As healthcare attorneys, our job is to deftly guide you through the intertwining web of state and federal healthcare laws to help you run a compliant healthcare practice or business. Many of these laws are vague on their face. Courts and regulators’ conflicting and ever-changing interpretations do not make understanding them easier. Consequently, we may recommend ownership and compensation structures that seem overly complicated or counterintuitive compared to typical non-healthcare businesses. 

This post aims to explain the method behind the legal madness, and answer one of the most common questions we receive about the management services organization model (“MSO”) and the terms of management services agreements (“MSA”): “Why do payments from patients have to go to the physician practice and not directly to the MSO?”

This is a fair question! The MSO is likely handling many of the financial responsibilities of the practice, including billing and collections, replenishing inventory, doing marketing, and running business payroll. In a non-healthcare setting, it might make perfect sense for revenues to be paid directly to the entity performing these services. However, a practice that makes perfect sense for a typical business may risk severe fines, loss of licensure, and even criminal liability for healthcare entrepreneurs. 

When deciding how funds should flow in the MSO/MSA model, our priority is to comply with your jurisdiction’s rules prohibiting the corporate practice of medicine (“CPOM”). The overarching purpose of CPOM is to ensure that only people licensed to practice medicine control patient care and medical decision-making. In practice, CPOM generally prohibits non-physicians from owning physician practices or possessing any degree of control over a physician’s independent medical decision-making. 

The MSO/MSA model complies with even the strictest CPOM regimes by using an MSA to assign the non-clinical business operations of the medical practice to a non-clinical management entity. The MSO receives payments from the practice for providing, management, administrative, and other non-clinical services. At the same time, the practice maintains independent control over all aspects of medical decision-making and patient care. 

In our experience, there is not a magical term to include in the MSA that guarantees an MSO and physician practice’s relationship complies with CPOM. Instead, we structure the MSA to address the most common issues medical boards, nursing boards, and other agencies cite when determining whether a business has violated CPOM:

    • Does the physician have control over all medical decision-making?
    • Does the physician have final authority over the hiring and firing of clinical staff?
    • Does the physician have sufficient control over the clinical operations of the practice?

Are all payments for medical services paid to the physician practice?

State investigators have repeatedly cautioned that payments for medical services that are paid directly to an MSO are inherently suspicious and indicate a lack of compliance with CPOM. We have seen this very issue raised many times in board investigations. The underlying logic is that by allowing an MSO to control the revenue received for medical services, the non-clinical entity holds an unacceptable amount of financial control over the medical practice. This financial control may indicate the physician is under the influence of the MSO, and that influence could be used to impact medical decision-making. Consequently, in order to demonstrate compliance with CPOM, we consider it best practice for funds to flow from the physician practice to the MSO.

CPOM is just one strand in the web of overlapping healthcare laws. If you have questions about starting a healthcare business or want more information on your state’s CPOM rules, please click below to schedule a Zoom consultation with one of our experienced attorneys.