Corporate Practice of Medicine on Steroids: How Your MSO and Professional Medical Corporation Could Work Together Without Courting Legal Disaster

This article was originally published at Cohen Healthcare Law Group

You, MSO

You, MSO is my own variation on I Claudius.

Poor Uncle Claudius, everyone said. Ended up becoming Emperor of Rome. Through craft and careful strategy.

So you have an MSO and want to operate successfully and profitably. The legal rules can be scary.

How do you navigate the corporate practice of medicine and its regulatory twin, prohibitions against fee-splitting, yet survive and thrive with MSO revenues?

Let’s take it from the top.

The MSO Model: a Legal Safe Harbor

You want to create a medical services organization (MSO), also known as a medical management company.

You want the MSO to work seamlessly with a professional medical corporation and charge a hefty (but justifiable) fee for management and marketing services to a physician practice, medical center, medical group, physician team. It could be a conventional medical practice, a medical spa, an aesthetic medicine practice, integrative medicine, functional medicine, concierge medicine … or even a psychology practice or behavioral medicine group.

Here’s the key point: you want the MSO to have the upper hand …. Or at least, a long, stable, and connected relationship with the professional medicine corporation …. Even though corporate practice of medicine prohibitions – like the Force – are strong, particularly in states such as California and New York, and there are so many enforcement hot buttons … there may be ways to achieve your objectives without courting legal disaster.

MSO Revenues and Profit

You’ve worked hard to build your technology platform, telemedicine company, management company, billing company … we’ve seen a thousand variations.

It’s about serving health and wellness, yes – and you also want to maximize profit. Profit is good. Revenues are good. Capitalism is good.

You want to assure the continuity and stability of the professional medical corporation, although, as we’ve said, and other lawyers have told you, because of prohibitions on corporate practice of medicine, the physicians live in their own legal silo …

Still, from a business perspective, you want this to work. The more stable and lasting the professional medical corporation and its relationship to you, the more favorable the reimbursement rates, because the insurance companies like this stability, as well as volume of business.

Keeping the Professional Medical Corporation Healthy

Here are some things our MSO lawyers have recommended as possible legal strategies.

These are, of course, not legal advice and they are all subject to the caveat that you should consult legal counsel for legal advice specific to your situation. Also, legal strategies can range from conservative to aggressive, and there is no guarantee that regulators will maintain a hands-off perspective. With that in mind:

  • The professional medical corporation requires that its patient shareholders utilize the MSO’s platform to see patients. This is aggressive. It could be, however, in the hands of the professional medical corporation and not the MSO.
  • Make the MSO agreement a long-term one, so that the professional medical corporation has a long-term tether to your MSO. A long-term contract, without having a “termination without cause” provision, can be favorable if you want to lock in the relationship.
  • Provide that physicians in the professional medical corporation give permission for the MSO to feature their names, bios and images on the MSO website. Be sure though to comply with any relevant advertising law including law restriction physician advertising.

Be sure to keep in mind some of the legal prohibitions mentioned earlier, and again, check with an attorney.

Kickbacks and Fee-Splitting and Corporate Practice of Medicine

Like many states, California has its own state law prohibitions against kickbacks and fee-splitting.

California Business & Professions Code (“B&P”) 650(a) provides that with specified exceptions:

the offer, delivery, receipt, or acceptance by any person licensed under this division or the Chiropractic Initiative Act of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise, as
compensation or inducement for referring patients, clients, or customers to any person, irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred is unlawful.

Business & Professions Code, Section (b) provides an allowance for:

payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement … if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer.

This is the basis for the MSO model in California.

In California, the statutory basis for the corporate practice of medicine rule, is the prohibition in B&P 2052 which prohibits unlicensed practice of medicine by “any person,” together with B&P 2400, which provides that corporations have no professional rights, privileges of powers.

On its webpage entitled Corporate Practice of Medicine, the Medical Board of California provides an expansive interpretation of the CPM prohibition (italics added below).

First, the California Medical Board includes as “examples of some of the types of behaviors and subtle controls that the corporate practice doctrine is intended to prevent,” the following:

  • Determining what diagnostic tests are appropriate for a particular condition.
  • Determining the need for referrals to, or consultation with, another physician/specialist.
  • Responsibility for the ultimate overall care of the patient, including treatment options available to the patient.
  • Determining how many patients a physician must see in a given period of time or how many hours a physician must work.

Second, the California Medical Board points to the following “‘business’ or ‘management’ decisions and activities, resulting in control over the physician’s practice of medicine,” as those that “should be made by a licensed California physician and not by an unlicensed person or entity” such as an MSO:

  • Ownership is an indicator of control of a patient’s medical records, including determining the contents thereof, and should be retained by a California-licensed physician.
  • Selection, hiring/firing (as it relates to clinical competency or proficiency) of physicians, allied health staff and medical assistants.
  • Setting the parameters under which the physician will enter into contractual relationships with third-party payers.
  • Decisions regarding coding and billing procedures for patient care services.
  • Approving of the selection of medical equipment and medical supplies for the medical practice.

the California Medical Board points out that these “types of decisions and activities” can be made by a physician who consults with the MSO, but not by the MSO.

Last, the California Medical Board states that the following types of ownership and operating structures are prohibited:

  • Non-physicians owning or operating a business that offers patient evaluation, diagnosis, care and/or treatment.
  • Physician(s) operating a medical practice as a limited liability company, a limited liability partnership, or a general corporation.
  • Management service organizations arranging for, advertising, or providing medical services rather than only providing administrative staff and services for a physician’s medical practice (non-physician exercising controls over a physician’s medical practice, even where physicians own and operate the business).
  • A physician acting as “medical director” when the physician does not own the practice. For example, a business offering spa treatments that include medical procedures such as Botox injections, laser hair removal, and medical microdermabrasion, that contracts with or hires a physician as its “medical director.”

In all of the above examples above, the California Medical Board could find a corporate practice of medicine, violation, and “the physician may be aiding and abetting the unlicensed practice of medicine.”

Enforcement Risks

Some of the areas that the California Medical Board has flagged above that are of particular concern here, include these. And below each is a strategic response.

  • Determining how many patients a physician must see in a given period of time or how many hours a physician must work.
  • Although the strategies laid out above are not proposing to set patient volume or physician hours, they are intended to have physician work exclusively via the MSO’s platform. There’s a business judgment here to be made, in consultation with legal counsel, about the enforcement risk.
  • Non-physicians owning or operating a business that offers patient evaluation, diagnosis, care and/or treatment.
  • Although we haven’t proposed that the MSO make diagnostic or treatment decisions, its proposed level of control here could potentially be seen as intruding into the clinical domain. The key word is potentially.
  • Management service organizations arranging for, advertising, or providing medical services rather than only providing administrative staff and services for a physician’s medical practice (non-physician exercising controls over a physician’s medical practice, even where physicians own and operate the business).

This is a very far-reaching provision, since MSOs do market on behalf of physicians. the California Medical Board appears sensitive as to who controls the marketing and how the physician practice is portrayed. Because of wide enforcement discretion, and the California Medical Board sensitivity to MSO relationships with professional corporations, this is an area requiring more nuanced legal counsel.

Putting it all Together

The legal and regulatory landscape is constantly changing. We’ve counseled MSOs, with many variations. Enforcement risk takes a nuanced read.

Every once in a while there is a “perfect storm” for regulatory enforcement. (See our post, Corporate practice challenges medical management (MSO) organizations in New York AG action). At other times, it’s just a “rabbit hole,” where some clear thinking and strategic guidance can refine a business model (see our post, Corporate Practice of Medicine & Anti-Kickback / Fee-Splitting Rules: Deep Down the Regulatory Rabbit Hole).

We understand the world of MSOs and professional medical corporations, and they can be perfect dance partners even if legally, the right step is a good management agreement instead of a marriage contract.

Ready to Take Your Venture to the Next Level?

Schedule an Introductory Call With One of Our Attorneys