What Physicians Should Know About Management Service Organizations (“MSOs”)

Operating a medical practice is not for the faint of heart. On the revenue side, practices are constantly squeezed by cost pressures from government programs and private payors. These same payors impose growing administrative burdens, such as reporting quality metrics and complex coding, that increase the cost and complexity of administering the practice. Practices need substantial operating capital to maintain electronic medical records, recruit staff in a challenging environment, and manage operating costs in an age of inflation.  As a solution,  some practices may look to contract with a Management Services Organization (MSO), also known as a physician practice management company (PPMC), to deal with these pressures.

MSO arrangements may appeal to physicians who want to focus on caring for their patients while shedding the administrative burdens of running the practice. However, in the continually changing health care regulatory environment, it is important to understand all details of the transaction and potential legal implications.

Strategic reasons for considering a relationship with an MSO include the potential for obtaining greater leverage in managed care contract negotiations through representation by an experienced negotiator; decreasing routine costs by realizing economies of scale in supply purchasing and office leasing; and relieving administrative burden by shifting billing, staffing and other functions to the management company. These potential benefits must be weighed against the risk of loss of autonomy of the practice.

There is no “one size fits all” when it comes to MSOs. Some provide limited specific services, such as revenue cycle management (which may include coding, billing, collection and maintenance of accounts receivable records). Others provide a broad range of services, including supply purchasing, management of human resources and accounting. On the most comprehensive side of the scale, some MSOs may purchase the physical assets of the practice and then provide all administrative services, including leasing of office space, furnishing of equipment and supplies, employment of nonclinical staff, in addition to financial management. There is also great variation in the entities operating MSOs, which can include nonprofit health systems, health insurance companies, and private equity firms.

Entering into any business transaction requires due diligence, and a physician considering a contract with an MSO should look into the background, experience and resources of the company. The contract terms should receive close attention, in particular with regard to termination rights if the contract does not work out as planned. This is especially the case if the MSO has purchased the physical assets of the practice. There also are many legal considerations for MSO contracts. In particular, it is important to make sure that the contract does not violate state law provisions regarding fee splitting and the corporate practice of medicine. The transaction must also be analyzed to assure it complies with federal law, including the Stark law and anti-kickback statute.

 

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