What Is a Management Services Agreement (MSA)? 

If you're a nurse, physician assistant, esthetician, or entrepreneur looking to open a med spa, IV hydration clinic, or other healthcare business in Texas, you've likely run into a hard reality: Texas law prohibits non-physicians from owning a medical practice. A properly structured management services agreement – associated with a management services organization (MSO) – may be your legal path forward.

An MSA is a contract between a physician-owned medical practice and a non-physician-owned management company. The physician controls all clinical decisions. The MSO handles everything else – billing, staffing, marketing (including the brand), compliance, and operations. When structured correctly, this arrangement lets non-physicians participate meaningfully in the healthcare industry without violating Texas' corporate practice of medicine (CPOM) doctrine, the federal Anti-Kickback Statute, or Stark Law.

Getting the structure right matters. MSO arrangements that are poorly drafted, priced above fair market value, or that allow management to influence clinical decisions can expose both the physician and the MSO owner to serious legal and regulatory consequences – from federal fraud investigations to professional licenses at risk.

On This Page

• What Is a Management Services Agreement?
• MSA vs. MSO 
• How Does an MSO Work in Texas?
• What Does an MSO Do?
• How to Form a Compliant MSO in Texas
• Anti-Kickback Statute and the Texas Patient Solicitation Act
• Stark Law and Physician-MSO Joint Ventures 
• Texas Corporate Practice of Medicine (CPOM) Compliance
• When You Need an MSO Attorney 

At Hendershot Cowart P.C., we structure, draft, and review management services agreements built to satisfy state and federal healthcare regulations – and hold up under scrutiny as your business grows. Contact us to get started. 

What Is a Management Services Agreement?

A management services agreement, or medical services agreement, is a legal agreement between a physician-owned healthcare company and a management services provider, commonly referred to as a management services organization. 

The MSO agrees to provide non-medical services to the physician group in exchange for a management fee. The physician practice retains full authority over all clinical decisions, patient care, and medical services. The MSA is the legal foundation of the entire arrangement. 

A well-drafted MSA is what separates a compliant, defensible arrangement from one that creates liability under federal and state healthcare law. It defines what the MSO does, what it gets paid, how long the arrangement lasts, and – critically – where the MSO's authority ends and the physician's begins.

MSA vs. MSO – What's the Difference? 

The terms MSA and MSO are often used interchangeably, but they refer to two different things.

• An MSO – management services organization – is a business entity. It is the company that provides non-clinical management services to a physician practice. An MSO may be owned by a non-physician, a private equity group, or any other investor with an interest in the healthcare market.
• An MSA – management services agreement – is the contract that governs the relationship between the MSO and the physician practice. It defines what services the MSO provides, how the MSO is compensated, and what authority each party holds.

Both the entity and the agreement must be structured correctly for the arrangement to hold up under regulatory scrutiny.

How Does an MSO Work in Texas?

In Texas, the corporate practice of medicine doctrine prohibits corporations and non-physicians from owning a medical practice or employing physicians to provide clinical services. The MSO model works within that prohibition by separating the business of healthcare from the practice of medicine.

Under the MSO structure:

• A physician-owned professional entity (PA, PLLC, or similar) controls all clinical services – patient care, treatment decisions, clinical staffing, and medical protocols
• A non-physician-owned MSO handles all non-clinical operations – billing, collections, HR, marketing, lease management, IT, regulatory compliance support, and other administrative functions
• The two entities are linked by an MSA that defines the scope of services, compensation, and the boundaries of each party's authority

This structure gives non-physicians a legitimate avenue to participate in – and profit from – the healthcare industry. Nurse practitioners, registered nurses, physician assistants, and aesthetic professionals frequently use the MSO model to operate med spas, IV hydration clinics, weight loss clinics, and other healthcare-adjacent businesses in Texas.

Physician assistants occupy a unique position under Texas law: they may hold minority ownership in a physician practice, provided their ownership share does not equal or exceed the ownership interest of any individual physician owner. This is the only form of non-physician ownership in a physician practice entity that complies with Texas's prohibition against the corporate practice of medicine.

What Does an MSO Do?

The MSO handles the business side of running a medical practice. Typical management services provided through an MSA include:

• Billing and collections – submitting claims, managing accounts receivable, and handling patient billing
• Financial management – budgeting, accounting, payroll, and financial reporting
• Human resources – recruiting, hiring, and managing non-clinical staff
• Facilities management – leasing or subleasing office space, overseeing maintenance, and managing equipment procurement
• Marketing and branding – in many MSO arrangements, the MSO owns the brand and licenses it to the physician practice
• IT and technology services – electronic health record systems, data management, and cybersecurity
• Regulatory compliance support – administrative compliance functions, policy implementation, and credentialing support
• Supply procurement – purchasing medical and office supplies on behalf of the practice

What the MSO does not do – and cannot do under Texas law – is provide medical services, employ physicians for the purpose of providing clinical care, or direct the clinical decisions of any licensed provider. Those responsibilities remain exclusively with the physician practice.

How to Form a Compliant MSO in Texas

Here is what compliant MSO formation involves:

1. Form Two Separate Legal Entities

An MSO structure requires two distinct businesses. The first is a physician-owned professional entity – a Professional Association (PA), Professional Limited Liability Company (PLLC), or similar structure – that employs or contracts with licensed physicians and holds responsibility for all clinical services. The second is the MSO itself, usually formed as a Limited Liability Company (LLC), which may be owned by a non-physician and handles all non-clinical operations.

Ownership of the two entities must remain clearly separate. An MSO that has ownership overlap with the physician practice, or that exercises control over clinical decisions, risks violating Texas' CPOM doctrine and creating liability under federal law.

2. Draft a Detailed Management Services Agreement

The MSA is the legal foundation of the entire arrangement. A compliant agreement must, at minimum:

• Be in writing and signed by both parties
• Clearly identify every service the MSO will provide – and those it will not
• Remain in effect for at least one year
• Set compensation in advance at fair market value, independent of the volume or value of any patient referrals

Vague service descriptions and compensation arrangements that aren't grounded in a fair market value analysis are the two most common compliance risks. Both create exposure under the Anti-Kickback Statute's safe harbor requirements and Stark Law's compensation arrangement exceptions.

3. Establish Fair Market Value Compensation

How the MSO gets paid is one of the most scrutinized aspects of any MSO arrangement. The management fee must reflect the actual fair market value of the services provided – not a percentage of the practice's revenue, not a figure that fluctuates with referral volume, and not a number chosen to maximize profit for the MSO owner.

Arrangements where management fees are set above fair market value, or where compensation is tied to the practice's financial performance, push the boundaries of Anti-Kickback Statute safe harbors and can signal improper influence over physician judgment – a direct CPOM violation.

A formal fair market value assessment conducted before signing ensures that the management fee reflects the actual cost of the services provided – not a mechanism for illegal fee-splitting or non-physician control over a medical practice, both of which Texas regulators actively pursue.

4. Define the Boundaries of Management Authority

The MSO can manage the business. It cannot manage the medicine. This distinction must be explicitly built into the MSA and reflected in the day-to-day operations of both entities.

Common violations include MSOs that set clinical protocols, direct which patients receive which services, evaluate or discipline clinical staff, or structure employee incentives around revenue targets. Any policy or practice that – directly or indirectly – influences a physician's clinical judgment crosses the line under Texas' CPOM doctrine.

The MSA should clearly define the scope of the MSO's authority, establish that the physician practice retains full control over all clinical decisions, and include governance provisions that keep those boundaries intact as the business grows.

5. Build in Ongoing Compliance Oversight

Forming a compliant MSO is not a one-time event. Regulatory requirements evolve, compensation arrangements should be reviewed periodically against fair market value, and any material changes to the services provided or the fee structure should trigger a review of the agreement.

Healthcare regulations evolve, and the MSO arrangement that was compliant at formation may not remain compliant as laws change, services expand, or compensation arrangements shift. Periodic review by an attorney experienced in healthcare regulatory compliance is one of the most effective ways to stay ahead of that risk.

Anti-Kickback Statute and the Texas Patient Solicitation Act

MSO arrangements create exposure under both federal and state anti-kickback law. For MSOs that do not bill federal healthcare programs – such as cash-pay practices offering elective services – state law is often the more immediate and broader concern.

When the Federal Anti-Kickback Statute Applies

The federal Anti-Kickback Statute (AKS) creates criminal liability for knowingly offering, paying, soliciting, or receiving remuneration in exchange for referring services billed to a federal healthcare program – including Medicare or Medicaid. MSO arrangements that exclusively support cash-pay practices may not trigger the federal AKS directly. The moment any service provided by an MSO-affiliated practice is billed to Medicare, Medicaid, or another federal program, the federal AKS applies to the entire arrangement.

When the federal AKS applies, the MSA must qualify for the management services safe harbor. To qualify, the agreement must:

• Be in writing and signed by both parties
• Cover all services to be performed by the MSO
• Remain in effect for at least one year
• Set compensation in advance at fair market value without regard to referral volume
• Not involve the promotion of any arrangement that violates federal or state law. 

The Texas Patient Solicitation Act – Applies Regardless of Payer

Unlike the federal AKS, which is triggered only by federally reimbursed services, the Texas Patient Solicitation Act (PSA) applies to any healthcare service regardless of how it is paid – government program, private insurance, or cash.

The Texas PSA prohibits any person from knowingly offering to pay or agreeing to accept, directly or indirectly, any remuneration in cash or in kind for securing or soliciting a patient for a licensed healthcare provider. The statute captures both sides of the transaction – the MSO offering payment and the physician practice accepting it – making both parties potentially liable.

Common violations in MSO arrangements include:

• Per-lead marketing fees – paying a marketing agency or referral source a fee per patient booked or per service sold
• Volume-based bonuses – compensation structures that tie non-physician staff or MSO coordinator pay to the number of patients brought in or treatments performed
• Referral bounties – giving patients or outside entities cash, gift cards, or discounts for referring others to the practice

The Texas Medical Practice Act also prohibits fee-splitting arrangements with physicians. Percentage-based MSO compensation models – where the management fee is calculated as a share of the physician practice's revenue – risk being treated as illegal fee-splitting and an indirect kickback for patient volume. MSO fees should be fixed, flat amounts reflecting the fair market value of the administrative services actually provided.

The Federal-State Safe Harbor Connection

Under Texas law, any payment, business arrangement, or payment practice permitted under the federal AKS or its implementing regulations is also permitted under the Texas Patient Solicitation Act. This means that structuring an MSA to qualify for the federal management services safe harbor simultaneously provides protection under state law. For MSO arrangements that do bill federal programs, satisfying the federal safe harbor is therefore the most efficient path to compliance under both frameworks.

Structuring Compliant Marketing and Compensation

MSO marketing contracts should be structured as flat monthly retainers rather than pay-per-patient or performance-based arrangements. Non-clinical staff compensation should be tied to general performance indicators – customer service ratings, operational efficiency – rather than individual patient referral counts or treatment volume. Any compensation arrangement that could be characterized as rewarding patient generation, directly or indirectly, warrants careful review before it is implemented.

Stark Law and Physician-MSO Joint Ventures 

The Stark Law prohibits physicians from referring patients to entities providing designated health services (DHS) when the physician has a financial relationship with that entity, unless a specific statutory exception applies.

Designated health services include clinical laboratory services, physical therapy, occupational therapy, radiology, radiation therapy, durable medical equipment, home health services, and several other categories commonly found in or adjacent to MSO-affiliated practices.

Why Stark Law Applies to MSO Arrangements

If a physician practice has a financial relationship with an MSO – as it does under any MSA – and that MSO has an ownership interest in or compensation arrangement with another entity providing designated health services, the physician's referrals to that entity may violate the Stark Law.

Private equity-backed MSOs frequently own or have interests in ancillary service providers – labs, imaging centers, therapy groups – that are considered designated health services. Physicians affiliated with those MSOs who refer patients to those providers without a qualifying exception face civil monetary penalties, exclusion from federal healthcare programs, and repayment obligations.

The Personal Services Exception

For compensation arrangements between physicians and MSOs, the personal services exception is the most commonly applicable Stark Law exception. To qualify, the arrangement must meet all of the following:

• The arrangement must be in writing, signed by both parties, and cover all services to be provided
• The duration must be for at least one year
• Compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals
• The services must be commercially reasonable and necessary for a legitimate business purpose

The overlap between Stark Law exception requirements and AKS safe harbor requirements is intentional – but the two bodies of law operate independently. An arrangement that satisfies the Stark Law personal services exception does not automatically satisfy the AKS management services safe harbor, and vice versa. Both analyses must be conducted.

Group Practice Considerations

Physicians participating in MSO arrangements must also ensure their practice entity meets the Stark Law's definition of a group practice if they intend to rely on certain in-office ancillary services exceptions. Group practice requirements govern physician supervision, profit-sharing, and how designated health services may be provided and billed within the practice. MSO arrangements that alter the governance or financial structure of the physician practice can inadvertently disqualify it from group practice status.

Texas Corporate Practice of Medicine (CPOM) Compliance

Texas' corporate practice of medicine doctrine prohibits corporations and non-physicians from employing physicians or controlling the practice of medicine. The doctrine exists to protect patients by ensuring that clinical decisions are made by licensed physicians – not by business owners, investors, or management companies motivated by financial considerations.

The MSO model is a legally recognized structure for navigating CPOM. But the structure only holds if the boundaries between management authority and clinical authority are maintained in practice, not just on paper.

Three Ways MSO Arrangements Violate CPOM

1. Compensation set above fair market value. When management fees are inflated beyond what the MSO's services are actually worth, the arrangement begins to look like a mechanism for a non-physician to extract disproportionate revenue from a medical practice. This creates the appearance – and potentially the reality – of financial influence over physician judgment, which is precisely what CPOM prohibits. 
2. Incentivizing revenue over clinical judgment. The MSO may not structure employee compensation, performance reviews, or operational policies in ways that pressure clinical staff to increase services, upsell treatments, or hit revenue targets. Any incentive structure that could influence – directly or indirectly – what services patients receive is a CPOM risk.
3. Exercising control over clinical decisions. Violations include MSOs that set clinical protocols, determine which diagnostic tests patients receive, direct patient referrals to specific facilities, evaluate or discipline clinical staff, or adopt policies that effectively override physician discretion. A compliant policy gives the physician the authority to make all clinical determinations – and the flexibility to deviate from any operational guideline when clinical judgment requires it.

When You Need an MSO Attorney 

You need an MSO attorney if you are:

• Forming a new MSO. The structure, entity formation, and MSA must all be right from the start. Compliance problems built into the foundation are far more expensive to correct than to prevent.
• Entering into or renewing an MSA. Before signing any management services agreement – or allowing an existing one to renew – have it reviewed by counsel experienced in healthcare regulatory compliance. Fee structures, service descriptions, and compensation arrangements that seemed reasonable at signing can create significant liability as the practice grows.
• Acquiring or investing in a healthcare business. Private equity investors, entrepreneurs, and non-physician professionals entering the healthcare space through an MSO acquisition or joint venture need a compliance review of the existing arrangement before the transaction closes. Inherited compliance problems become your compliance problems.
• Restructuring an existing arrangement. If your current MSO arrangement was not structured with Texas’s CPOM doctrine, Anti-Kickback Statute safe harbor compliance, or Stark Law exceptions in mind – or if it has not been reviewed since formation – a compliance audit is warranted before a problem finds you.
• Facing an investigation or audit. If your MSO arrangement is under scrutiny by the U.S. Department of Health and Human Services Office of Inspector General (OIG), the Texas Medical Board, or another regulatory body, you need experienced healthcare regulatory counsel immediately. Our same attorneys who structure compliant arrangements also defend providers when those arrangements are challenged.

Counsel for Healthcare Providers and Entrepreneurs Across Texas

Hendershot Cowart P.C. represents physicians, non-physician providers, and healthcare entrepreneurs in structuring, drafting, reviewing, and defending management services agreements and MSO arrangements. Our healthcare attorneys bring more than 150 years of collective experience to matters ranging from initial MSO formation to federal fraud investigations.

To discuss your situation with one of our attorneys, call (713) 783-3110 or contact us online. We serve clients across Texas and nationwide.