The Management Services Organization (“MSO”) serves as the structural backbone for medical practices seeking a compliant way to manage business operations while navigating Corporate Practice of Medicine (“CPOM”) laws. CPOM laws, which vary by state, generally prohibit non-physicians from owning or controlling medical practices or influencing clinical decision-making. Properly structured, an MSO supports growth, operational efficiency, and investment opportunities, but missteps can expose owners to significant regulatory risk.
In this article, we break down the core components of MSO structuring, highlight common compliance risks tied to CPOM and fee-splitting rules, and offer practical legal takeaways to help business owners make informed decisions at the formation stage. Grasping these fundamentals is the first step toward building a sustainable, compliant health care business.
What are MSOs?
An MSO is a non-clinical business entity that provides administrative and operational support to a medical practice. Typical services include staffing, billing, marketing, real estate, information technology, accounting, and other non-clinical operational needs.
Recognizing the role of an MSO sets the foundation for evaluating the legal and structural requirements that govern how it must be formed and operated.
MSO Compliance and Legal Guidelines
From a legal standpoint, an MSO cannot cross into the practice of medicine or controlling clinical operations. Specifically, an MSO:
- Does not practice medicine.
- Does not employ physicians to provide medical services.
- Does not make clinical decisions or control patient care.
- Does not interfere with the physician’s authority over all clinical decisions, thus preserving a clear separation between business management and patient care.
Compensation tied directly to patient revenue or profits can trigger compliance concerns and in many states, fee-splitting claims. These requirements are not afterthoughts; they shape how an MSO must be designed from the outset.
Management Services Agreements
An MSO operates alongside a Friendly PC, with responsibilities defined in a management services agreement (“MSA”). The MSA defines the scope of services and establishes the necessary boundaries to comply with state laws, including the corporate practice of medicine (“CPOM”) rules, fee-splitting restrictions, and licensure requirements. Specifically, the MSA allows non-physicians to operate the business side of a health care practice. This is possible if physicians maintain ownership and control (subject to state-by-state nuance) of the Friendly PC, and all clinical decisions remain with licensed providers.
To safeguard against risk, an MSA should:
- Clearly define the MSO’s role in performing non-clinical services only.
- Preserve physician autonomy over hiring, firing, supervision, marketing/advertising, and medical decision-making.
- Avoid compensation structures that appear to be impermissible fee-splitting.
Because the MSA defines the economic and operational relationship between a non-professional entity and the Friendly PC, it is one of the most critical decisions made when creating the MSO structure. A poorly drafted MSA can undermine even the best-intentioned MSO structure. Ensuring the MSA aligns with regulatory requirements is essential for a compliant, sustainable practice.
Operational Benefits of an MSO
When these legal and structural considerations are addressed upfront, a properly designed MSO can deliver meaningful operational benefits:
- Streamlined administrative operations
- Reduced burden on clinical staff
- Enhanced scalability and investment opportunities
- Greater focus on patient care
Compliance Risks with MSOs
When creating the framework, compliance issues most often arise when the MSA gives the MSO too much influence over medical decisions or links compensation directly to clinical revenue or profits. Additional risks include agreements that are rushed, copied from templates, or poorly customized, which can increase exposure to compliance violations or impermissible fee-splitting. But it does not end there when the MSA is drafted correctly.
Even if the MSA is crafted to align with compliance requirements, the actual operations of the business must follow what the document says. For example, money moving (or not) between entities differently than what is outlined in the MSA. Failing to follow the terms of the MSA creates compliance issues. This disconnect between the form (i.e., MSA) and substance (i.e., operations) will become more likely to occur the longer one operates if there is not a continual focus on compliance.
What Med Spa and Medical Practice Owners Should Know About MSOs
When it comes to MSOs, compliance is the foundation for practice operation and growth. Establishing the legal framework upfront can save headaches down the road and protect both your business and your patients.
When it comes to MSOs, compliance is the foundation for practice operation and growth. Establishing the legal framework upfront can save headaches down the road and protect both your business and your patients.
- MSOs can be powerful tools, but only when structured with compliance in mind.
- The MSA is the most critical compliance document in the MSO model and defines the boundaries between business and clinical operations.
- Non-physician involvement requires careful guardrails to ensure clinical autonomy is preserved.
- State-specific health care laws drive structure, so templates rarely fit every situation.
- The operations of the business (the substance) should match the terms of the MSA (the form).
- Compliance drift is a threat to an improperly structured practice as it evolves.
A compliant MSO is not about cutting corners. It is about building a solid, sustainable foundation for growth while keeping your practice on the right side of the law.
ByrdAdatto Can Help Structure Your MSO for Success
Starting or scaling a medical practice is complex, and the legal requirements can feel overwhelming. Navigating CPOM laws, MSAs, and compliance risks is challenging, and you should not have to do it alone.
Our legal team works with businesses to structure MSOs correctly, avoid costly mistakes, and move forward with confidence. Contact ByrdAdatto to build an MSO that supports your business goals while maintaining compliance at every stage.
