How Does Money Flow Through a Management Services Organization (MSO)?

By understanding the scope of services and compensation model before signing an agreement with an MSO, you can protect your practice from compliance concerns.

Lawyer and clinician collaborating on work together at a cafe.

For many healthcare providers who run an independent practice, every day likely involves wearing several “hats.” For example, you may need to make a call about a water leak in your break room right after you develop a plan of care for a patient with suicidal ideation. Then you might communicate with your staff about privacy training dates, dispute a denied claim with a payor on a patient’s behalf, and update your general liability insurance —  all in a single day!

Management services organizations (MSOs) can help practices like yours clear their plates. By delegating out business decisions to someone else, you free up your day to focus on why you entered the healthcare field: to treat your patients.

But before securing assistance from a management services organization, you should understand the ins and outs of compensating an MSO. Additionally, you’ll need to determine the scope of services it will deliver. Both will affect how a regulator views the relationship’s appropriateness.. By thinking these issues through before signing an agreement with an MSO, you can protect your practice from compliance concerns.

The risk of noncompliance when engaging with an MSO arises in two general instances: (1) when the payment you give the MSO changes based on your patient volume and (2) when the MSO makes decisions that should fall under you, the licensed healthcare professional.

Read on to understand the risks and ways you can minimize your practice’s exposure.

Beware of  Volume-Based Payments

Any form of compensation (sometimes referred to as “remuneration”) to the MSO should solely reflect the fair market value of MSO’s services. Some states have adopted the corporate practice of medicine doctrine (CPOM). In these states, the courts look unfavorably on arrangements that allow a management company to profit from the volume of care that the licensed provider renders. Additionally, depending on your patient base, you could invite both federal and state investigations under the laws prohibiting kickbacks for referrals.

The pursuit of profit should not guide care decisions. Thus, the law wants to protect the integrity of the payments between you and your patients. Dividing, sharing, or splitting the fees for your professional services with a third party flies in the face of these laws.

Establish a flow of funds to preserve the integrity of the business relationship

When developing an agreement with a management services organization, the MSO’s fees will be a leading focus of negotiations. 

Let’s assume that your practice needs assistance with managing its billing activities. You want to ensure the MSO has no incentive to incur more services (and thus, profits) based on how many patients the practice sees. To that end, you have agreed to compensate the MSO a flat fee for its services.* 

But now MSO wants to know when it will be paid. To answer this question, establish an order of payments between the MSO and the practice that preserves the integrity of the provider-MSO business relationship. All practice professionals should receive payment for their services first. When fees for professional services have been distributed, there are no professional fees to divide.

Next, the practice should cover the costs for its operational and other expenses. After that, the manager can expect payment for its services; the management fee should not have changed after the first two payments are made. By starting with the practice professionals, the agreement demonstrates that both parties understand that the fees earned by the practice professionals must always take priority over those due to the MSO. 

To streamline payment processes, the practice can also structure its bank account to model a sweep account. In this arrangement,  funds flow to the MSO automatically at the end of each business day (or whatever cadence you prefer). Talk to your banking institution about how to establish a sweep account.

Reserve Clinical Decisions for Licensed Professionals

Delegating certain decisions to an MSO can violate your respective practice act and professional ethics. Many states have laws that prohibit health care providers from aiding an unlicensed entity or person in the practice of a licensed profession. Consequences of facilitating an MSO’s practice of medicine include disciplinary action, such as fines and even loss of your license. Infractions can also invite civil action under a state’s consumer protection laws.

When you were issued your license, you became bound to the laws that govern the practice of your profession. States have an interest in protecting the health of their residents. Thus, when a third party assists with your operations, you’ll need to maintain a keen eye on what is and is not the practice of your profession. 

Continually assess the decisions that your MSO makes. Watch for decisions that should be reserved for a licensed professional versus those that can be carried out by anyone, with or without a professional license.

To continue with our billing example, imagine the MSO has identified a patient who refuses to pay a bill because they believe they received substandard care. Because of this, the patient is seeking a second opinion.

The billing manager, if acting appropriately, could discuss what the bill is for and when it is due. However, in this case, the billing manager goes further and responds: “The care you received was appropriate based on the presenting symptoms. However, in looking at the code used on the bill, you could also benefit from seeing our psychiatrist. I can schedule that appointment if you would like.”

In this scenario, you should immediately rectify this error with both the MSO and the patient. The biller has no qualifications to advise your patient on what care would or would not be beneficial, nor to refer the patient to a psychiatrist. In addition, you should direct the patient not to rely on the billing manager’s statement and instead receive your professional recommendations alone.

In the face of a claim that the MSO’s activity constituted an improper referral, you can point to the flat fee payments and the order of funds. These arrangements offer concrete evidence that the biller had no financial incentive to make the recommendation.


In short, staying compliant requires minding the flow of funds and decision-making in the provider/MSO relationship. With the above in mind, you should be able to navigate these waters. A legal professional can assist you in how to approach a negotiation with an MSO and steer clear of compliance concerns. Your attorney can also help you develop an agreement with an MSO that avoids the common pitfalls in practice management.

Jackson LLP handles MSO arrangements for independent private practices that operate in any of the states where we are licensed. To learn how we can help you succeed in managing your practice, schedule a free consultation with one of our attorneys.

*Depending on the state in which you practice and your profession, a percentage of fees generated by the Practice may be permissible.  

 This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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