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- MSAs separate clinical and business responsibilities. A management services agreement (MSA) defines the relationship between a healthcare practice and a management services organization (MSO), helping maintain a clear separation between medical decision-making and business operations.
- Management fees must be structured carefully. Many states prohibit fee-splitting and impose corporate practice of medicine (CPOM) restrictions. Management fees should generally reflect fair market value and be structured in compliance with applicable state and federal laws.
- Healthcare MSAs are not one-size-fits-all. A compliant MSA depends on factors such as state law, provider type, ownership structure, and the services being provided. Working with a healthcare attorney helps reduce regulatory risk and address issues before disputes arise.
Why Management Services Agreements Matter in Healthcare
A management services agreement (MSA) is a contract that governs the relationship between a management services organization (MSO) and a healthcare practice. In an MSA in healthcare, the agreement defines which party is responsible for clinical operations and which party handles business functions, helping the arrangement comply with the corporate practice of medicine (CPOM) restrictions, fee-splitting, and other healthcare regulations.
The non-physician business entity is usually a limited liability company (LLC) or corporation acting as a management services organization (MSO). MSOs are typically controlled by an unlicensed individual, a group of private investors, or a non-physician healthcare professional who cannot own a medical practice outright in most states.
Meanwhile, the medical practice is usually a professional limited liability company (PLLC) or professional corporation (PC). It is owned and operated by a physician or other appropriately licensed group of providers. Throughout this article, we will call it a “friendly PC,” even though the practice may operate as a PLLC rather than a PC.
Depending on your state and profession, operating through a standard LLC could mean that you may not have the correct type of business structure.
How Do Management Services Agreements Work?
An MSA is a binding contract between the MSO and the friendly PC. Significantly, it clarifies that the two parties are separate entities working together on a joint business venture but with distinct responsibilities. The friendly PC operates and controls the healthcare-related aspects of the operations, including:
- Providing and overseeing all medical services.
- Hiring, firing, and disciplining licensed medical professionals.
- Setting the fee schedule for medical services and procedures.
- Receiving funds generated from physician services.
Meanwhile, the MSO focuses on business-related activities. It either directly provides or contracts with companies for:
- Legal and accounting services.
- Payroll processing, patient billing, and practice bookkeeping.
- Medical waste disposal and office cleaning.
- Onboarding, training, and managing non-clinical employees.
- Scheduling appointments.
- IT services.
- Marketing services.
Understanding the roles of the MSO and the practice is only the first step. Next, we will examine when a management services agreement is required, how management fees are structured, and what happens when an arrangement ends or encounters a dispute.
When Is an MSA Required?
In most states, unlicensed individuals may not own or directly profit from physician services. This prohibition is called the corporate practice of medicine (CPOM). It is a legal doctrine based on the idea that a physician’s medical judgment should be free from the influence of corporations, unlicensed individuals, and the pursuit of profits.
A properly structured MSA solves this problem, allowing the friendly PC’s physicians to make medical decisions independent of the MSO. Meanwhile, the MSO charges the friendly PC for its management services.
Many states only allow certain types of medical professionals to own a practice together. Therefore, even if both parties are licensed providers, an MSA may still be required. Say, for instance, a state prohibits registered nurses from owning a practice with a physician. In that state, an RN would need to establish an MSO and set up an MSA with a physician or other provider who can own the practice (i.e., the friendly PC).
The rules governing MSAs vary significantly from state to state. Some states strictly enforce CPOM restrictions, while others permit broader ownership and management structures. A compliant arrangement in Illinois, for example, may require substantial modifications before it would satisfy regulatory requirements in California, Texas, New York, or another jurisdiction.
How Do Profits Flow Without Violating CPOM?
One of the most important goals of a management services agreement is creating a compliant way for money to move between the friendly PC and the MSO. The friendly PC generates revenue from patient care, while the MSO is compensated for the business and administrative services it provides. How those payments are structured matters because regulators want to ensure that physicians remain independent in their medical decision-making and that non-physicians are not improperly profiting from medical services.
This concept is closely tied to corporate practice of medicine restrictions. Understanding how revenue flows through an MSO structure is an important part of understanding CPOM and maintaining a compliant healthcare business arrangement.
Avoiding Fee-Splitting Prohibitions
In simple terms, fee-splitting laws are designed to prevent non-physicians from receiving a share of patient-care revenue in a way that could influence medical decisions. The rules vary by state, but the underlying principle is that financial arrangements should not interfere with a physician’s independent professional judgment.
The core concern behind fee-splitting prohibitions echoes that of CPOM: if an unlicensed person receives payments that originate from medical services, that person may exert influence over the physician’s patient care decisions. To ensure physicians remain in control of medical decisions, many states prohibit fee-splitting between physicians and unlicensed individuals or entities.
Keep in mind that CPOM and fee-splitting prohibitions vary significantly between states. For example, some states allow for certain types of fee-splitting arrangements between physicians and non-physicians, and even outright ownership of physician practices by unlicensed individuals. However, most states prohibit splitting patient fees between unlicensed and licensed providers. In these states, payments for services can only be paid to the friendly PC and not directly into the MSO’s bank account.
Establishing Management Fees
One of the most important concepts in an MSA is the management fee’s fair market value. In simple terms, fair market value means the fee reflects the actual value of the services being provided and is not tied to referrals or patient volume. A management fee that is set artificially high or low can attract regulatory scrutiny and may undermine the compliance goals of the arrangement.
The friendly PC usually pays the MSO for its business services through a management fee determined between the parties and memorialized in the MSA. In many states (but again, not all), the management fee cannot be a percentage of the medical practice’s billables. Instead, the MSO may collect a flat fee or cost-plus fee representing the fair market value of the management services that the MSO provides to the friendly PC.
In such cases, an MSO typically could not charge, for example, a management fee of 50 percent of all PLLC revenues. Not only is this arguably too high, but the mere fact that it is a split of patient payments violates CPOM. So, instead, it would need to be a specific dollar amount based on the negotiated rate of the business services rendered by the MSO.
How Does the MSO Pay Expenses?
Generally, the MSA will dictate the order in which payments are made from the friendly PC’s revenues. The MSO, as part of its management and business authority, may issue these payments to the necessary parties on behalf of the friendly PC. An example of the order of payments might be:
- Physician-owner’s salary.
- PC or PLLC operating expenses (employee salaries, PPE, rent, utilities).
- MSO’s management fee.
At regular intervals, the MSO should carefully review the books and records of the friendly PC to determine the proper order of payments. Typically, the MSO also has the authority to ensure that the friendly PC retains sufficient funds in its bank account to meet its ongoing business obligations.
Can I Use an MSA Template or AI?
Many healthcare entrepreneurs begin their research by searching for a management services agreement template online. Others turn to AI tools to generate a draft agreement. However, healthcare MSAs are not one-size-fits-all documents.
A generic template cannot account for the state-specific corporate practice of medicine restrictions, fee-splitting restrictions, ownership requirements, and reimbursement considerations that apply to a particular arrangement. It also may not properly address management fee structures, fair market value requirements, Anti-Kickback Statute compliance, or the specific services the MSO will provide.
For that reason, a template should generally be viewed as a reference point. Working with a healthcare attorney to draft or review the MSA helps ensure the arrangement reflects the parties’ actual business model and complies with the laws governing their state, provider type, and practice structure.
The Risks of MSAs
The risks of MSA arrangements depend on each party’s license and business structure. But in general, physicians have the most risk in these arrangements because everyone involved is expected to operate in deference to the physician’s professional judgment. This makes it crucial that the physician’s judgment remains unimpaired by the MSO’s business interests.
For instance, establishing an MSO may invite scrutiny about who is making medical decisions in practice. Thus, there must be proper oversight of all clinical staff to avoid the risk of professional discipline by a licensing board.
Meanwhile, the involvement of unlicensed individuals increases the risk that state agencies will investigate the possible unauthorized practice of medicine. Violators could face severe fines or other forms of punishment.
Finally, depending on how the arrangement is structured, there may be an increased risk of violating the Anti-Kickback Statute (AKS). The law prohibits offering, paying, soliciting, or receiving compensation in exchange for referrals involving federal healthcare programs. Because healthcare businesses often involve overlapping ownership interests, referral relationships, and compensation arrangements, carefully evaluate whether payments could be viewed as improperly influencing referral decisions.
Be wary of impermissible referrals and work with an experienced healthcare attorney who can set up your management services agreement in a way that distributes fees in compliance with federal law.
What Happens If an MSA Is Disputed or Terminated?
Even well-structured MSA arrangements can encounter challenges. The parties may disagree about management fees, service performance, operational responsibilities, or future business goals. In some cases, the relationship simply reaches a natural endpoint. Planning for these possibilities at the outset is an important part of drafting a strong agreement.
A well-drafted MSA termination provision should address how and when either party may end the relationship. Common provisions include notice periods, termination for cause versus termination without cause, cure periods that allow a party to correct a breach, and procedures for winding down operations.
Healthcare arrangements often require additional planning for:
- Patient records.
- EHR access.
- Billing transitions.
- Vendor contracts.
- Payor relationships.
- Employee transitions.
The agreement should also address post-termination obligations such as confidentiality, indemnification, and regulatory cooperation.
A management services agreement dispute often begins with one party alleging that the other has failed to meet its contractual obligations. Most agreements require written notice describing the issue and provide a period of time for the alleged breach to be corrected.
Many healthcare MSAs also include mediation or arbitration provisions to resolve disputes confidentially and efficiently. Because disputes frequently reveal deeper compliance concerns, involving healthcare counsel early can help prevent a disagreement from becoming a larger regulatory problem.
The purpose of these provisions is to protect both parties if circumstances change. Having a healthcare attorney involved throughout the life cycle of the arrangement—from drafting through any dispute or termination process—helps preserve business continuity and reduce legal risk.
Who Needs an MSA?
If you are a physician and an investor has proposed setting up an MSO to manage a practice on your behalf, you likely need an MSA to formalize the relationship. You may also need other legal documents, like a restricted stock transfer agreement, which can establish who retains ownership control if the business deal sours.
Often, the first topic to discuss with your potential management partner and your attorney is the proposed payment arrangement. Because the fee structure is often grounds for disagreement between the parties, it is crucial to be sure your expectations align — and those expectations are legal — before diving into this new venture.
If you are unlicensed or suspect that your licensure does not permit ownership of a medical practice, such as a nurse who wants to open a medical spa, a healthcare attorney can advise you on whether an MSA is necessary for your business goals.
MSAs may also be used by:
- Non-physician investors and healthcare entrepreneurs wanting to participate in healthcare businesses while complying with ownership restrictions.
- Nurse practitioners and advanced practice providers operating in states that limit independent ownership or impose CPOM restrictions.
- Mental health practice owners expanding into multiple locations, adding psychiatric services, or creating multi-state operations.
- Med spa owners who need to separate clinical oversight from business management responsibilities.
- Telehealth companies building provider networks while maintaining compliance with state ownership and supervision requirements.
- Physicians serving as medical directors who need clearly defined responsibilities through arrangements involving MSAs for medical directors.
Why Healthcare Professionals Trust Jackson LLP for MSA Structuring
For many practices, a management services agreement is essential to complying with corporate practice of medicine laws, fee-splitting restrictions, Stark Law requirements, and the Anti-Kickback Statute. Because these rules vary significantly between states and healthcare specialties, drafting an effective MSA requires a thorough understanding of how healthcare businesses operate in practice. This is one of the MSO/MSA legal services our team offers.
At Jackson LLP, we focus exclusively on healthcare law. Our attorneys regularly assist physicians, practice owners, healthcare entrepreneurs, management companies, telehealth organizations, behavioral health groups, and med spas with drafting, reviewing, restructuring, and negotiating MSAs. We also advise clients in states where we practice on management fee structures, ownership models, compliance reviews, and ongoing operational issues that arise after the agreement is signed.
Whether you are creating a new arrangement or evaluating an existing one, working with an MSA healthcare attorney from our team can help identify risks before they become costly problems.
