Definition
A Management Services Agreement (MSA) is a contract where a physician-owned practice pays a separate business entity, known as a Management Services Organization (MSO), a fee to handle its non-clinical operations. These services include functions like billing, human resources, IT support, and marketing.
Think of it like this: your medical practice is the tenant, and the MSO is a specialized landlord. You focus on practicing medicine while the MSO handles all the building management and back-office administration for an agreed-upon “rent,” which is your management fee.
This structure is a common solution in states that have Corporate Practice of Medicine (CPOM) laws, which restrict or forbid non-physicians from owning a medical practice.
Why This Matters to Healthcare Providers
For you as a practice owner, an MSA is the legal framework that makes a partnership with a hospital or private equity firm possible in many states. It allows you to gain capital and administrative support while formally preserving your clinical autonomy and ownership of the patient-care side of the practice.
Example in Healthcare M&A
Scenario: A private equity firm wants to partner with your successful multi-location dermatology practice, but your state’s CPOM laws prevent them from buying the practice outright.
Application: The PE firm forms an MSO. You and your partners sell the practice’s non-clinical assets like the real estate, equipment, and brand to the MSO. Your practice continues as a physician-owned Professional Corporation (PC) and signs a long-term MSA with the MSO. The MSO now manages all business functions, from payroll and benefits to negotiating payer contracts.
Outcome: You receive a significant cash payment for your assets and are freed from administrative duties to focus on high-value clinical work. The MSA must be structured so that the management fee reflects the fair market value of the services provided, ensuring compliance with the Anti-Kickback Statute and other regulations.
Related Terms
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Frequently Asked Questions
What is a Management Services Agreement (MSA) in healthcare?
A Management Services Agreement (MSA) is a contract where a physician-owned practice pays a separate business entity, called a Management Services Organization (MSO), a fee to handle its non-clinical operations such as billing, human resources, IT support, and marketing.
Why are Management Services Agreements important for healthcare providers?
MSAs provide a legal framework that enables partnerships between physician-owned practices and hospitals or private equity firms, especially in states with Corporate Practice of Medicine (CPOM) laws. They allow practice owners to gain capital and administrative support while maintaining clinical autonomy and ownership of patient care.
How does an MSA work in a healthcare merger or acquisition scenario?
In healthcare M&A, a private equity firm may establish an MSO to buy non-clinical assets of a physician practice. The practice remains a physician-owned corporation and signs a long-term MSA with the MSO. The MSO handles all business operations, freeing the physicians to focus on clinical work while complying with laws like the Anti-Kickback Statute.
What types of services does an MSO provide under an MSA?
The MSO provides various non-clinical services including billing, human resources, IT support, marketing, payroll, benefits administration, and negotiating payer contracts.
How does the MSA ensure legal compliance in states with CPOM laws?
The MSA allows physician practices to maintain ownership and clinical control while contracting out non-clinical functions to an MSO. The management fee charged must reflect the fair market value of the services provided, ensuring compliance with the Anti-Kickback Statute and other regulations.