Should Your Private Practice Join a Management Services Organization (MSO)?
- Nisha Mehta, MD
- 3 days ago
- 9 min read
Ask any physician who owns a private practice, and they’ll tell you there’s a ton of administrative and operational work to do on a daily basis (personnel management, payroll, benefits, marketing, revenue cycle management, etc.). Regardless of whether a doctor enjoys the business aspects of running a medical practice, these operational concerns can take time away from seeing more patients or other aspects of patient care. As such, many doctors in our physician communities ask whether it makes sense to join an MSO (Management Services Organization) as a strategic solution for non-clinical administrative support or cost savings with overhead. While that is certainly the role of a MSO, it’s important to weigh the pros and cons of joining a MSO when determining whether it’s a good solution for your practice. Below we’ll cover the benefits and costs of joining a MSO, as well as things to ask about when vetting or considering a particular MSO.
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What Is the Role of a Management Services Organization (MSO)?
A Management Services Organization (MSO) is an entity that provides administrative, non-clinical operational, and financial business services to private practices or other healthcare practices or organizations. Here’s a list of some areas a MSO may help with:
Revenue cycle management services, including coding, billing, and collection services
Medical equipment and supplies
Risk management
Staff education and training
Human resources and personnel management
Marketing
Recruitment
Financial management including payroll services
Information technology and EHR services
Office space management
Credentialing and contracting
Legal services and regulatory compliance support with HIPAA, Stark Law, etc
Vendor management
Because a MSO works with many entities, they are able to leverage the economies of scale from having so many practices under their umbrella to negotiate better, which can help them gain rates comparable to what bigger healthcare entities such as hospital systems can negotiate.
MSOs may lease or own the assets that they offer, such as office space or equipment. They may also have their own in house teams for revenue cycle management and marketing, or sublease these services. They may also have their own personnel for things like human resources. Obviously, the more middlemen in the process, the more costs may go up.
Additionally, many states have laws on the Corporate Practice of Medicine (CPOM) which prohibit non-physicians from owning or controlling medical practices (to try to ensure that patient care is always a factor in decision making). MSOs can provide practices that want administrators or investors involved in practice administration a structure that is legal, as long as the clinical decision making remains the purview of licensed clinicians and the MSOs perform administrative tasks.
How Do MSOs Make Their Money?
In exchange for the services they provide, there are various ways that MSOs can charge for their services, including:
Flat monthly fees for their services
Tiered service models
Percentage (%) of practice revenue (the legality of this will depend on the state’s laws)
Hybrid models
It is important that a legal team is involved in the structuring of the agreement, as there are issues to navigate with the Corporate Practice of Medicine laws in a state, whether they are allowed to take a percentage of practice revenue in that state, and other self-referral, kickback, and/or Stark type laws.
What Are Different Ways a MSO Can Be Structured?
MSOs can be owned by physicians, non-physicians, and/or investors such as private equity groups.
There are many different models to MSOs, which similarly to payment structure must meet the compliance requirements on both the state and federal levels. Additionally, they can be built in many different ways depending on their ownership and operational scope.
These include:
Service fee-based: Fixed monthly fee or % of generated practice revenue
Cost-plus: The costs of the MSO are passed on to the practice, with an additional amount added as a middleman management cost, usually based on profits
Equity based: Physicians and other shareholders have equity in the MSO or affiliated entities, thus allowing physicians to be compensated on the business side
It’s very important to pick a structure that not only complies with the federal and state laws and regulations, but also that makes sense from a financial perspective for the practice.
There are two basic categories these companies will fit into. The first type of MSO is one that offers the operational services mentioned above for a certain cost while allowing a practice to remain independent. The second type is one that purchases assets and leases them back to healthcare providers, meaning the practice is no longer independent. While they can still see patients independently, they may have relinquished ownership and control over many administrative duties and tangible assets (ex: equipment, office space).
It’s important to know the structure of a MSO before agreeing to work with them, as their formation may greatly impact how they conduct business and whether or not their goals align with those of your practice. Below are some of the common MSO ownership structures (there are others as well).
Physician-Owned MSOs: These are created and operated by physicians and allow physicians to retain control over their business operations while benefiting from shared services.
Private Equity-Owned MSOs: As companies managed by private equity, the leadership will focus on profitability and growth, as they need to provide returns to their shareholders. They will focus on introducing business efficiencies and capital investments. While this may be good for your practice, they may try to improve profit at the expense of the quality of patient care you’d like to deliver.
Hospital-Affiliated MSOs: Associated with healthcare systems, these MSOs allow hospitals to extend administrative support to affiliated or independent practices, improving integration and coordination.
Joint Venture MSOs: A collaboration between different entities, these MSOs offer shared management services while distributing risk and investment among partners.
For equity based structures, some MSOs offer the opportunity to have your practice join a larger entity by having practices have equity or rolling up a bunch of practices into a larger entity. These typically involve a private equity group. If you are opting into this situation, it’s very important to proceed cautiously both from a financial perspective and to make sure that you will have a voice that will allow you to vote on decisions regarding your practice or that affect your patients.
Additionally, the structure you choose may influence tax exposure, liability, and exit strategies.
No matter what, you’ll want to have your own representation from a healthcare attorney when contracting with the MSO.
Contracting with a MSO Through a MSA
When signing on with a MSO, a management services agreement (MSA) will likely be created that dictates how services and payments will be handled. The terms and conditions will be negotiated between both parties. While the obvious things to negotiate are the fees and structure, you also want to include metrics and KPIs to assess performance of the MSA (don’t want to pay them a percentage of your practice’s profits if they are getting the same deals you are independently), the scope of the services they provide, and how to terminate the relationship if needed.
If you are selling assets or a percentage of your practice to the MSO, make sure that you get a fair valuation.
Again, utilizing the services of a healthcare attorney familiar with MSOs who can best represent your interests is key.
Advantages and Disadvantages of Using a MSO
MSOs are not the best choice for every practice.
Before considering adding a MSO into your practice, it’s important to understand what the pros and cons may be, as well as what risks you may be taking on.
For example, the main reason you are considering a MSO is because you’re worried about the profits and expenses of your current practice, consider reading our article on ways to increase your private practice revenue and address increasing overhead before moving forward. If you’re worried you won’t be able to start a practice with your current funds/administrative support, you can also consider starting a micropractice.
Advantages of Using a Management Services Organization (MSO)
Cost Savings: By centralizing administrative functions, MSOs reduce overhead costs and increase operational efficiency. MSOs can also reduce overhead costs by providing IT and healthcare equipment for cheaper due to their group discounts.
Regulatory Compliance: MSOs stay up to date with healthcare regulations, reducing legal and compliance risks.
Improved Revenue Cycle Management: Efficient billing and collections processes enhance cash flow and financial stability. MSOs may also be able to spot areas of your business that could be better structured to produce more profit.
Access to Advanced Technology: MSOs invest in the latest healthcare IT systems, providing access to modern tools and analytics for a fraction of the cost to buy the IT independently.
Physician Focus on Patient Care: Reducing administrative burdens allows physicians to prioritize medical services and patient relationships.
Potential for Increased Scale: Access to the resources of the MSO may allow you to scale faster by streamlining the logistics of growth and expansion and having access to more resources
Potential for Sale or Increased Valuation of Your Practice: If selling the practice is the eventual goal, joining a MSO or partaking in a roll up can open up new opportunities for an exit
Disadvantages of Using a Management Service Organization (MSO)
Loss of Control: This can be a pretty big con. Some MSO structures require physicians to give up a degree of autonomy over business operations in exchange for their services, especially if the practice is a part of a private equity roll up.
Cost and Fees: While MSOs provide financial benefits, they also come with costs that may impact your profitability such as high fees for administrative services that may cost more than they’re worth, or may not be services you would’ve decided as a practice to spend money on.
Requirements to Use Certain Vendors: Depending on who the MSO is contracted with, they may have preferences for vendors that you may not have picked, such as a particular electronic health record or type of equipment.
Potential Conflicts of Interest: MSOs owned by private equity or hospitals may prioritize financial goals over patient care, directly conflicting with your goals for the practice.
Long-Term Commitment Risks: Contracts with MSOs can have restrictive terms that may not align with your practice’s evolving needs and could stunt your goals for the future of your practice.
Employee Morale and Management: In some cases, the MSOs will hire your employees directly. If they operate in a business first model that prioritizes profits, this can affect everyone’s job satisfaction, and lead to issues with employee engagement and retention. You can also lose control of hiring and firing practices.
Red Flags to Look Out for and Warnings About MSOs
While MSOs can be highly beneficial in some situations, you should approach this decision with a high level of caution. Many practices don’t realize the degree of risk they take on, or how much their practices are worth to the MSO. When considering a MSO, members of our physician communities mention that it’s important to watch out for:
Lack of flexibility within contracts, with lack of options to customize your agreement
Lack of transparency about the exact KPIs or performance history of the MSO
Companies that talk a big game to get you on board, especially if it sounds too good to be true when compared to what you already know about your practice
Long term contracts with no potential for exits or editing of terms
High penalties for terminating a contract with the MSO
Low ball valuations
Maintaining clinical autonomy is critical to ensure that a MSO does not infringe upon your medical decision-making and patient care standards. After all, physicians start private practices not only for the money, but also to have a clinical space they can be proud of, with the best care imaginable. Be sure to investigate a MSO’s track record, reputation, and financial stability before entering a partnership in order to mitigate any potential risks.
Conclusion
Whether or not you are considering making a MSO part of your practice, it’s important to understand their role in our future healthcare landscape. As more and more practices are bought up by private equity and hospital systems in our country, we need to be mindful of how the administration and structure of these healthcare organizations can impact our current and future practice. If you’re interested in pursuing an MSO for your own practice, start by understanding the structure of the MSO you’re interested in working with as well as how their goals match up to those of you and your practice. Never enter into an agreement without reviewing the contract with a healthcare attorney that can represent your best interests and is familiar with MSOs.