As healthcare providers look to streamline operations and improve efficiency, Management Service Organizations (“MSOs”) have become increasingly vital in helping medical practices, dental offices, and other healthcare entities manage non-clinical functions. MSOs typically provide administrative support, including billing, non-clinical human resources, IT management, and compliance services. These partnerships enable healthcare providers to focus on delivering quality patient care while MSOs handle the back-office tasks.

However, entering into an MSO agreement is a significant decision that requires careful legal consideration. 

What is an MSO Agreement?

An MSO agreement is a contract between a healthcare provider (such as a physician practice) and an MSO. The MSO provides non-clinical services such as management, billing, non-clinical human resources, compliance, and office administration, allowing a healthcare practice to focus solely on patient care. By entering into this agreement, healthcare providers can streamline operations, reduce overhead, and enhance efficiency without sacrificing quality.

That said, MSO agreements are more than just administrative contract – they often carry substantial legal and regulatory implications. Ensuring that your MSO agreement is structured correctly is critical for your practice’s success and legal compliance.

Key Considerations in MSO Agreements

1. Compliance with Healthcare Regulations Healthcare is one of the most heavily regulated industries, and MSO agreements must comply with numerous federal and state laws, including the Stark Law, Anti-Kickback Statute, and other regulatory guidelines. MSOs must not provide services in a way that would violate these laws, particularly when they involve relationships between healthcare providers and third-party vendors.

Pro Tip: Always consult with legal counsel to ensure that the MSO agreement is structured to avoid conflicts of interest and potential regulatory violations.

2. Ownership and Control One of the central issues in any MSO agreement is determining who controls the business operations. While an MSO can offer significant operational support, healthcare providers must always maintain clinical autonomy. The agreement must clearly define the scope of services, ensuring that the MSO does not infringe upon the practice’s medical decision-making.

Pro Tip: Ensure that the agreement specifies that clinical decisions remain under the control of the healthcare providers and that MSOs only handle non-clinical functions.

3. Fee Structure and Compensation The financial terms of an MSO agreement are critical. The fee arrangement should

reflect fair market value and should be structured in a way that aligns with both parties’ interests. For example, the MSO might be compensated on a flat fee, percentage of revenue, or another model. It is essential to carefully negotiate this provision to avoid potential legal risks.

Pro Tip: Work with a healthcare law expert to establish a fair and transparent fee structure that avoids any potential for abuse under fraud, waste and abuse laws.

4. Termination and Exit Strategy MSO agreements often last for a set period, but healthcare practices should plan for the possibility of termination or acquisition by private equity investors. It is important to outline clear terms for contract termination, including any notice periods and exit strategies. These provisions protect both parties and provide clarity if either party wishes to end the relationship or modify the terms.

Pro Tip: Ensure that the contract includes adequate safeguards for data protection, patient confidentiality, and transition planning in the event of termination. Further, being that a successful MSO model in a practice is particularly attractive to private equity investors, it is crucial that the agreement is structured in a way that would allow for the acquisition of the practice in the future.

5. Liability and Risk Management MSOs often provide services that carry legal risks, including billing, compliance, and human resources. It is essential that the MSO agreement clearly delineates liability, particularly regarding errors in services provided by the MSO. Any misstep in these areas can lead to significant exposure for the healthcare provider.

Pro Tip: Consider including indemnity clauses and releases that protect the healthcare provider from liability for the MSO’s mistakes or negligence.