For those who have practiced only in a large, bureaucratic health care system, starting up a private practice, either alone or with partners, might sound like a dream come true. But the effort required to run an efficient practice can seem both daunting and prohibitive. It is difficult to provide optimal health care to patients while simultaneously dealing with the “business” of the practice which tends to be constant and time-sensitive. Increasingly, private practices are retaining third-party management companies that, pursuant to a Management Services Agreement (“MSA”), provide administrative, back-office, and non-clinical services for a management fee.

These MSAs often incorporate services related to amongst other things, billing, collections, revenue cycle management, marketing, and non-clinical staffing. A successful MSA arrangement allows practitioners the ability to provide the best care and treatment to patients in a much more efficient manner. There are important legal and regulatory concerns that need to be considered when entering into the MSA, so it is important that health care counsel be retained to explain the process and negotiate appropriate terms.

Important Considerations for a Management Services Agreement

Several potential pitfalls and regulatory concerns must be considered; some of the most important are as follows:

• In many states, including New York, the law prohibits the corporate practice of medicine (“CPOM”), meaning that only physicians can own a medical practice and make medical decisions. Therefore, it is essential that the MSA clearly indicate the distinction and that the management company exerts no influence whatsoever over the practice of medicine. This concern becomes more important as private equity firms continue to invest in management companies.

• Generally, the amount of the management fee must be fixed, not contingent upon the revenue of the medical practice, and be established at Fair Market Value. The MSA can provide that the amount of the management fee be periodically revisited and adjusted; however, it is important that the adjustment does not occur solely because of revenue.

• MSA arrangements very often implicate Stark and Anti-Kickback considerations.

For these reasons, it is essential that practitioners consult with health care counsel to ensure both the terms of the MSA and the actual behavior of the parties comply with all federal and state requirements.