Prerequisites
- The MSA’s services scope defined, in detail
- Your state’s fee-splitting rule confirmed, see Fee-splitting
- The MSO’s actual cost of providing the services, calculated
- Market benchmarks available
The three methodologies
Additional variants used in practice: per-provider per-month, per-location per-month, and hybrids combining a base fee with a variable component.
Steps
1
Calculate the MSO's actual cost of providing the services
Even if you’ll charge a flat fee, you need this number. It is the floor, the FMV anchor, and the basis for any future cost-plus transition.Include: non-clinical salaries and benefits, occupancy allocated to the practice, technology and licensing, insurance, professional services, marketing, and an allocation of MSO overhead.For a multi-PC group, allocate per PC using a defensible driver, headcount, square footage, visit volume, or direct attribution. Document the methodology. Arbitrary allocation undermines FMV for every entity in the group.
2
Confirm what your state permits
Percentage fees are materially riskier in New York and Florida, among others, and unremarkable in permissive states. If you operate in several states, the answer may differ per PC, which means state-specific fee riders rather than one national number.
3
Choose the methodology
4
Set the amount and document FMV
Support it with:
- The MSO’s documented cost of service
- Market benchmarks for comparable management arrangements where available
- Published data on MSO fee ranges in your vertical
- A formal FMV study for larger arrangements or before a raise
5
Specify the mechanics in the MSA
- Calculation method, stated precisely enough to reproduce
- Invoicing, monthly, from the MSO
- Payment terms, within N days, from the PC’s operating account
- Priority, after clinical payroll and the PC’s direct obligations
- Deferral, what happens if the PC cannot pay in full
- Annual FMV review
6
Run the fee-coverage test before finalizing
Model it: can this PC pay this fee out of its own collections, after clinical compensation and direct expenses, at expected volume?If not (persistently, not just during the ramp), the fee is too high or the PC’s economics don’t work. Both are problems, and one of them is an FMV problem. See Where the profit lives.
7
Adopt board and member consents on both sides
The invoice-and-payment mechanics
Not optional detail. This is the difference between a fee and a sweep.1
The MSO issues an actual invoice
Numbered, dated, stating the period, the calculation, and the services. Not a journal entry.
2
The PC pays it from the PC's operating account
On the PC’s authority, after covering clinical payroll and direct expenses.
3
Both entities book it at identical amounts
Expense in the PC, revenue in the MSO.
4
The invoice is filed in both entities' records
When the PC can’t pay in full
Common during the credentialing ramp. Two legitimate options: Defer part of the fee, in writing, with a stated expectation of payment. Watch that perpetual accrual is itself a red flag: it suggests the fee was never a price the PC could support. The MSO lends the PC money, on a written promissory note at a rate no lower than the applicable federal rate, with a repayment schedule and board consents. See Intercompany loans between MSO and PC. What not to do: skip it silently, or have the MSO pay PC expenses directly with no intercompany entry.Verify it worked
- MSO’s cost of service calculated and allocated per PC on a documented basis
- State fee-splitting rule confirmed for every PC
- Methodology chosen and stated precisely in the MSA
- FMV analysis documented and dated
- Fee-coverage test run and passed at expected volume
- Invoice-and-payment mechanics specified
- Board and member consents adopted
- Annual FMV review calendared