In today’s video, we circle back to the relationship between the professional corporation (or PC) and the management services organization (or MSO) that runs the business side of a healthcare startup or other venture.  Specifically, the so-called “friendly PC.”

Hi, I’m Michael H. Cohen, founding attorney of Cohen Healthcare Law Group. We help healthcare industry clients like you, navigate the tricky, treacherous, byzantine healthcare and FDA legal terrain so you can launch, grow, or scale your healthcare business.

A wise person once said: “keep your friend close and your enemies closer.”  But when it comes to the PC and the MSO, there’s no such thing as a “friendly” PC.  The professional corporation and the MSO have very different interests, even if there’s a common physician shareholder.

The professional corporation—run by a medical doctor, possibly chiropractor, psychologist, behavioral health licensee, depending on the venture—runs the professional, clinical side of the operation.  The PC hires and fires clinical staff, makes clinical decisions, runs diagnostic tests, and does clinical care for its patients.

The MSO runs the business side.  Typically, but not always, the MSO is funded by investors who want to brand the MSO and leverage the vehicle so they can grow exponentially and then exit.  Whether the MSO holds the brand for a medical spa and goes for a multi-State model or franchise, or runs an online telehealth or telemedicine operation, works through an app, or houses a brick-and-mortar health and wellness center, the management and marketing company wants to control the shots.

The idea of the “friendly PC,” also known as the “captive PC,” is to give the MSO the right to kick the medical doctor or doctors in charge of the PC out and swap in a physician much more favorable to the MSO’s liking. This makes the MSO “friendly” in that the MSO essentially would control the PC. Well, it’s friendly to the MSO, right?

But the friendly PC typically violates the prohibition against corporate practice of medicine.  The prohibition against Corporate Practice of Medicine (or CPOM) essentially says that non-physicians cannot control (there’s that word!) a physician or their professional corporation.

Is there some State in which a friendly PC would fly and not incur the scrutiny of the medical board or prosecutors? Perhaps, you can’t predict all situations. In general, we don’t like the friendly PC model, and besides there are other ways to leverage the MSO’s power that are less controlling, blatantly controlling.

Business decisions by the MSO require careful legal strategy, which is why we normally recommend a Legal Strategy Session as the first step in your roadmap of legal consultations.

Thanks for watching. Please contact us with your questions. We have helped lots and lots of healthcare industry clients just like you, navigate this industry.  We look forward to hearing from and we hope to work with you soon!