In today’s video, we answer questions about the flow of payments between an MSO and a professional medical corporation.

Hi, I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group. We help healthcare industry clients just like you, navigate healthcare and FDA legal issues so you can grow your healthcare business.

This healthcare startup wants to avoid Corporate Practice of Medicine legal snags.  The venture actually consulted another healthcare lawyer but they’re unsure whether their MSO Agreement even works.

They have two questions, fundamentally.  One, if the professional medical corporation collects all the patient revenues and remits a portion to the MSO, is it going to appear to outside investors that the professional medical group is the real entity in charge?

Does this make the MSO appear “incidental?” Or, will the professional medical corporation “go rogue,” and then, what can the MSO do to retain its value?

Second, if the professional medical corporation collects the patient revenues first, isn’t this going to skew the MSO revenues and lower the MSO’s valuation?

Now, these are common business concerns by a healthcare venture using the MSO model.

Here are some pointers to help you think through the puzzle, the strategy.  So as to the flow of payments question:

1. Typically, the MSO can collect the professional fees “on behalf of” the professional corporation. But the MSO is just the collector.  So, it takes those fees and deposits them in the professional corporation’s account and then it takes out its fees as fair market value for the MSO services.
2. Whether the money first goes here or first goes there and then gets distributed, the understanding should be that these are patient revenues earned as professional fees and there’s the deduction of expenses to the MSO.
3. The MSO can only get paid at Fair Market Value. More is considered a kickback for the “referral” of the patients to the physicians or other healthcare clinicians.  So, the valuation of the MSO should be based on the MSO’s revenues, not on how the payments flows.

Investors know this is how an MSO operates, no one should think that the MSO lacks value.  Its stock should be rising as it provides more services and earns more revenue at fair market value for those services.  And this is easier if it’s based on a percentage of gross revenues, then as the practice grows, so does the MSO as allowed by state law.

As to the MSO “going rogue,” the legal strategy here is to provide within the MSO Agreement (or MSA) some leverage for the MSO over the overall enterprise.  For example, the MSO can possibly terminate on short notice without too much cause.  This doesn’t put the MSO in charge of clinical operations but frees them up to renegotiate with another physician or professional corporation.

Thanks for watching. Please contact us with your questions. We have helped so many healthcare industry clients just like you build their dream.  We look forward to working with you on your journey to success!