5 Things to Know about Physician Practice Management

Let's face it, the day-to-day demands of running a successful practice make it nearly impossible for physicians to treat patients and simultaneously devote the necessary attention to business operations.

As the non-medical burdens of private practice increase over time – billing, collections, human resources management, etc. – many physicians turn to management service organizations (MSOs) for administrative support. These arrangements allow MSOs to handle the business functions of a medical practice, while the physicians focus their energy on patient care. 

How does a physician determine if a physician practice management arrangements with an MSO is right for his or her practice? Below is a list of five things that physicians should consider:

What is an MSO?

An MSO – sometimes referred to as a physician practice management company or an administrative services organization – generally refers to a business entity that provides non-clinical practice management services to a medical practice. Arrangements with MSOs typically involve the MSO performing most of the business and non-clinical functions of the medical practice, while the physicians remain in control of patient care and all clinical decision-making. 

What type of services does an MSO perform?

The services offered by MSOs vary depending on the scope of the engagement by the physician practice but, generally, can include one or more of the following:

•Premises and/or equipment leasing, maintenance and repair.

•Provision of administrative personnel for the practice (e.g., office and clerical staff).

•Bookkeeping and accounting.

•Human resources management.

•Billing, claims submission and collections.

•Financial management.

•Marketing and public relations.

•Technological and informational support systems.

•Assistance with managed care contracting. 

What is the Corporate Practice of Medicine doctrine and how does it apply to practice management arrangements between physician practices and MSOs?

Many states have a "corporate practice of medicine" (CPOM) prohibition that prohibits non-licensed individuals or unauthorized entities from practicing medicine, or owning, investing in, or controlling professional medical practices. Unlike physician practices – which are typically structured as professional corporations (PCs) and professional limited liability companies (PLLCs) and are authorized under their respective state's laws to provide medical services through their licensed-physician owners, employees and contractors – MSOs are not "professional" entities and cannot engage in the provision of medical care or hire or engage physicians to provide medical care through the MSO. 

MSOs can provide administrative and other non-clinical support to physician practices, but the CPOM prohibition prohibits the MSO from impacting or controlling a physician's clinical judgment and independent medical decision-making, which must be reserved solely to the physician and the physician practice. 

Arrangements between physician practices and MSOs must be carefully structured and implemented in a manner that does not run afoul of a state's CPOM prohibition. Most states have some form of a CPOM prohibition, with some states having more stringent rules than others.

How does the CPOM prohibition limit practice management arrangements between physician practices and MSOs?

Although the rules vary by state, the CPOM prohibition generally limits the scope of services that can be performed by an MSO and prohibits certain types of compensation arrangements between the MSO and the physician practice.

MSOs typically cannot perform certain tasks on behalf of a physician practice that are reserved for licensed professionals, including, without limitation, rendering professional medical services, hiring and firing of physicians and other licensed professionals, and performing peer review activities.  Some states also prohibit MSOs from making purchasing decisions related to medical equipment and supplies.

In some states, the CPOM prohibition limits the types of compensation arrangements that are permissible between MSOs and physician practices. For example, New York prohibits physicians from entering into a "fee splitting" compensation arrangement with an MSO, where the MSO is compensated based on a percentage of the physician practice's income or receipts. In all cases, however, compensation paid to an MSO must be fair-market value for the services provided by the MSO.

What are compliance risks associated with MSO arrangements?

Failing to comply with CPOM rules can, among other consequences, subject physicians to potential discipline by the applicable state licensing board for aiding/abetting the unauthorized practice of the medicine. Non-compliant arrangements can also result in the denial of reimbursement or recoupment of fees previously paid to the physician practice by third-party payors. Some states also impose fines on parties involved, or aiding/abetting the unauthorized practice of medicine.

In addition to the CPOM prohibition, physicians and MSOs must be mindful of federal and state laws (including the federal Anti-Kickback Statute and state law equivalents) that prohibit improper compensation and ownership arrangements between health care providers and actual or potential referral sources. Compliance risks with respect to these laws are especially heightened if MSO agreements contain certain red flags, including the following.

•If the MSO performs marketing or referral procurement services;

•The MSO arrangement is exclusive (i.e., the physician practice cannot hire a different MSO); or

•If the MSO's compensation is directly or indirectly related to referrals or revenues generated by a physician practice.

Whether an arrangement complies with such laws is based on the particular facts and circumstances and is determined on a case-by-case basis.

Leonard Lipsky is a Member of the Firm in the New York office, and Yulian Shtern is an Associate in the Newark office, of Epstein Becker & Green, P.C., a national law firm with a primary focus on health care and life sciences.