Management Services Agreements

Health care organizations frequently rely on Management Services Agreements, commonly referred to as MSAs, to separate the business and administrative functions of a medical practice from the delivery of professional health care services.

A Management Services Agreement establishes the relationship between a medical practice or other health care provider and a management services organization (MSO) or another company providing administrative services. These arrangements can allow physicians and other health care professionals to focus on patient care while another organization manages appropriate non-clinical aspects of the business.

Health care MSAs, however, require careful legal structuring. Unlike an ordinary business management agreement, a Management Services Agreement involving a medical practice may be affected by corporate practice of medicine laws, fee-splitting restrictions, the federal Anti-Kickback Statute, the Stark Law, professional licensing requirements, and other state and federal health care regulations.

G2Z Law Group assists physicians, health care businesses, investors, and management organizations in developing Management Services Agreements that clearly allocate responsibilities while addressing the regulatory requirements applicable to health care operations.

What is the Corporate Practice of Medicine?

A Management Services Agreement is a contract under which one organization provides specified management or administrative services to another organization in exchange for compensation.

In the health care industry, an MSA is commonly used between a physician-owned professional practice and an MSO. The professional practice generally remains responsible for the practice of medicine and patient care, while the management organization provides agreed-upon business services.

Depending upon the arrangement, management services may include:

• billing and collection support;

• accounting and financial administration;

• office space and facilities;

• information technology;

• non-clinical staffing support;

• marketing and business development;

• payroll and administrative services;

• purchasing and vendor management;

• scheduling and administrative systems;

• equipment and technology support; and

• general practice-management services.

The agreement should identify which party is responsible for each function and establish clear limits on the authority of the management organization.

Why Are Management Services Agreements Important in Health Care?

Management arrangements can become legally problematic when a management company obtains authority that state law reserves for licensed health care professionals.

Many states restrict the ability of corporations or non-physicians to own medical practices or control the professional judgment of physicians. These requirements are commonly referred to as Corporate Practice of Medicine laws.

As a result, an MSA should distinguish between permissible business management and decisions involving professional medical judgment.

Depending upon applicable state law, matters involving diagnosis, treatment, referrals, physician supervision, clinical protocols, medical records, or other professional decisions may need to remain under the control of the physician-owned practice.

An agreement that gives an MSO excessive authority over these functions can potentially create corporate practice, licensing, or professional-control concerns.

How Should an MSO Be Compensated?

Compensation is one of the most important provisions of a health care Management Services Agreement.

MSO fees may be structured in several ways, including fixed management fees, cost-based arrangements, or other compensation methodologies permitted under applicable law. However, health care organizations must consider whether the compensation arrangement could improperly reward referrals, divide professional fees, or transfer excessive economic control over a medical practice.

Where federal health care program business is involved, Management Services Agreements may also implicate the federal Anti-Kickback Statute. Management arrangements should therefore be reviewed to determine whether compensation and other aspects of the relationship create an improper financial incentive relating to referrals or federally reimbursed business.

Fair market value may also be relevant to health care compensation arrangements. However, fair market value alone does not necessarily make an arrangement compliant. The entire relationship, including the services provided, compensation methodology, referral relationships, and intent of the parties, may need to be evaluated.

What Provisions Should a Health Care Management Services Agreement Address?

The specific terms depend upon the business relationship, but a properly developed MSA should generally establish the rights and responsibilities of both the medical practice and management company.

Important provisions may address:

• the scope of management services;

• management fees and payment methodology;

• ownership of equipment and other assets;

• office space and facilities;

• employees and administrative personnel;

• billing and collection responsibilities;

• access to financial and operational information;

• technology and information systems;

• patient and medical-record responsibilities;

• HIPAA and confidentiality obligations;

• insurance and indemnification;

• term and termination rights;

• regulatory compliance; and

• preservation of independent clinical judgment.

The agreement should also address what happens when the relationship ends, including transition of records, technology, personnel, accounts, contracts, and other operational resources.

What Other Health Care Laws Can Affect an MSA?

Depending upon the parties and arrangement, an MSA may need to be evaluated together with Corporate Practice of Medicine restrictions, physician ownership requirements, state fee-splitting prohibitions, the Anti-Kickback Statute, Stark Law requirements, HIPAA, billing regulations, and professional licensing rules.

These concerns can become particularly important when an MSA is part of a medical practice acquisition, private equity investment, joint venture, telemedicine arrangement, or other transaction involving physicians and non-physician investors.

The legal structure and the Management Services Agreement should therefore work together rather than being developed independently.

What Can G2Z Law Group Do for My Health Care Business?

G2Z Law Group assists physicians, medical practices, MSOs, health care organizations, entrepreneurs, and investors with the drafting, review, negotiation, and regulatory evaluation of Management Services Agreements.

Our attorneys can help determine how management and clinical responsibilities should be divided; evaluate corporate practice of medicine and fee-splitting restrictions; structure management compensation; review federal fraud-and-abuse considerations; and develop agreements appropriate for the parties' business objectives.

We also assist clients in structuring the broader relationship between an MSO and professional medical entity, including entity formation, ownership arrangements, physician-control provisions, administrative-services structures, and related health care transactions.

A carefully developed Management Services Agreement can provide the operational framework for a successful management relationship while helping physicians and health care businesses maintain appropriate regulatory boundaries.