We are continuing to see the expansion of the MSO-PC (Management Services Organization-Professional Corporation) structure within the healthcare space.
This structure is an arrangement that allows licensed professionals, including physicians,dentists,and other healthcare providers, tomaintainlegal control over a medicalpractice, the PC,while there is a separate entity, the MSO,whichprovides administrative and management services to the PC entity.While this structurecan beattractive, it is crucial to structure these arrangements correctly to ensureregulatory compliance.Failure to do so can result in regulatory violations,penaltiesand litigation among the owners and entities.
The following steps are important to consider when forming entities under the MSO-PC structure:
5 Key Considerations for Starting an MSO-PC Medical Practice
1. Establish Distinct Legal Entities for MSO and PC
Make sure to establish two separate legal entities for the MSO and PC. The separation of clinical and non-clinical operations is essential for compliance with the corporate practice of medicine (“CPOM”). This separation prevents unlicensed individuals from influencing clinical decisions, while ensuring only the licensed medical professionals provide medical services.
2. Understand State Laws and Regulations
Regulations vary by state; certain states have CPOM requirements to follow. Ensure that the MSO-PC structure is following the laws of all states that your practice may expand into to avoid legal problems in the future. Learn more about legal structuring and more, Understanding Legal, Tax, and Valuation Considerations for MSO-PC Structures – Withum.
3. Defining MSO Purpose and Non-Clinical Services for MSA
Define the MSO purpose and clearly define the non-clinical services that the MSO will provide to the PC and establish a managed services agreement (MSA). Make sure that the MSA clearly defines the responsibilities between the MSO and PC and is compliant with state regulations. Also, the management fee charged by the MSO to the PC must be set at fair value. Determining the management fee can be challenging and often requires a valuation. Incorrect fee calculation may cause issues with tax deductions and potential exposure to income taxes, fines, and penalties. Learn more about MSO Fee structure, MSO Fee Structure Housekeeping, Value-Based Care and Regulatory Enforcement Actions – What You Need to Know – Withum.
4. Maximize Tax Benefits
Determine the best tax structure. Filing a consolidated federal income tax return would allow losses of one entity to offset the income in another entity but consolidating for tax purposes is only available for C corporation taxpayers. Also, not all states allow combined or consolidating filing for income tax purposes. Learn more about tax considerations for the MSO-PC structure, Navigating Tax Considerations for the MSO-PC Model in the Evolving Digital Health Industry – Withum.
5. Ensure Financial Transparency Across Entities
Set up and maintain separate accounting records and bank accounts for the MSO and PC. Make sure to properly account for the clinical revenue and MSO fees and expenses in the appropriate entities to ensure compliance with regulations, as well as to provide transparency in your financials.
Takeaways
By following these guidelines, you can establish a compliant and efficient MSO-PC structure that will be set up for growth and success.
Contact Us
If you have any questions, please reach out to Withum’s Healthcare Advisory Services Team.
