How MSOs Can Help Medical Practices After a Merger or an Acquisition – Part One

If your medical practice is considering buying or merging with another medical practice, such as when a family practice in one location acquires a medical practice in another location or a plastic surgery practice merges with a dermatology practice, you need to review how the new practice can meet its healthcare compliance requirements. One strategy that healthcare lawyers regularly recommend is a managed service organization (MSO).

In this article, we’ll explain the advantages of using an MSO and some of the specific challenges of using an MSO. In the next part of our discussion, we’ll discuss the specific compliance issues for newly formed medical practices that involve MSOs, Stark Law, and the Anti-Kickback Statute.

How MSOs Can Help Medical Practices After a Merger or an Acquisition

Medical practices that acquire other medical practices or merge with other practices have to address numerous compliance issues. The new practice needs to provide the best possible medical care possible to their patients while also complying with corporate practice of medicine laws, anti-referral statutes such as Stark Law and the Anti-Kickback Statute, the Health Insurance Portability and Accountability Act (HIPAA), and many other federal and state laws.

As a practical matter and as a way to address these various laws and regulations, the new medical practice should consider using a Medical Services Organization (MSO). At the core, an MSO can be used to handle the administration of the new medical practice while the new team of doctors counsels their patients and engages in other medical activities such as clinical research.

In some mergers and acquisitions, one or both medical practices may already have a working relationship with an MSO. The new medical practice may need to decide which MSO will handle the administrative duties of the new practice if there are existing MSOs. If there are no MSOs for either practice, then the new medical practice should consider hiring an MSO.

How do skilled healthcare lawyers help medical practices consider and hire MSOs?

Experienced healthcare lawyers, as we’ve written in our many other articles about the advantages of an MSO, help medical practices in the following ways:

Advise the new medical practice, whether the practice bought another practice or merged with another practice:

• Provide advice about corporate practice of medicine and fee-splitting laws
• Draft the contract between the professional medical corporation and the MSO
• Negotiate and review and subleases between the new medical practice and the MSO – which may be used to satisfy a Stark Law exception or AKS safe harbor
• Provide advice about the marketing/advertising dos and don’ts for the medical practice and the MSO
• Review how the new medical practice should be structured
• Review any related compliance issues such as HIPAA compliance, the use of technology, patient protections, and other issues.

An example of how an MSO can benefit a medical practice that merges with another practice

One example that could apply to an acquisition or a merger is when a dermatologist merges his/her practice with a plastic surgeon. In addition, the new medical practice may now provide aesthetic and cosmetic medicine services. An MSO can help ensure that the medical practice includes the doctors and any registered nurses, nurse practitioners, physician assistants, and medical technicians.

The MSO could be used to handle the administrative side of the practice including billing, information technology purchases, scheduling, and other administrative tasks. The MSO could also help with the marketing of the new practice so that patients are informed about the new medical providers, new medical services, and new locations that the new medical practice will now provide.

What services and an MSO provide to a professional medical corporation?

Some of the standard medical services that an MSO can provide including:

• Scheduling.
• Front desk and reception services.
• Book-keeping.
• Subleasing equipment or office space to the private medical corporation. This includes choosing the location of any offices and negotiating the leases.
• Submitting bills and collecting payment for the new medical practice. This includes using the correct codes and submitting the bills so the new medical practice does not violate the False Claims Act which is a federal law that governs honesty in billing.
• Staffing of non-medical healthcare providers and reviewing the credentials of healthcare providers.
• The marketing and advertising necessary to promote and inform the public and existing patients about the new medical practice.
• Educating and training the staff about compliance issues.
• Evaluating and purchasing software and hardware. When one medical practice acquires another medical practice or mergers with another medical practice, an MSO can help decide what software and hardware should be kept, how patient information can be combined (while not violating HIPAA or other patient privacy regulations), and otherwise integrating the old technology with any new software or hardware
• The purchase of medications and medical supplies
• Financial management including payroll and auditing
• The transcription of medical records
• Public relations
• Managing any disasters
• Quality assurance
• Insurance
• Maintaining electronic health information
• Many other administrative matters

Specific MSO responsibilities that must satisfy certain compliance issues include the following that we’ve discussed previously:

• Compensation. Only the medical corporation or physicians can compensate the MSO. That compensation must be at fair market value (FMV). The MSO cannot be compensated based on the volume of business the MSO brings to the medical practice.
• Hiring and firing. While the MSO can hire non-medical staff and obtain the credentials of the doctors and other healthcare professionals; only the medical practice/physicians can hire and fire: “clinical staff such as nurses (RNs and NPs), physician assistants (PAs), medical assistants (MAs) and others who must be under the supervision of appropriate medical personnel.”
• Patient Responsibility. “The MSO cannot be the driver of the patient’s diagnostic and therapeutic pathway. This becomes legally challenging where the MSO is the customer-facing voice of the brand.”

The new medical practice needs to understand not just federal healthcare compliance laws but state laws too.

For example, the California Health & Safety Code, Section 445 (Medical Referral Services), states:

“No person, firm, partnership, association or corporation, or agent or employee thereof, shall for profit refer or recommend a person to a physician, hospital, health-related facility, or dispensary for any form of medical care or treatment of any ailment or physical condition.”

A violation Section 445 is considered a misdemeanor which can result in a county prison sentence up to one year and/or a fine of up to $5,000.

Acquiring another medical practice or merging with one. Corporate practice of medicine compliance

California prohibits the following types of activities that the state considers to be in violation of California’s corporate practice of Medicine laws:

• Non-physicians from owning or operating a business that offers patient evaluation, diagnosis, care, and/or treatment.
• Physician(s) from operating a medical practice as a limited liability company, a limited liability partnership, or a general corporation.
• Management service organizations (MSOs) from arranging for, advertising, or providing medical services – rather than only providing administrative staff and services for a physician’s medical practice (a 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.”

California’s Corporate Practice of Medicine Law provides that neither non-physicians, corporations (other than medical professional corporations), or limited liability companies (LLC) may contract to provide medical services. These entities also cannot contract with a doctor to have the doctor provide medical services, either as an employee or an independent contractor. (Business & Professions Code §§2052 and §§2400.)

When any type of medical practice acquires or merges with another medical practice, there will be many questions about how to combine the assets, experience, patient data, office space, and many other aspects of the new medical practice. One of the common ways to have a smooth transition while complying with the various federal and state healthcare lawyers is to use a managed service organization – provided the practice of medicine is distinct from the administrative side of the business.

Any medical practice that buys or merges with another medical practice should contact Cohen Healthcare Law Group, PC to discuss their legal and healthcare compliance requirements. Our experienced healthcare attorneys advise doctors, medical practices, and MSOs about healthcare compliance laws and regulations.