Management Services Organizations (MSOs)

Many healthcare startups use MSOs to separate administrative and marketing functions from clinical duties, thus proactively clarifying that the business arm itself is not involved in the practice of “medicine.”

The Management Services Organization Model

The Management Services Organization (MSO) model is one that many healthcare businesses use in order to help mitigate the risk of enforcement for corporate practice of medicine (CPM) and fee-splitting (kickbacks).

The key concept behind the MSO model is that the physician, chiropractor, acupuncturist, nutritionist or dietitian, physical therapist, psychologist, or other clinical healthcare provider is busily engaged with the clinical side of practice, while the MSO

Our healthcare lawyers understand the strengths, and limitations, of the MSO model.

The MSO model can be deployed in many ways for the healthcare practice or healthcare venture that seeks to make a profit from the actual business side of health and wellness.

For example:

  • 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.

  • A non-MD, entrepreneur in the health and wellness industry has a specific concept for a branded, health and wellness operation. For instance, it could be:
    • An anti-aging medical clinic focused on women’s health and longevity.
    • A medical clinic focused on men’s health and low-T (low testosterone).
    • An urgent care clinic.
    • A health and wellness space that focuses on functional medicine or integrative healthcare.
    • A medical spa.
    • Telemedicine, telehealth, telepsychology, telepsychiatry, tele-dermatology, tele-dental services, behavioral and mental health, alcohol counseling and addiction treatment, or other healthcare services offered online, digitally, via mobile phones, secure video health, or through a mobile app or healthcare software.

Because the non-MD cannot legally practice medicine, and the corporate practice of medicine prohibits the non-MD, entrepreneur and the venture from becoming too enmeshed in the clinical side of practice, the MSO model serves as the legal vehicle for the business interests.

Our healthcare attorneys know how to deploy the MSO model in a flexible way that adapts this separation of the venture into the clinical and business components, to the particular niche venture at hand.

Adapting the MSO Model to Evolving Healthcare Business Structures

The MSO model is particularly useful where healthcare regulators have shown extreme regulatory sensitivity to business models that carve into the clinical space.  For example, in California, the medical board has stated that the following types of ownership and operating structures 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.”

The California medical board explains that the rule is “intended to prevent unlicensed persons [and companies] from interfering with or influencing the physician’s professional judgment.”  In all of the above examples above, the California Medical Board asserts, it would find a CPM violation, and “the physician may be aiding and abetting the unlicensed practice of medicine.”

This shows the seriousness of California’s enforcement posture toward healthcare ventures that, in the eyes of the regulator, constitute unlicensed and corporate practice of medicine.  This means that healthcare ventures that go too far in terms of structuring the patient experience can face corporate of practice of medicine challenges.  For example—particularly the reach of healthcare into the digital and mobile space—when healthcare ventures offer a series of pre-packaged therapeutic options, these models must be carefully reviewed by legal counsel for potential corporate practice of medicine pitfalls.

MSO Services to the Professional Corporation

MSO services can be quite broad and include such things as:

  • front desk/scheduling
  • sublease of space or equipment to the PMC
  • 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)

As well, the MSO is responsible for marketing the healthcare practice or venture.

Some of the legal hot buttons with MSOs include:

  • Compensation: the MSO can only be compensated by the physician, clinician, or professional corporation at fair market value (FMV).
  • Hire-and-Fire Responsibility: the MSO cannot have hire-and-fire responsibility over 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.

In addition, the anti-kickback and fee-splitting considerations can come to the fore, especially in states that have strong, explicit prohibitions against patient brokering or medical referrals.  For example, 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.

Again, 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.

The legal answers here are not always black and white.  Rather, our healthcare lawyers focus on legal strategies and solutions for our healthcare clients, based on a nuanced evaluation of what the healthcare client wants to do, what legal or regulatory roadblocks stand in the way, and how our healthcare lawyers can best deploy their knowledge and experience to move the client toward their goals with eye to maximizing business opportunity while mitigating risk.

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