Management services organizations take on non-clinical work for physician practices, including billing, revenue cycle, scheduling, compliance, HR and facility management. In states with corporate practice of medicine laws, they are also how private equity firms and other lay investors put money into healthcare operations.
When physicians hold a stake in an MSO, the arrangement can also raise kickback and self-referral concerns.
A Sept. 29 post from Dmitry Gorin of Los Angeles-based Eisner Gorin outlines the arrangements that draw federal investigators and the statutes prosecutors use.
Here are 10 things to know:
1. Structure determines legality. An MSO is lawful when it provides only administrative services at fair market value in an arm’s-length deal. Risk rises when physicians hold equity in an MSO that services an ancillary provider they refer patients to. Examples include toxicology labs, specialty or compounding pharmacies, imaging centers and ASCs.
2. Fees tied to revenue or referrals are the top red flag. Management fees set as a percentage of practice revenue, or per prescription or per referral, can be read as payment for referrals. The firm says flat fees set at fair market value and backed by an independent third-party valuation are the safest structure. It adds that many states ban percentage fees under corporate practice of medicine and fee-splitting rules.
3. Fees can be too high to defend. According to the firm, investigators look for management fees that sometimes exceed 50% of a practice’s gross collections without legitimate business justification or supporting documentation.
4. Passive investors draw attention. Profit distributions to physician-investors who do no management work, attend no board meetings and provide no operational support are a warning sign.
5. Layered structures and thin compliance programs add risk. The firm points to “series MSOs,” umbrella structures with a subsidiary LLC for each physician, as a way to silo referral revenue. It also flags programs with no dedicated compliance officer, no regular staff training or generic legal templates.
6. Clinical control crosses the line. A lay-owned MSO that sets clinical protocols, dictates treatment or hires and fires medical staff can violate state corporate practice of medicine laws.
7. The Anti-Kickback Statute carries prison time. The criminal statute bars paying or receiving anything of value to induce or reward referrals of federal healthcare program business. Equity distributions or inflated management fees can count as disguised remuneration. A conviction can bring up to 10 years in prison per violation, fines and mandatory exclusion from federal healthcare programs.
8. Stark requires no intent. The physician self-referral law is a strict-liability civil statute. It bars referrals for designated health services, such as lab work, physical therapy and imaging, to entities the physician or an immediate family member has a financial relationship with, unless an exception applies. The fair market value and in-office ancillary services exceptions are two examples.
9. Tainted claims become False Claims Act cases. Claims that stem from kickback or Stark violations count as false claims. Liability brings treble damages plus per-claim penalties. The firm said federal agencies use data analytics, whistleblower suits and compliance audits to identify suspicious MSOs.
10. Commercial-only arrangements are not exempt. The Eliminating Kickbacks in Recovery Act applies to all payers, including commercial insurance, for kickbacks involving labs, recovery homes and clinical treatment facilities. Federal mail, wire and healthcare fraud laws also reach schemes that bill only commercial payers.
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