What is an MSO-PC?

An MSO-PC structure is a two-entity arrangement in which a professional entity (a PC, PLLC, or PA) owned by one or more licensed clinicians employs the clinicians and delivers patient care, while a separate management services organization, owned by anyone, including non-clinicians and investors, provides the administrative, financial, and technological infrastructure under a management services agreement (MSA). The two entities are legally separate and contractually joined. That separation is the entire point.

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Why there are two entities

In most US states, a corporation owned by non-clinicians may not practice medicine, employ physicians to practice medicine, or control clinical judgment. This is the corporate practice of medicine (CPOM) doctrine. Its dental, optometric, and veterinary analogues exist too. That creates a problem for anyone who wants to build a healthcare company: capital, operators, and technologists are usually not licensed clinicians, and even when they are, investors cannot hold equity in a professional entity. The MSO-PC structure resolves the problem by splitting the business in two along the clinical/non-clinical line: Read the arrows carefully, because they are the whole model:

• Money from payers lands in the PC, not the MSO. Payers contract with the licensed entity, claims are billed under the PC’s Tax ID and group NPI, and remittances flow to a bank account the PC controls.
• The PC pays the MSO a management fee for services actually rendered. That fee is the MSO’s revenue, and, as Where the profit lives explains, the fee structure is what determines where profit shows up in an MSO-PC group.
• Nobody owns both sides in the ordinary sense. Investors own the MSO. A licensed clinician owns the PC. They are bound by contract, not by equity.

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What each side does

The line between the two columns is not decorative. In strict CPOM states, an MSO that starts making clinical staffing decisions, setting patient-volume quotas, or directing diagnosis coding has stopped being a management company and started practicing medicine. See What an MSO can and can’t do.

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The “friendly” part

The clinician who owns the PC is conventionally called the friendly owner, and the PC a friendly PC. “Friendly” means the clinician is aligned with the MSO, contractually bound to it, and subject to a stock transfer restriction agreement that pre-wires what happens to the shares if they die, become disabled, lose their license, or leave. It does not mean a figurehead with no real authority. Courts and regulators look through paperwork to substance. In Allstate Insurance Co. v. Northfield Medical Center, P.C., 228 N.J. 596, 159 A.3d 412 (2017), the New Jersey Supreme Court confronted a structure where a chiropractor formed a medical practice nominally owned by a physician who never actually practiced there, using “captive” documents that let the management company remove and replace the owner at will, and allowed an insurer to pursue recovery of payments made to it under the state’s Insurance Fraud Prevention Act.¹ The distinction between a genuinely aligned clinician-owner and a straw owner is the difference between a durable structure and an unwound one. See The friendly PC, explained.

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Who uses this structure

Essentially every multi-site, investor-backed, or non-clinician-founded care delivery business in the United States: Physical therapy, chiropractic, optometry, and veterinary medicine all have their own versions. See Industry nuances for the full set.

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What this costs you in complexity

The structure is legitimate and widely used. It is also genuinely more work than a single company, and it is honest to say so up front:

• Two sets of books, with intercompany transactions that must be documented and eliminated on consolidation.
• Two employers — the PC employs clinicians, the MSO employs everyone else — which means two payrolls and two benefit administrations that have to feel like one team.
• One PC per state, because professional entities are creatures of state law and generally don’t travel. A ten-state group is eleven entities. See Why multi-state groups have one PC per state.
• Bank accounts that multiply with entities, each one needing its own KYB packet, its own signers, and its own EFT enrollments with every payer.
• A management fee that has to survive two opposite tests at once: regulators ask whether it is fair market value for services actually rendered; investors ask whether it captures the economics. See Where the profit lives.

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Next

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Sources

1. Allstate Insurance Co. v. Northfield Medical Center, P.C., 228 N.J. 596, 159 A.3d 412 (2017). Opinion (N.J. Courts) · CourtListener