Management services organizations continue to play a central role in how medical practices affiliated with private equity and other strategic investors handle non-clinical operations. Tristan Potter of Stevens & Lee breaks down how the structure of MSO management fees can determine whether these arrangements hold up under corporate practice of medicine scrutiny.
MSOs typically take on functions like human resources, marketing, IT, bookkeeping, and billing so practices can focus on clinical care. But in states that prohibit the corporate practice of medicine, the fee a practice pays its MSO must be justified by the services provided, consistent with fair market value, and commercially reasonable.
Not every fee structure clears that bar equally well. Automated monthly “bank sweep” payments and percentage-of-revenue arrangements are attractive to MSOs because they maximize returns, but both carry meaningful fee-splitting risk in states that strictly enforce corporate practice of medicine rules. Markup structures and flat fees tend to be viewed as more conservative options, while hybrid models attempt to balance risk against predictability for both parties.
– Fees must be tied to actual services, fair market value, and commercial reasonableness
– Bank sweep and percentage-of-revenue models carry the highest compliance risk
– Markup and flat fee structures are generally more defensible
– Fraud and abuse laws add another layer of risk to evaluate
Because corporate practice of medicine enforcement varies by state and continues to evolve through new legislation and court decisions, practices structuring or restructuring MSO relationships should involve health law counsel early to avoid costly missteps.
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