The arc
Stage 1, launch with a fixed monthly fee
Why: simple to administer, easy to FMV-support when the MSO’s service scope is thin, and it gives the PC predictable costs before revenue stabilizes. Its limit: the MSO’s earnings don’t move as the practice grows. Incremental profit strands in the PC, where no investor can reach it, which is backwards from what capital is underwriting.Stage 2, move to cost-plus once the MSO absorbs real services
Why: the MSO’s cost base is now measurable, and a markup on that base scales fee income with the business while staying tethered to an FMV anchor. This is the transition that matters most, and it is why this arc exists at all. Why investors want it: MSO profit becomes a defined, recurring margin rather than a number reset by negotiation. A cost-plus fee produces earnings that grow predictably with the cost base as the group scales, which is a stream that can be underwritten and multiplied. Why regulators accept it: the fee is tied to services actually provided, at costs that can be documented, with a margin that can be benchmarked. It is a price, not a profit share.Stage 3, percentage of collections, only where lawful
Why: maximum alignment with practice performance. Why many groups never get here: it is structurally identical to sharing professional fees with a non-licensee, and materially risky in New York, Florida, and other states with active fee-splitting doctrines. See Fee-splitting.Prerequisites for a transition
- Current MSA reviewed
- The MSO’s actual cost base calculated and allocated per PC
- A refreshed FMV study, completed before the new fee takes effect
- Per-state fee-splitting re-check for every PC moving to the new structure
- Counsel engaged in each affected state
Steps
1
Re-check state law for every affected PC
The new structure must be lawful in each state. A cost-plus markup is broadly acceptable; a percentage is not. If one PC’s state prohibits the new structure, that PC stays on the old one via a state rider — do not move it and hope.
2
Commission the FMV study before the change, not after
An FMV opinion obtained after a fee increase took effect is worth far less than one obtained before. The sequence is part of the evidence: it shows the fee was set by reference to FMV rather than justified afterward.
3
Choose: amendment or amended and restated MSA
If your MSA predates 2025, prefer a restatement — you almost certainly need to update the clinical carve-out for Oregon, California, and Vermont developments anyway. See Draft the MSA.
4
Define the new fee precisely
For cost-plus, specify:
- The cost base, which MSO costs are included, and which are excluded
- The allocation methodology across PCs
- The markup percentage
- The calculation period and true-up mechanism
- Documentation the MSO must provide with each invoice
5
Adopt board and member consents on both sides
Both entities must independently approve. For the PC, this is the clinician-owner considering whether the new fee is one the practice should agree to, and the minutes should reflect that consideration, not a rubber stamp.
6
Set a clean effective date and handle the mid-year transition
Prefer a period boundary, month, quarter, or fiscal year. If mid-period:
- Prorate cleanly
- State in the amendment which periods use which method
- Handle the true-up explicitly
7
Update the invoice template and any automation
A cost-plus invoice needs to show the cost base and the markup. Update the accounting system’s recurring entries, the invoice format, and any payment automation.
8
Update the financial model and reforecast
The MSO’s earnings profile changes materially. If you are raising, the new structure is what the raise is priced on — model both and understand the difference. See How investors read MSO-PC financials.
The true-up
Cost-plus requires reconciling estimated costs to actual. Specify:- Frequency, quarterly or annually
- Direction, both, or only in the PC’s favor
- Mechanism, a credit or additional invoice
- Dispute process
The thing not to do
Verify it worked
- State law re-checked for every PC on the new structure
- FMV study completed before the effective date
- Amendment or restated MSA executed
- New fee defined precisely, including cost base, allocation, markup, and true-up
- Board and member consents adopted on both sides, with real consideration reflected
- Clean effective date; mid-period proration handled
- Invoice template and automation updated
- Financial model reforecast
- No retroactive repricing of prior periods