|
Getting your Trinity Audio player ready...
|
Are you starting a healthcare business? It’s not always easy to determine compliant payment arrangements. Learn how to navigate CPOM, fee-splitting laws, private equity partnerships, and provider compensation with management services agreements (MSAs).
If you’ve wanted to start a healthcare business and have done some research — or better yet, spoken with a healthcare attorney — you’ve likely discovered that a lot can go wrong when it comes to making money. The regulatory landscape is complex, with overlapping federal and state laws that require careful attention.
Even practices that seem straightforward can raise issues. Whether you are a licensed healthcare provider or unlicensed, collaborating with other businesses and navigating licensure requirements can be challenging.
With these challenges in mind, let’s dive into some common questions — and the answers that can help you steer clear of trouble.
Can a registered nurse hire a physician as a “medical director” for their medical spa?
If you’re a registered nurse setting up a medical spa, you might think that hiring a physician as a medical director is a straightforward step towards launching your business. However, depending on your state’s laws, this approach is often not permissible. Many states restrict registered nurses from independently operating a practice due to their scope of practice. Hiring a physician to serve as a medical director may seem like a simple workaround, but this can run afoul of the Corporate Practice of Medicine (CPOM) Doctrine.
CPOM generally prohibits corporations owned by non-physicians from practicing medicine or from employing a physician to provide medical services. In states with CPOM laws, non-doctors may not own or directly profit from physician services. Under the law, medical spas are often viewed as medical practices and, therefore, typically must be owned by physicians to be compliant.
A common solution is to set up two separate entities and wear two different “hats.” You can own a management services organization (MSO), which handles the administrative side of the practice in exchange for a management fee. You can also help set up a physician-owned practice for the medical side and perform services within your scope as a registered nurse. A contract called a Management Service Agreement (MSA) links these two businesses together, defining each party’s roles and how they get paid.
For more on management services organizations see our video, “MSO Basics.”
How can a management company legally earn revenue from a healthcare practice?
Once you’ve decided to provide management services to a practice, the question often becomes: “How do I make money?” An MSA should establish the flow of payments from a healthcare provider to an MSO in exchange for management services, but as with structuring these arrangements, determining payment isn’t easy.
Beware of Fee-Splitting Prohibitions
Many states — even those without a clear CPOM doctrine — have fee-splitting prohibitions. Such prohibitions restrict doctors from dividing, sharing, or splitting professional fees with other parties, particularly in exchange for a referral or other services.
Fee splitting prohibitions and CPOM can work together to require that physicians (or other healthcare professionals, depending on state law) not only fully own their businesses but also refrain from paying other third parties a portion of their revenues for management services.
Mind the Relevant Federal Laws
While CPOM and fee-splitting are often the main concerns with MSA payment arrangements, other federal laws, like the Stark Law and the Anti-Kickback Statute, may also need to be considered. These laws generally prohibit receiving anything of value in exchange for referrals for federally reimbursable healthcare services. The relevance of these laws depends on the business model and whether federal funds are involved.
MSA Payment Models
These various standards can create significant legal and ethical issues. It’s usually not permissible for a management company to take a large portion of a practice’s revenues as “management fees,” even when the management company handles most of the practice’s operations. However, some states may allow revenue-sharing agreements up to a certain percentage or for a specific category of services, such as billing.
When setting up an MSA, you’ll generally need to choose between a flat fee for management services, a cost-plus model, a revenue-based model, or a combination of the three. The management fee is then detailed in the MSA and typically owed to the management company by the medical practice every month.
For more information on payment models, see our video, “Setting Management Fees.”
When evaluating payment arrangements, you and your attorney must consider your state’s specific laws, including whether a revenue-based model is entirely prohibited or permissible in certain circumstances. You’ll also need to assess the types of services you offer and the value of those services.
How should I compensate the medical director in an MSA?
MSAs typically establish an “order of payments” to outline how to allocate practice funds received from patients and third-party payors. Another common question is how to compensate the licensed practice owner (in other words, the medical director) for their involvement.
Medical directors should be compensated in two ways. First, they should receive compensation as the practice owner. This compensation should reflect the value of the business and the additional liability they take on by operating a practice under their license.
Second, the medical director should be compensated for the specific services they actively provide to the practice. Are they reviewing charts? Are they doing initial exams? The parties should agree on how the practice professionals, including the medical director and any medical staff, such as the nurses, will be paid for the professional services they deliver to patients.
Can I sell my healthcare practice to a private equity firm and stay on as an employee?
Private equity (PE) firms are a growing trend in healthcare, and they often operate as experienced and sophisticated management companies. Sometimes, PE firms propose merging a small practice into a larger, pre-existing business they already control, which could be another healthcare entity. But let’s say that a PE firm wants to buy out the ownership of the practice completely. And let’s say that healthcare providers do not own the PE firm. Such a scenario could violate CPOM, even if you continue to see patients and manage clinical operations.
To avoid a violation, practice owners often enter into MSAs with PE firms or third-party management companies. As in the medical spa example, this allows a PE firm to manage the practice’s business operations while the provider retains control over the medical services.
If a PE firm approaches you for a new business opportunity, ensure you understand what they’re asking you to do with your practice. Determine whether the proposal runs afoul of the law and whether an MSA can outline a more compliant arrangement.
See our related article, “What to Consider Before Selling Your Practice to a Private Equity Firm.”
Get Legal Support
MSAs can address many payment challenges that modern healthcare practices face but can also be complex and difficult to understand. Crafting a good MSA requires thoroughly understanding your business practices, goals, and the relevant state laws.
When forming a new arrangement between a healthcare practice and a management company, here are some good general practices:
- Talk to your healthcare attorney about the various issues that could apply to your practice — and potentially cause legal trouble if not properly addressed.
- Have your attorney draft an MSA and establish any of the necessary legal entities.
- Follow the payment process outlined in the MSA — it’s crafted to keep your practice compliant.
The healthcare attorneys at Jackson LLP have extensive experience forming compliant MSO/MSA arrangements for healthcare practices across many specialties. If you operate in one of the states where we have licensed attorneys, schedule a complimentary consultation to learn how we can help you succeed in your business aims.
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. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
Free Attorney Consultation
