Management Services Organizations (MSO) vs The Anti-Kickback Statute (AKS)

I've written on this before (see above), but this time, I wanted to tackle a real life example.

With the continued growth of the healthcare industry, it only makes sense that Management Services Organizations (“MSO”) have grown rapidly in number and profitability in the last decade as well. MSOs are companies that provide administrative services such as back office management, billing, marketing, HR, etc to healthcare providers or organizations, allowing healthcare providers to concentrate on delivering high quality healthcare services.

However, there are many laws that MSOs and providers must stay compliant of. At the Federal level, those laws, to name two, are Stark Law and Anti-Kickback Statute. Each state has their own individual laws as well, but the Office of Inspector General ("OIG") of the Federal Department of Health and Human Services is highly influential to State decisions. Stark Law and AKS both have civil and criminal liability.

The OIG has given some guidance (Advisory Opinion No. 11-17 ) for MSOs. A request for the OIG review was for a contract in which the Requestor "MSO," was a laboratory services management company--

“Under the [Agreement], the MSO proposes to provide allergy testing and immunotherapy laboratory services and related items to primary care physicians and physician practices ("Physicians") within the Physicians' medical offices. Specifically, the MSO would enter into exclusive contracts with the Physicians to operate an allergy testing laboratory on the Physicians' behalf.

The MSO would provide all of the necessary laboratory personnel (including laboratory technicians), equipment, supplies, training, and billing and collection services to Physicians on an as-needed basis. Additionally, the MSO would assist the Physicians with marketing allergy services to patients by providing patient education materials and reviewing patient files to identify candidates for [The MSO's] allergy laboratory services.

The Physicians would provide: (1) space within their offices to operate the laboratory; (2) administrative staff for patient scheduling and other administrative tasks; (3) general medical office supplies and furniture; (4) general liability and malpractice insurance; and (5) physician supervision and interpretation of laboratory results.

The Physicians would bill Federal health care programs, [Medicare and Medicaid], and third-party payors, [commercial insurance companies], for the laboratory items and services provided under the Agreement under the Physicians’ provider identification numbers. The MSO would provide billing and collection services on behalf of the Physicians for the allergy testing services.

In consideration for the MSO's services, under the Agreement, Physicians would pay the MSO a fee equal to 60% of the Physicians' gross collections from the testing and services, a fee that The MSO stated as equal to fair market value (FMV).”

The Physicians were to agree to use the MSO as their exclusive provider of antigen-based immunotherapy laboratory services and as the sole allergy testing unit for the Physician’s patients.


There are ‘exceptions’ under the AKS, which are equipment leases and personal services and management contracts. In this case, they could have been potentially applicable (42 CFR 1001.952(c) and (d)).  


 The OIG concluded that the Agreement would not qualify for safe harbor protection under the anti-kickback statute for two reasons:

1)   The services would be provided on an as-needed basis; the agreement therefore would not specify the schedule of intervals, the precise interval length, or the charge for such intervals.

2)   The relevant safe harbors provide that total compensation to be paid under the contract must be set in advance and cannot be determined in a manner that takes into account the volume or value of any business generated between the parties that is payable by a federal health care program (such as Medicare). 

(Keep in mind, there are similar laws as the AKS in many states, such as CA, FL, and NY.)

The salient point the OIG noted is is that in the MSO agreement, the Physicians would pay the MSO a percentage of their gross collections from insurance, Medicare and Medicaid. For services under their arrangement, the total fees would not be set in advance, and they would be based, in part, on the volume or value of the reimbursement from insurance, which did not pass the seven point requirements for personal services contract safe harbor.

The OIG concluded that the Agreement does not fit into a safe harbor. The OIG further stated it must examine “the totality of the facts and circumstances to determine the extent of the risk posed by the Agreement” with respect to inducements to refer.


Ultimately, OIG determined that the Agreement would not be afforded protection because:

1)    “Percentage compensation arrangements are inherently problematic under the anti-kickback statute, because they relate to the volume and value of business generated between the parties, rather than the fair market value of the services provided.” Which is what the MSO agreement was to rely upon.

2)   The MSO was going to review the Physicians patient files to identify marketing candidates for the MSO lab services, which the OIG said was "a suspect marketing activity." The OIG stated: “We are concerned that this type of marketing activity could encourage Physicians to order medically unnecessary tests that could pose a risk of patient harm.” 

All this being said, that are numerous ways to fit MSO agreements into 'safe harbors exceptions,' and each state has their own exceptions too for MSO contracts. Khatri Med Law can help you build a safe, compliant, profitable and effective MSO in whatever state you wish to conduct business in.

If you have further questions or comments, please give us a call at (310) 896-5183 or for more information or consultation.