Overview of Friendly PC Model
Management Service Organizations (MSOs) play a pivotal role in streamlining the operations of professional entities, particularly in the healthcare sector. This blog explores the distinct roles and responsibilities of MSOs and professional entities because understanding these relationships is crucial for creating a sustainable and compliant operational structure.
Management Company (MSO)
MSO provides management services (often a turn-key infrastructure including equipment, supplies, space, nonprofessional staff, intellectual property, etc.).
MSO enters tight Management Agreement with professional entity.
MSO often also enters Member Nomination Agreement with physician owner of professional entity. MSO often able to replace physician owner at any time.
Professional Entity
Professional entity engages licensed professionals.
Professional entity typically pays for professional liability insurance and equipment and supplies that must be purchased by physician.
Professional entity provides professional services to patients and, in turn, patients pay professional entity for services.
MSO and professional entity have separate bank accounts and financial records. Corporate separateness is preserved. Funds are not comingled.
MSO to Professional Entity
MSO provides management services to professional entity, which in turn pays MSO for those services.
Fee paid by professional entity to MSO must be fair market value (FMV), set in advance and changed no more than once a year unless the services change. Fair market value should not take into account the business generated by MSO for the professional entity.
The fees for management and administrative services (which should include marketing) should be a flat fee or reflect a cost plus approach. Typically, the fair market value determination should be made in reference to the pro forma for the initial year. A third party valuation of the fee is always advisable but not per se required from a health law perspective. It must be reasonable and documented.
Please let me know if you have any questions or if I can be of any further assistance.