This small article is only intended to briefly touch on the basics of MSOs, Corporate Practice of Medicine, and two exceptions so that an MSO arrangement can employ to be legally compliant with Stark Law. There are many other aspects to MSOs and many other laws that need to be considered, such as fair market valuations, Anti-Kickback Statute, safe-harbors, and other exceptions that will not be covered here.
Management Service Organizations (MSO): Basics
What are they?
A Management Service Organization (MSO) is a business that provides non-clinical services to providers. MSOs most commonly provide administrative services to physician practices, but services provided by particular MSOs can vary widely (see the list below). Some MSOs provide a variety of services. Others specialize exclusively in a certain type of service.
What do they do?
An MSO may simply provide management and administrative services to a practice, or it may acquire a practice’s assets and subsequently enter into agreements to provide the practice with space and/or equipment. MSOs may be owned by non-healthcare provider investors, by a hospital, by a group of physicians, a joint venture between a hospital and physicians, or a health plan. They may interact with, be combined with or evolve into an Independent Practice Associations (IPA) or ACO. Some MSOs provide specialized services to other MSOs.
Generally, the purpose of an MSO is to assist physician practices with the administrative challenges associated with running their business. MSOs can be attractive to physician practices because, while the practice receives significant administrative assistance from the MSO, unlike an employment scenario, the physicians can maintain a significant level of autonomy.
What kinds of MSOs are there?
An MSO can be one of any one of these or any combination these types:
- Administrative, Operational, Financial
- Coding, Billing and Collection
- Office Space
- Information Technology
- Group Purchasing
- Managed Care
- Strategic Planning
The Prohibition of Corporate Practice of Medicine
Prohibitions on the Corporate Practice of Medicine is a concept that arises in light of a state's proscription against the unauthorized practice of medicine and specifically against a non-licensed individuals’ owning, maintaining, or operating a place of business in which an individual is employed or otherwise engaged to practice medicine.
There are several legal and regulatory considerations that need to be fully understood when moving forward with any healthcare contractual arraignment, especially an MSO:
Stark Law (The federal self-referral law/Social Security Act §1877; 42 USC §1395nn.)
This Federal physician self-referral proscription prohibits physicians from ordering “Designated Health Services” (DHS) for Medicare (and to some extent, Medicaid) patients from entities with which the physician (or an immediate family member) has a “financial relationship.”
Exceptions to Stark Prohibitions
Stark includes a general prohibition on self-referrals and a number of exceptions. Specifically, the statute and regulations provide that a number of types of financial relationships do not even fall with the purview of the statute. In addition, there are a host of exceptions that apply to ownership and compensation arrangements.
MSO arrangements between providers with referral relationships, such as a physician or physician practice and a hospital, will generally constitute a "financial relationship." Accordingly, it is critical that the arrangements between these providers satisfy the requirements of the applicable Stark exceptions.
Personal Services Arrangements Exception
Any provision of services from physician to the MSO should comply with the personal services arrangement exception. However, another exception (the fair market value compensation exception) applies to services from the entity to the physician. This exception for personal service arrangements protects compensation arrangements between a physician and an entity if the physician is an independent contractor and not an employee of the entity. The exception requires:
(1) a written agreement that specifies the services covered by the arrangement;
(2) that the arrangement cover all of the services to be provided by the physician to the entity;
(3) that the term of the agreement must be for one year or more;
(4) that the aggregate services contracted for must not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement;
(5) that the compensation to be paid over the term of the agreement be set in advance, not exceed fair market value, and not be determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties; and
(6) that the services to be performed under the arrangement not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law.
Since the personal services arrangements exception only applies to covered services provided by the physician to the entity, we must look elsewhere for an exception that protects services provided by the MSO to the physician or physician practice.
Fair Market Value Exception
Stark Law excepts compensation from an arrangement between an entity and a physician for the provision of items or services (other than the rental of office space) by the entity to the physician or group of physicians under the following conditions:
(1) The arrangement is in writing, signed by the parties, and covers only identifiable items or services, all of which are specified in the agreement;
(2) The writing specifies the timeframe for the arrangement, which can be for any period of time and contain a termination clause, provided that the parties enter into only one arrangement for the same items or services during the course of a year. An arrangement made for less than 1 year may be renewed any number of times if the terms of the arrangement and the compensation for the same items or services do not change;
(3) The writing specifies the compensation that will be provided under the arrangement. The compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.
MSOs are very useful entity that can benefit both physicians and owners of the MSO alike. The MSO agreement, however, is complex and must be carefully constructed in light of a host of federal and state regulatory considerations. An bright attorney who is versed in these concepts and laws should be contacted.
Our firm handles such matters and arrangements. Please feel free to contact us at any time through our website, www.KhatriMedLaw.com or Info@KhatriMedLaw.com if you have any questions or comments about this article.
Rishi R. Khatri, Esq. | Khatri Medical Law, PC
OFFICE 310.896.5183 | MOBILE 310.740.0366 | FAX 310.919.0388