How the MSO Model Helps Healthcare Startups

In today’s video, we discuss how corporate practice of medicine fears still shape healthcare startup decisions about how to structure their digital health business, and we talk about the MSO model as a tried and tested option.

Hi, I’m Michael H. Cohen, founding attorney of the Cohen Healthcare Law Group. We help healthcare industry clients just like you navigate the complex and sometimes frustrating legal and regulatory terrain of healthcare law and FDA issues so you can launch, or continue to scale, your health and wellness product success.

Recently, a healthcare startup came to us with an idea to provide a central brand for delivery of medical services in a niche medical space. The medical space could be anything, it could be fertility, sleep, men’s health, addiction, geriatric, dementia care, complex chronic illness, support for terminal illness, hospice care, diabetes, anything else.

Like many healthcare startups, this company wanted to integrate both medical doctors and nurses, or naturopathic doctors, and providers such as chiropractors and health coaches.

The first issue the startup faced was how to structure ownership of the business entity and in which entity. Because the MSO is so diverse, and because recent cases on corporate practice of medicine in the startup’s particular state still left considerable risk and ambiguity, we recommended that the physicians and licensed clinicians be housed in a professional corporation, and that the startup founders share equity in the MSO.

The MSO would manage the administration and marketing for the professional corporation, and there would be an MSA or MSO agreement between the MSO and the PC.

The health coaches would be hired by the MSO, as they would be prohibited from any activities that the State could consider, “the practice of medicine” or psychology.

The MSO would hold the brand. This does have some legal complexity, we talked about in our blog with some of the legal issues associated with who owns the brand name, so please check out our Healthcare & FDA Law Blog at

We also got deep into the weeds of some operational issues that can trigger corporate practice of medicine concerns. For example, we recommended that the patient pay the professional corporation. This can be tricky with a technology platform.

Next, we talked about ownership of medical records. These days, when records can be copied digitally so easily, it may seem silly to talk about actual “ownership.” But, many states, such as California, still require the physician to “own” the medical records, and the state regulators can find a corporate practice of medicine violation if the agreement between the Professional Corporation and the MSO fails to specify that the Professional Medical Corporation owns the patient’s medical record.

We talked about the flow of funds, we also discussed basic HIPAA requirements, including the fact that the MSO would be considered a “business associate” of the Professional Medical Corporation and would have to sign a Business Associate Agreement, or BAA.

As you can see, there are a hodgepodge of legal issues involved in making this kind of arrangements work, and a lot of it is keeping it all straight. The flow is not always intuitive. Healthcare law sometimes seems like a different language: there are many acronyms and concepts, there’s conjunctive and disjunctive, and healthcare startups want to cut through and get customers and revenues.

That’s why we often start you out with a Legal Strategy Session with a member of our Legal Team. It’s a great entry-level option, just to get you an early read on your business model, and get you some starting recommendations.

Thanks for watching. Here’s to the success of your healthcare venture, we look forward to working with you soon.

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