It’s not uncommon to see an MSO fee that includes some fee for the use of a popular tradename or trademark.
A tradename/trademark is considered intellectual property (IP) and a royalty rate is typically associated with IP.  A tradename/trademark royalty is a fee paid by the licensee to the licensor in exchange for the use of a trademark or any other IP.  Customarily, a trademark royalty is expressed as a percentage of revenues.  A licensing fee is commonly a fixed sum paid to use IP of various kinds, such as a copyrighted work, like a photograph or a logo, that is owned by someone else.  Royalties are generally calculated as a percentage of gross revenue or net profit. Licensing fees, by contrast, are usually a fixed amount.  Since many MSO arrangements are typically not permitted to charge a fee based on sales volume (i.e., reimbursements), a fixed “licensing fee” rather than a “royalty rate” seems to be a more appropriate and compliant way to structure this.

Here is an example of how a fixed could be calculated:

  • Average Annual Reimbursements/Collections per Provider       $  500,000
  • FMV Licensing Fee Percentage                                                              3.00%
  • Fixed Annual Licencing Fee                                                               $    15,000