A Management Services Organization (MSO) is a business created to handle the non-clinical functions of a medical practice. Think of it as your practice’s outsourced C-suite. The MSO takes on the administrative burdens like billing, human resources, IT support, and marketing.
This structure allows your practice to be organized into two separate entities.
* The Professional Corporation (PC): This is the clinical practice, which you and your fellow physicians continue to own. The PC holds the medical licenses and is responsible for all patient care.
* The Management Services Organization (MSO): This entity is owned by investors (like a private equity firm) or a larger health system. It buys your practice’s physical assets—the office space, equipment, and supplies—and employs all non-clinical staff.
The PC then pays the MSO a management fee for providing all these business support services.
Why This Matters to Healthcare Providers
This model is the most common structure used in private equity acquisitions because it allows non-physician investors to own and manage the business side of a practice while leaving clinical decisions in the hands of physicians. For you, partnering with an MSO means you can offload administrative headaches, gain access to capital for growth, and focus entirely on practicing medicine.
Example in Healthcare M&A
Scenario: A 12-physician gastroenterology group is approached by a private equity firm looking to build a large, regional GI platform. The PE firm uses an MSO to structure the deal.
Application: The physicians sell all their practice’s non-clinical assets (real estate, equipment, EMR contract) to the MSO for a significant upfront cash payment. They also roll over a portion of their ownership into the new, larger MSO, so they can benefit from its future growth. The physicians’ original clinical entity becomes a PC that signs a long-term Management Services Agreement with the MSO.
Outcome: The physicians receive a high valuation for their practice’s assets and business operations. They no longer worry about payroll, negotiating with payers, or IT upgrades. The MSO uses its scale to lower supply costs and invests in new technology, allowing the physicians to focus on patient care with more resources and less administrative stress.
Related Terms
- Corporate Practice of Medicine (CPOM) – The state-level laws that make the MSO structure necessary for non-physician investment.
- Roll-Up Strategy – The MSO model is the primary vehicle used by buyers to acquire multiple practices and combine them into a single, more valuable entity.
- Management Services Agreements – The key contract that defines the legal and financial relationship between your clinical practice (PC) and the MSO.
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Frequently Asked Questions
What is a Management Services Organization (MSO)?
A Management Services Organization (MSO) is a business entity created to handle the non-clinical functions of a medical practice, such as billing, human resources, IT support, and marketing. It acts like an outsourced C-suite for the practice.
How does the MSO structure separate clinical and non-clinical functions?
The MSO structure separates a medical practice into two entities: The Professional Corporation (PC), which is the clinical practice responsible for patient care and owned by physicians, and the MSO, which owns the practice’s physical assets and employs non-clinical staff.
Why is the MSO model popular in private equity acquisitions of medical practices?
The MSO model allows non-physician investors to own and manage the business side of a practice while leaving clinical decisions to physicians. This separation allows physicians to offload administrative tasks, access capital for growth, and focus on patient care.
Can you provide an example of how an MSO is used in healthcare mergers and acquisitions?
In a typical scenario, a group of physicians sells their practice’s non-clinical assets to an MSO owned by a private equity firm. They receive upfront cash and may retain some ownership in the MSO. The clinical practice becomes a Professional Corporation that contracts the MSO for management services, gaining administrative support and operational efficiencies.
What are some related terms important to understand the MSO model?
Important related terms include Corporate Practice of Medicine (CPOM), which refers to laws requiring the MSO structure; Roll-Up Strategy, where multiple practices are combined via an MSO; and Management Services Agreements, the contracts governing relationships between the clinical practice and the MSO.