Three Ways your Healthcare MSO May Be Violating the Prohibition against the Corporate Practice of Medicine (CPOM)

Close-up of a physician at his desk typing on a smart phone.

Texas and states across the country have enacted regulations that prohibit the corporate practice of medicine – a measure that protects patient well-being and prevents a licensed medical provider’s professional opinion from being influenced by economics.

Business professionals, private equity investors, and entrepreneurs, however, also understand that there are business opportunities in the health care space. That’s especially true for lab technicians, skilled nurses, and other medical professionals who are not licensed physicians, but want to participate in health care businesses – provided they don’t violate applicable laws.

Is there a way to strike a balance? If you’re in Texas or another similarly situated state with a Corporate Practice of Medicine (CPOM) doctrine... possibly.

Questions about Texas' Corporate Practice of Medicine doctrine? Call (713) 909-7323 or contact us online. We have been helping structure compliant healthcare entities for more than 30 years.  

Structuring a Healthcare MSO in Compliance With Texas' CPOM Doctrine

In Texas, the Prohibition against the Corporate Practice of Medicine (CPOM) generally prevents entrepreneurs and business professionals from owning a medical practice, places a number of restrictions on the types of health care businesses a non-physician can own, and prohibits transactions and arrangements where non-medical professionals exert control over a provider’s medical judgment.

However, non-physician entrepreneurs seeking opportunities in healthcare, such as med spas and IV hydration clinics, may have a viable option – without exposing themselves to potential penalties, fines, and prison time – by creating a management services organization, or MSO.

MSOs are administrative and management entities that partner with physicians to handle a range of operational issues, including the management of finances, HR and personnel, staff training, coding, billing, and collections, oversight of regulatory compliance, electronic medical record services, and the procurement of office space and medical equipment.

Under a MSO structure, the clinical aspects of the organization are part of a second business which is owned by a licensed physician who is responsible for performing and supervising the procedures and treatments offered at the facility.

That business then makes an agreement with the MSO to manage the non-medical aspects of the practice. Under this arrangement – which can be established through a management services agreement (MSA) – licensed physicians are able to limit their financial risks, while any clinical liability incurred by a provider is not passed on to the MSO or its owner.

Screenshot of a LinkedIn post by health law attorney Keith Lefkowitz. He writes, "Seven Texas doctors have agreed to pay over $1.1 Million to resolve False Claims Act allegations involving Anti-Kickback Statue violations. The physicians were paid volume-based commissions for referrals by way of their investment returns in several Management Service Organizations (MSOs). If you have any questions about your MSO or investment opportunities, now is the time to address it."

The Healthcare Management Services Organization (MSO) & Potential Regulatory Pitfalls

No professional or provider should be misled into believing that simply signing a management services agreement and launching a MSO will grant them immunity from regulatory scrutiny.

Management services organizations are subject to extensive oversight. An ever-evolving, convoluted patchwork of health care regulations means MSO owners or providers in a MSO-affiliated practice can quickly run afoul of state and federal laws – from the Anti-Kickback Statute and Stark law to the Texas CPOM doctrine. Entrepreneurs and venture capitalists looking to enter the health care space should work with an experienced health law attorney who can help structure the agreement and advise on all of the legal risks of investing in a medical practice.

When creating a management services organization, be mindful of these potential CPOM pitfalls:

1. Agreements Set Above Fair Market Value

In order to establish a compliant entity, a management services agreement will have to meet a number of specific elements, including requirements that the agreement:

  1. Be in writing;
  2. Persist for a period of one year;
  3. Identify all of the services that are being rendered; and
  4. Ensure cumulative compensation to be paid on an annual basis is set in advance at a fair market value (FMV) that does not take into account the value or volume of any referrals or other businesses generated between the parties

Arrangements where management fees are not set at fair market value, or that take volume or value into account, create a situation where the management services organization is earning a disproportionate amount of revenue from the health care practice, pushing the boundaries of the safe harbors of the Anti-Kickback Statute and the Stark Law.

More importantly, it can also create the potential for a physician’s judgment to be improperly influenced by a non-physician management company – a clear violation of the CPOM doctrine.

2. Incentives or Pressure to Increase Sales or Revenue

A management services organization can provide non-clinical services, such as budgeting and accounting; coding, billing and collections; human resources; managing office space; compliance oversight and management; or marketing. What the practice cannot do is incentivize or otherwise pressure these employees to increase services or sales.

OIG investigations will commonly target marketing directors and marketing personnel to ensure they are not unlawfully incentivized or paid commission based on revenues of the health care practice.

3. Exercising Control Over Medical Judgment Is a Violation of CPOM

Exercising any amount of direction or control over the professional judgment of health care providers, either directly or indirectly, is a violation of the prohibition of the corporate practice of medicine.

If, for example, a management services organization adopts policies and procedures that require any patient with specific symptoms or conditions to obtain a certain test from a certain facility, if it is covered by their insurance, the MSO is directing the practice.

Compliant policies must ensure management services do not to tread on a provider’s discretion and medical judgment.

A more compliant policy in the example above may require patients to be referred to a specific diagnostic facility owned by the MSO—for quality assurance purposes—but the physician must determine which, or if, any diagnostic testing is necessary, and have the flexibility to refer patients to other facilities if necessary.

Another example of a violation is if the evaluation or discipline of clinical staff falls to the MSO. The physician owner or owners of the practice must be active in managing the practice and supervise the provision of medical services, including oversight of the employees who furnish those services.

The key issue here is for owners and entrepreneurs to carefully identify any business or management decisions and activities that may result in control over the practice of medicine, and establish clear boundaries between a management service’s domain of control and a provider’s medical decision-making abilities and practice of medicine.

Looking to Form or Invest in a MSO? Consult a Proven Health Care Team.

Hendershot Cowart P.C. has decades of experience counseling health care providers and health care business professionals in addressing the complexities of ensuring regulatory compliance. That includes proactive counsel when purchasing or investing in health care practices and health-related businesses, and creating and structuring new management services organizations to reduce risks of violating the Corporate Practice of Medicine, or other applicable health care laws.

To discuss your particular situation personally with an attorney, call or contact us online. Hendershot Cowart P.C. proudly serves clients across Texas and beyond.

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