reporting, and analytics. Central management helps provide consistency.
  • Better efficiency and economy of scale. “By creating economies of scale, an MSO incentivizes the health system to seek partnerships that will increase membership and reduce PMPM [per member, per month] administration costs.”
  • Expanding the provider network. MSOs can help attract potential providers because the practice can focus on medicine without the burden of administrative and management functions.

An MSO also helps to maximize multi-payor managed care arrangements.

What typical services does an MSO provide?

MSOs typically provide three types of services:

  • Strategic and Administrative Services
    • Network management. This includes such items as credentials of the health providers and governance oversight.
    • Financial management. This includes payor contracting, payments, and reporting.
    • Provider member services. This category includes claims administration, a call center, and physician leadership.
  • Clinical or Operational Program Design
    • Clinical guidelines and programs. This category includes patient transition and care management.
    • Clinical operations. This category includes performance and quality improvement, training, and development.
    • Program delivery. This can include home care, remote care, and practice integration
  • Clinical decision support and Technology Enablement Service
    • Acquisition of data.
    • Analytics.
    • Care Management.

Common MSO services include such things as:

  • Front desk/scheduling
  • Sublease of space or equipment
  • Book-keeping
  • Billing and collecting on behalf of the physician or other clinical practice, or healthcare company
  • Staffing (i.e., vetting clinical candidates for the clinical practice; payroll functions)

The MSO model can be deployed in many ways for the healthcare practice or healthcare venture.

An example of the benefit of an MSO

One example of how an MSO can be useful is the following.

“A licensed medical doctor has a successful plastic surgery, dermatology, and aesthetic and cosmetic medicine practice and wishes to duplicate this model, using his or her brand name, across cities. For instance: Beverly Hills, Palo Alto, Sacramento and San Diego.”

“The MD would keep the clinical staff (RN, NP, PA, medical assistant, and medical technicians) within his or her professional medical corporation. Our healthcare legal team would create an MSO for the administrative and marketing side of the venture, and we would create the legal agreement between the professional medical corporation and the MSO.”

The limitations of the MSO model

The California Practice of Medicine website specifically states:

“Note: This area of law can be complicated, therefore physicians are encouraged to discuss their medical practices and business enterprises with appropriately knowledgeable legal experts. The Medical Board of California continues to receive complaints and inquiries about the law, and some repeating issues are presented here.”

The main limitations of the MSO model, which can be addressed if the boundaries between the MSO and medical practice are made clear – in writing – are:

“Any person who practices or attempts to practice, or who holds himself or herself out as practicing…[medicine] without having at the time of so doing a valid, unrevoked, or unsuspended certificate…is guilty of a public offense.”

“Corporations and other artificial entities shall have no professional rights, privileges, or powers.”

California implemented the prohibition against the corporate practice of medicine, the Medical Practice Act, to prevent unlicensed people from influencing or interfering with a doctor’s professional judgment.

A few examples of conduct that the California Practice of Medicine law is designed to prevent include:

  • “Determining what diagnostic tests are appropriate for a particular condition”
  • “Determining the need for referrals to, or consultation with, another physician/specialist.”
  • Preventing having unqualified personnel being responsible for the patients overall care including treatment options.
  • Requiring that a doctor see a set number of patients within a given time frame.

States other than California have similar laws against the unauthorized practice of medicine and the corporate practice of medicine.

What duties should the medical practice control?

A licensed California physician (and not an MSO nor anyone else including any designated health care facilities) should make the following medical decisions:

  • Determining which diagnostic tests should be used for the patient’s medical condition
  • Determining whether referrals or consults with another doctor or specialist are required
  • Setting the patient’s overall care requirements including treatment options
  • Determining how many patients a physician must see during a given time frame
  • Controlling the patient’s medica records
  • Choosing (hiring and firing) of doctors, medical assistances, and allied health staff
  • Establishing the guidelines for physician/third-party payer contracts
  • Establishing the coding and billing procedures for the services provided to the patient
  • Choosing what medical equipment and medical supplies the medical practice uses

The Medical Board of California specifically provides: “The types of decisions and activities described above cannot be delegated to an unlicensed person, including (for example) management service organizations.”

The following types of medical practice ownership and operating structures also are prohibited:

  • Non-physicians owning or operating a business that offers patient evaluation, diagnosis, care and/or treatment.
  • Physician(s) operating a medical practice as a limited liability company, a limited liability partnership, or a general corporation.
  • Management service organizations arranging for, advertising, or providing medical services rather than only providing administrative staff and services for a physician’s medical practice (non-physician exercising controls over a physician’s medical practice, even where physicians own and operate the business).
  • A physician acting as “medical director” when the physician does not own the practice. For example, a business offering spa treatments that include medical procedures such as Botox injections, laser hair removal, and medical microdermabrasion, that contracts with or hires a physician as its “medical director.”

How does a skilled healthcare lawyer help your medical practice use an MSO?

While there are many legal and practical advantages to using an MSO, there are also restrictions and limitations on MSO interference with the patient care the physicians and other healthcare providers give to their patients. An experienced healthcare lawyer can help negotiate and draft agreements with MSO to help your manage your practice while addressing the federal and state compliance laws.

Our experienced healthcare lawyers advise medical practices, behavioral healthcare practices, therapy practices, and other practices on some of these complicated issues for using an MSO:

  • Compensation. The medical practice can only pay the MSO for its services based on fair market value
  • Hiring and firing. The medical practice, and not the MSO, must control the hiring and firing of the medical staff the practice supervises including nurses, physician assistances, and medical assistants
  • Diagnosis and treatments. The physician has control for the care of the patient. This includes the way the practice is branded – even though the MSO does the day-to-day marketing for the medical practice.

The physician must control patient referrals to other providers, to laboratories, and other medical service providers. “The compensation arrangement with the MSO must be carefully reviewed to mitigate risk of enforcement. And there is a risk that enforcement authorities could view the pre-packaging of therapeutic services by the MSO as a “program” for the customer or patient, as an illegal inducement to refer from one provider to another.”

Generally, a medical corporation is the required business structure for a medical practice. To help the practice focus on patient medical care, a managed service organization is often used to handle the administrative side of the practice. Experienced health care lawyers work to craft nuanced solutions that address the medical and business needs of the practice – while also balancing the needs to comply with federal and state laws. There are many advantages, but some limitations, to using an MSO.

Medical practices should contact Cohen Healthcare Law Group, PC for legal advice on business formation and compliance issues. Our experienced healthcare attorneys help general practices and specialty practices with their medical requirements, business needs, and legal concerns.

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