MSO vs Professional Medical Corp: Legal Permutations
What’s the difference between using the MSO model on one hand or the Moscone-Knox Professional Corporation Act on the other? People sometimes get these two confused. So I’m going to give you a very quick overview.
Hi everyone. I’m Michael H. Cohen. I’m founding attorney of Cohen Healthcare Law Group. We help healthcare companies just like you by providing legal strategies and solutions so that you can accelerate health and wellness.
So let me start with the MSO model. We’ve talked about it a thousand times. Most people understand some basics about it. But essentially, the MSO model involves separating the business side of the healthcare venture from the clinical side. So you’ve got the administrative and marketing in one or more entities over here, and you’ve got the physicians, psychologists, nurses over there. Now, a side question is where do the health coaches go? So we addressed that in other videos. Please look at our videos on health coaching.
But basically if you’re an electrician and your best friend is a doctor and you want to go together and provide some kind of clinical service, let’s say it’s boosting men’s health, let’s say boosting sexual health, boosting sleep health, could be women’s health, it could be any kind of health, geriatric health, pediatric care, dealing with addictions, whatever it is your clinical focus, and you’re going to do it online. The sun makes my classes dark. So these are my true eyes, not enhanced by AI or some kind of algorithm. Not yet, at least, and this is the real me and I’m in the great outdoors.
So we help health and wellness businesses to help people get healthy and stay healthy and breathe some of that great fresh air. So back to my point. The MSO is great. If one person is a doctor and the other isn’t, or one is a medical group or a set of psychologists and the other isn’t, and they need a business arrangement, that creates a venture. Who owns the venture? Well, they have different pieces of it and the MSO takes its cut at fair market value, FMV.
So if you’re prudent, you’ll find a way to justify fair market value. Sometimes we recommend that you even hire a valuation expert. We could talk to you more about that during a legal strategy session, about what fair market value could be if you’re an MSO.
Now, on the other hand, let’s say that you are a licensed clinician, I’m talking about under California law. Let’s say you’re a physician and you’ve got nurses. The Moscone-Knox Act, Moscone-Knox Professional Corporation Act, allows you to mix and match clinicians as shareholders, directors, and employees. You can mix and match.
So for example, you’re the doctor. It’s your idea. You can have your cousin, the electrician, as your fellow shareholder in the professional corporation, but you could have the nurse as a shareholder. So you could have the nurse as a shareholder in your PC over here, and you could have your MSA, MSO agreement with your MSO with your cousin electrician over here. Now obviously, as you think through these permutations, they can get complex and you might have a number of co-founders and that’s frankly where we can help is to sort out the different threads, because it’s not just about, does the law say yes or no? I mean, the law is not a stop sign. If it was, someone would hold it up and you would just stop, and somebody less scrupulous might flip it around and you would just go. But I wouldn’t do that if I were them.
So it’s really about nuances. It’s these shades, and it’s not just shades because shades are about gradations of color, and sometimes people just make it monochromatic. But I think it’s more about permutations. There are a lot of different ways, and with every way come opportunities and there also come potential liabilities. So for example, if you’ve got the nurse as your shareholder, you’re the doctor, it’s a professional medical corporation in California, you could give him or her up to 49%. But do you want to? Is their contribution worth 49%? What happens if you have a shareholder dispute?
We’ve seen that now you want to get rid of each other, it’s much harder to do than if they were an employee. If they’re an employee, it’s much harder to do than if they’re just an officer. So you want to think through and be guided carefully through the different permutations. Again, it’s not just shades of yes or no. It’s going to be some risk analysis and risk mitigation. Then there are going to be the creative permutations that allow you to play with the idea and put together your design so that you can have the optimal picture for your health and wellness startup, or your continuing venture and adventure.