One of the more interesting developments in health care in recent years has been the proliferation of management service organizations (MSOs). These businesses offer private medical practices the opportunity to outsource most or even all of their back-office operations, e.g., reception, medical records, medical equipment, billing and collection, janitorial services, non-professional employees, and so on. Some MSOs go further and offer turn-key office space, loans to capitalize a growing practice, and other items and services. The appeal of this outsourcing option is that it can reduce the practice’s overhead while also freeing the physicians to spend more time providing medical services to their patients, thereby increasing their productivity and revenues. Because of their profit margins, MSOs have attracted considerable private equity interest and investments.
As we explained in a previous column, “Fee Splitting Prohibition and Physician Practice Management Arrangements,” NYLJ, July 23, 2013, New York has strict limits on what an MSO can do and how it can be paid. The Business Corporation Law, which authorizes the incorporation of professional corporations, strictly limits ownership and control of such entities to New York-licensed professionals.See, e.g., NY Bus. Corp. Law §§1503(b), 1504(a), 1507(a), 1508(a). New York’s prohibition on the corporate practice of medicine forbids an MSO from interfering with the physicians’ ownership and control of the medical practice or in the exercise of their independent medical judgment in rendering services to patients. New York also has a statutory prohibition on fee-splitting that bars charging and paying for MSO services on the basis of a percentage of the medical practice’s gross or net income. N.Y. Education Law §6530-31. See also 8 NYCRR §29.1(b).
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