MSO Consulting for Physicians & Medical Practices

Helping physicians understand the business, financial and strategic implications of an MSO relationship

Management Services Organizations, commonly known as MSOs, have become an increasingly important part of the healthcare landscape. For physician owners, an MSO relationship can provide access to capital, administrative infrastructure, technology, management expertise, recruiting resources, and opportunities for growth. But an MSO relationship can also fundamentally change how a practice operates.

Before signing an agreement, physicians should understand not only what they are receiving, but also what they are giving up, what responsibilities will change, how the economics work, and how the relationship may affect the practice over time. ABISA helps physicians evaluate MSO opportunities and understand the strategic, financial, operational, and organizational implications of an MSO relationship.

Talk With ABISA About an MSO Opportunity

What Is an MSO?

A Management Services Organization (MSO) is an organization that provides administrative, operational, financial, technology, or other non-clinical services to healthcare practices. The physician practice generally remains responsible for clinical care, while the MSO provides some combination of business and administrative infrastructure. Depending on the structure, an MSO may provide services such as:

  • Revenue-cycle management
  • Billing and collections
  • Human resources
  • Information technology
  • Finance and accounting
  • Purchasing
  • Marketing
  • Compliance support
  • Credentialing
  • Recruiting
  • Practice management
  • Facilities support
  • Strategic planning
  • Administrative leadership

The specific relationship varies considerably from one MSO to another. The structure of the relationship matters.

Why Are Physicians Considering MSOs?

Physician practices face increasing pressure to operate efficiently while continuing to provide high-quality clinical care. An MSO may offer resources that would be difficult or expensive for an independent practice to develop on its own. Potential benefits can include:

Administrative Infrastructure
Access to professional management, accounting, HR, IT, revenue-cycle, and other resources.

Scale
The ability to leverage purchasing power, technology, infrastructure, and shared services across multiple practices.

Capital
Access to capital for acquisitions, equipment, technology, expansion, or other strategic initiatives.

Growth
Resources to recruit physicians, expand geographically, develop new service lines, or pursue acquisitions.

Management Expertise
Additional support for financial management, operations, strategic planning, and business development.

Physician Recruitment
Access to recruiting infrastructure and resources that may help practices grow.

These benefits can be meaningful. But physicians should evaluate them in the context of the complete MSO relationship, including its economic and governance implications.

Should Your Medical Practice Join an MSO?

There is no universal answer. The appropriate decision depends on the practice’s:

  • Strategic objectives
  • Financial condition
  • Growth plans
  • Physician ownership structure
  • Management capabilities
  • Capital requirements
  • Market
  • Competitive environment
  • Long-term ownership objectives
  • Appetite for change
  • Desired level of physician autonomy

An MSO relationship that is attractive to one practice may not be appropriate for another. The first step should therefore be understanding what problem the MSO is actually solving.

Questions Physicians Should Ask Before Joining an MSO

An MSO proposal should be evaluated as a business relationship, not simply as a financial transaction. Here are some of the questions physician owners should consider.

  1. What Is the MSO Providing?

Physicians should understand precisely which services will be provided and which responsibilities will remain with the practice. For example:

  • Who handles billing?
  • Who manages employees?
  • Who controls purchasing?
  • Who manages IT?
  • Who handles accounting?
  • Who manages facilities?
  • Who provides strategic support?
  • Who handles recruiting?
  • Who manages payer relationships?

The answers should be clearly understood before entering the relationship.

  1. What Will the Practice Pay?

MSO economics can be structured in different ways. Physicians should understand:

  • Management fees
  • Administrative fees
  • Shared savings arrangements
  • Transaction-related payments
  • Ancillary economics
  • Other charges
  • Cost allocations
  • Future fee increases
  • Expenses retained by the practice

The headline economics rarely tell the entire story.

  1. What Happens to Practice Ownership?

This is one of the most important questions. Physicians should understand:

  • Who owns the professional entity?
  • Who owns the non-clinical assets?
  • Who owns the management company?
  • What happens to ownership if a physician retires or leaves?
  • What happens if the MSO relationship ends?

The answers can have significant long-term consequences.

  1. Who Controls What?

Clinical independence and business control are different concepts. Physicians should understand who has authority over:

  • Clinical decisions
  • Physician hiring
  • Physician termination
  • Compensation
  • Staffing
  • Budgets
  • Capital expenditures
  • Vendor selection
  • Marketing
  • Technology
  • Expansion
  • Acquisitions
  • Strategic decisions

The governance structure should be clearly understood before the relationship begins.

  1. What Does the Management Services Agreement Say?

The Management Services Agreement (MSA) is one of the central documents in an MSO relationship. Physicians should understand the business implications of provisions concerning:

  • Services
  • Fees
  • Term
  • Renewal
  • Termination
  • Exclusivity
  • Performance expectations
  • Intellectual property
  • Employees
  • Equipment
  • Facilities
  • Data
  • Insurance
  • Indemnification
  • Dispute resolution
  • Change of control
  • Restrictions after termination

ABISA can evaluate and help physicians to understand the business implications of those terms. That is where an experienced healthcare business advisor can provide valuable perspective.

  1. What Happens If the Relationship Doesn’t Work?

This question is often overlooked. Before signing an MSO agreement, physicians should understand:

  • How can the relationship end?
  • Who can terminate it?
  • What happens to the practice afterward?
  • What happens to employees?
  • What happens to technology and systems?
  • What happens to patient records and data?
  • Are there financial obligations after termination?
  • Can the practice transition back to independent management?

Exit provisions can be just as important as the initial economics.

MSO vs. Selling Your Medical Practice

Physicians sometimes view an MSO relationship primarily through the lens of a potential transaction. But there are different structures. Depending on the situation, a physician may be considering:

Remaining Independent
The practice retains its existing structure and management responsibilities.

MSO Partnership
The physician practice remains in place while the MSO provides specified management and administrative services.

Strategic Combination
The practice becomes part of a broader organization through a transaction or combination.

Practice Sale
The physician sells some or all of the economic interest associated with the practice or its assets, depending on the transaction structure.

Physician-Led MSO
Physicians create their own management infrastructure to support their practice or a broader group of practices.

Each structure has different implications. The right question is not simply “Should we join an MSO?”, but rather “Which organizational structure best supports our objectives?”

Thinking About Selling to an MSO or Private Equity-Backed Organization?

An MSO relationship may be part of a larger transaction involving private equity or another investment organization. Physicians considering such an opportunity should evaluate more than the initial purchase consideration. Important considerations may include:

  • Upfront consideration
  • Rollover equity
  • Future ownership
  • Employment arrangements
  • Physician compensation
  • Incentive compensation
  • Governance
  • Decision-making
  • Non-compete or restrictive provisions
  • Earn-outs
  • Performance requirements
  • Future capital requirements
  • Acquisition strategy
  • Integration
  • Exit provisions

The economic headline can be attractive while the long-term relationship is significantly more complex. Physicians should understand the entire economic and operational structure before making a decision.

Should You Create Your Own MSO?

Not every MSO relationship begins with an outside organization. In some circumstances, physicians may consider developing their own MSO or management infrastructure. Potential reasons can include:

  • Supporting multiple practices
  • Centralizing administrative functions
  • Creating economies of scale
  • Developing shared services
  • Supporting acquisitions
  • Improving purchasing
  • Creating management infrastructure
  • Building a broader physician organization

Creating an MSO introduces its own strategic, financial, operational, governance, and regulatory considerations. ABISA can help physician leaders evaluate the business case and develop an organizational strategy.

Evaluating an Existing MSO Relationship

ABISA can also work with practices that are already in an MSO relationship. A practice may be experiencing questions about:

  • Financial performance
  • Management fees
  • Service levels
  • Physician compensation
  • Governance
  • Reporting
  • Growth
  • Capital investment
  • Operational support
  • Contract performance
  • Strategic direction

In those circumstances, the appropriate question may not be whether the practice should have joined an MSO. It may be, “Is the current relationship delivering what the practice expected?”

MSO Due Diligence

Before entering a significant MSO relationship or transaction, physicians should conduct appropriate due diligence. Areas may include:

Financial

  • Historical financial performance
  • Projections
  • Management fees
  • Cost structure
  • Capital requirements
  • Transaction economics

Operational

  • Staffing
  • Systems
  • Revenue cycle
  • Technology
  • Administrative infrastructure

Organizational

  • Governance
  • Physician leadership
  • Ownership
  • Decision-making
  • Management responsibilities

Strategic

  • Growth plans
  • Acquisition strategy
  • Market position
  • Long-term objectives

Transaction

  • Purchase consideration
  • Rollover equity
  • Earn-outs
  • Employment arrangements
  • Agreements
  • Termination provisions

ABISA can provide business and operational perspective as part of a broader diligence process involving the client’s legal and tax advisors.

ABISA’s MSO Experience

ABISA has worked with physicians and healthcare organizations on issues involving management services organizations, transactions, physician partnerships, strategic planning, and practice operations. ABISA has also published educational resources specifically addressing MSOs, including guidance for physicians considering whether to join an MSO and broader discussion of the issues physicians should understand before entering an MSO relationship.

What Makes ABISA’s Perspective Different?

An MSO decision sits at the intersection of several disciplines. It involves:

Strategy
What is the organization trying to accomplish?

Finance
Does the economics make sense?

Operations
Will the proposed structure actually improve the business?

Physician Relationships
Will physicians remain aligned?

Governance
Who will make important decisions?

Transactions
What are the economic and contractual implications?

Long-Term Planning
Where does the organization want to be five or ten years from now?

ABISA approaches MSO decisions from this broader business perspective.

The Right Questions Before You Sign

If your practice is considering an MSO relationship, you do not necessarily need to know the answer before starting the conversation. You should, however, understand the questions. ABISA can help you evaluate:

  • What you are being offered
  • What you are giving up
  • How the economics work
  • How governance will change
  • What responsibilities will move to the MSO
  • What remains with the physicians
  • What happens if the relationship changes
  • Whether the structure aligns with your long-term objectives

Considering an MSO?

An MSO proposal can represent a significant decision for a physician-owned practice. Before you evaluate the headline economics, make sure you understand the entire relationship. ABISA can provide an independent business and strategic perspective to help you evaluate the opportunity, understand the alternatives, and prepare for the decisions ahead.

Talk With ABISA About Your MSO Opportunity