So you’d like to create an MSO for a telemedicine company.

Okay, we just had this question today. Actually the COO for a very famous doctor, whose name I won’t reveal, came to us today and said, “Hey, we would like to create an MSO for this doctor. And he has a lot of other doctors that want to jump in. You know a lot about MSO, so what’s the best way to do this? What should we do?”

Hi, I’m Michael H. Cohen. I’m founding attorney at Cohen Healthcare Law group. We help healthcare industry clients, just like you, navigate the very tricky waters of healthcare and FDA legal compliance.

So let’s take this question today, “Can I create an MSO?”

Sure. You could do it.

How do you do it?

It’s so simple. You can come to us or really you could go to a vendor and you can create a company and you can call that an MSO. It’s not a big deal. In fact, I have this special thing. See, it’s called the magic wand. Poof, you’re an MSO, not a big deal. An MSO is just a name. It simply tells you that you have a vehicle. You have a business. And that that business is meant to be engaged in a management and marketing capacity or an admin capacity, not in a clinical capacity.

Why do you have it? It helps you with two things. It’s a vehicle.

The two things that helps you with are, corporate practice of medicine concerns. The MSO is not going to be practicing medicine. The MSO is not going to be in trouble with regulators or private plaintiffs that might want to jump on the bandwagon in terms of having its activities denoted as clinical activities. The MSO is just a vehicle. These are not the droids you’re looking for. All we do is management and marketing. We’re an MSO.

The second consideration is the fee-splitting and anti-kickback prohibitions. The MSO can’t split fees with doctors. It takes a fee or a set of fees at fair market value for its nonclinical services. So that’s the concept behind the MSO. Now as to this particular group, should the doctor have an MSO? Well, aside from realizing now, okay, you’re just going to have to edit this thing.

Now we talked about the reasons to have an MSO. The other thing to realize is that having an MSO means that the doctor or whoever he or she is putting in charge of this thing, they’re going to be wearing a different hat than the one that the doctor wears as a clinician. It’s a separate hat.

You have two hats, two roles. One role, you’re a clinician. You see patients, you give advice, you might have other clinicians. They might be other doctors. They might be nurses. They might be psychologists. They might be social workers, other mental health therapists. These practitioners might be dependent like an RN on an MD. They might be independent like a clinical psychologist or a dentist, different than MD or DO. They might be allied health professionals, they might be within conventional medicine, like an orthopedic surgeon, or they might be integrative medicine or complementary medicine professionals like an acupuncturist.

But however you style it, those are all clinical endeavors. And then you’ve got your MSO, which is on the business side. So you’re separating these two. And to the extent, here’s the key. If you’re setting this up and you’re the doctor, or you’re setting this up and you’re the chiropractor. You have two different roles. You have one is the clinical hat or role. And then secondly, you’ve got this admin, MSO role. The third thing you need to understand is now that you have these two entities, one we created with a magic wand, or you formed your entity through a vendor, through a service, not a big deal to form an entity.

Although there are things that you need to think about that we can help you with. Like who’s going to be in that entity. Who are your shareholders? Do you want them to be shareholders? What obligation do you and the company have to your shareholders? How do you navigate all this? Should you put a buy, sell agreement in place at the outset so that everything is lined up if for some reason the business relationships don’t work. You don’t just want a partnership. So poof, you can create your entity, but you want to think about who gets what and what goes into the entity. So those are the things that you want to think about and we can help you with those strategic decisions.

And so the third thing is that now that you have these two entities, you have your clinical entity, like your professional corporation or PLLC, perhaps in some States. And then you’ve got your MSO, which is a general corporation or an LLC where the hats that are being worn are nonclinical. Now you have a relationship between those two and you have what we call an MSO agreement, a management services organization agreement. That’s the agreement between the MSO and the clinical entity, which again helps dispel corporate practice of medicine and the anti-kickback fee splitting concerns by saying here’s what the MSO does very clearly. It’s within their wheelhouse. Very clearly it’s nonclinical. Here’s how the MSO gets paid, which is at fair market value for its services. Now, one thing I want to say is we’ve seen and drafted and revised and amended hundreds and hundreds of MSO agreements.

And there are common elements and there are also things that are unique each and every time. The deal points are unique. There might be unique ways that you protect yourself depending on whether we represent you as the MSO, or we represent you as the clinician, for example, termination, how quickly can the MSO or the physician or the physician group terminate, when can they get out? What’s the deal, who has the control, who has the leverage there? Indemnification, who indemnifies whom for what, are there any limitations on liability and so on and so forth. The one final point I want to make here about MSOs is don’t get too creative. We’ve seen things where the MSO does everything. It makes loans. It has all these different funky accounting things built into the agreement.

And at the end of the day, when you start doing a lot of fancy footwork, guess what, we’re going to notice as your lawyers, but also if that document ever gets reviewed, the regulators are going to notice. So you don’t want this business in a box concept where the MSO is really pulling all of the strings. And very obviously so, through the document, because that’s a giveaway for corporate practice in medicine. So don’t get too fancy. If it looks too good to be true, it probably is.

Thanks for watching. Here’s to the success of your healthcare venture, we look forward to speaking with you soon.