MSO Agreement Explained
Management Services Organization ("MSO") agreements in healthcare are contractual arrangements under which a third-party organization ("MSO") provides a broad array of business management and support services within the confines of the applicable regulatory and licensure scheme to one or several medical providers of medical services ("Participating Providers"). These medical services can include but are not limited to physician practices, ancillary service providers, such as diagnostic centers and home health, and clinics and other medical institutions.
An MSO ecosystem may be comprised of several separately and distinct legal entities. As an example, an MSO at the top of the structure could be a limited liability company. The bottom and middle tier entities in the MSO structure could be either separate legal entities, operating as multiple MSOs, or subsidiary divisions of the top tier MSO entity. The middle and bottom tier MSOs primarily provide management and administrative services directly to the Participating Providers, although they may also subcontract with several agreements to provide billing and collection services, human resource services, equipment leasing, information technology services, and the like. Moreover, these entities may refer patients to Participating Providers and/or assist them in obtaining payor contracts. The MSO may also provide administrative and/or management services to physician-owned ancillary facilities, such as imaging centers, laboratories, and surgery centers. Each MSO may operate in a separate state or a number of states, and/or may only operate as a MSO to certain specialties or subspecialties .
An MSO agreement defines the terms, roles and relationship under which the MSO will provide the Participating Providers with specified support services. The terms of the MSO agreement can be tailored to suit each individual MSO, the entire MSO ecosystem, or the Participating Providers. A typical MSO agreement specifies the services to be provided by the MSO, the financial arrangement between the MSO and the Participating Provider, the referral obligations, limitations on the use of the MSO’s services, and the term of the agreement. As the MSO benefits from the shared economic efficiencies of providing a broad range of business support to the providers, the terms of the agreement, including the compensation rate, shall generally reflect fair market value safe harbor rates. The MSO contract will generally further define the rights of the parties to share in the managed care or other reimbursement and referral streams – i.e., where the managed care contracts are signed and held.
MSO agreements are critical agreements in healthcare as they can allow groups of providers to negotiate or obtain contracts with various payors, obtain additional ownership, expand and/or enhance existing clinical practices, develop new specialty practices, recruit highly trained staff, obtain needs-based capital, and provide additional financial support without acquiring these at outside sources or make significant capital investments. It is critical to ensure that all of the MSO agreements in the MSO structure and from the MSO ecosystem to the Participating Providers are appropriately structured so as to comply with applicable federal and state anti-kickback, fraud and abuse and self-referral laws.
Components of MSO Agreements
The essential elements of an MSO agreement can vary but typically include a comprehensive list of services to be provided, methodologies for the compensation of the MSO, and performance standards. These items are critical to the overall success of the agreement. They must be carefully negotiated and agreed upon, with particular attention to detail in the scope of services section.
Some of the most commonly included services in an MSO Agreement include: The above list is not exhaustive of the services an MSO agreement may include. The scope of services is the backbone of the agreement: without defining the services to be provided, it is nearly impossible to enter into an agreement to do business with the MSO. From a risk perspective, both parties must fully disclose, negotiate, and disclose the term involving the reimbursement of expenses incurred by the MSO in connection with the services. With a fixed fee arrangement, the MSO is assuming the financial risk associated with the services. Under a variable fee arrangement, the MSO is providing services to the Practice for a fee based on a per-member basis. Under either compensation methodology, the MSO must be careful to ensure that the fees for services to the Practice comply with any applicable federal and state anti-kickback and self-referral laws. The compensation methodologies must also be consistent with fair market value and commercial reasonableness principles. A review of the services offered under the MSO services agreement will drive the determination of whether the applicable state and/or federal antikickback safe harbors and safe harbor regulations have been met.
Advantages of MSO Agreements
There are many ways in which the MSO can be mutually beneficial to physicians. For example, in states that limit the ability of physician practices to enter into joint ventures with a hospital, an MSO can offer a structure that achieves the same result without the technical violation. Moreover, many states, such as New Jersey, have laws that prohibit the employment of physicians by a hospital, and thus a physician group largely limited to fee-for-service reimbursement has few alternatives to partnering with a hospital. Other models, which may involve risk sharing with a hospital, may be difficult or impossible to structure within the bounds of the law absent an MSO structure. Though many physicians lament the loss of the "good old days" of independent practice, those days were not nearly as good as they remember. More often than we are willing to admit, independent practice led to economic instability of practices and an inability to manage expenses. MSOs can take away that level of anxiety. The MSO can support a practice attempting to go into or expand into risk circles, and can facilitate the documentation which would otherwise be cumbersome to develop. An MSO is a stress reliever. A real MSO may also be regulated to offer transactional support for a group which may wish to avoid hiring its own support staff. True relief under those circumstances is available only through an MSO which exists as a separate business entity, not as an association of physicians or group practice.
Challenges and Risks of MSO Agreements
The MSO can present a number of potential challenges, including:
– Potential compliance issues.
In a world where there is an increasing emphasis on the importance of compliance with both federal and state regulatory schemes, it is imperative that physicians and physicians groups carefully evaluate the operations, management and compensation models of an outside vendor. Arrangements that include the arrangement of a management services organization to manage and promote the financial success of a group of physicians require careful legal analysis. Although a MSO may provide the unique services of a physician management company, a MSO agreement is rife with potential problem areas. For example, there may be risks or ambiguities in the area of referrals.
– Control over business functions:
Most patients are unaware of the extent of the business functions available through a particular MSO. However, an MSO can be a valuable tool to physicians seeking assistance in running their individual practices. But a careful balance must be struck when allowing the outside vendor to control certain functions. For example, how much control does the MSO have over the number of procedures performed in any given day? Can the MSO restrict utilization? Much like the payment of other bonuses or incentives by a physician practice, the payment of such bonuses or incentives to a MSO must be measured and evaluated for compliance with Stark and Anti-Kickback laws. Careful diligence and negotiating is a must when entering into an agreement with an MSO.
– Conflict of interest scenarios:
Conflicts of interest can arise between a physician and an MSO. For example, the MSO may have an incentive to place a physician in a position that will benefit its bottom line, but be detrimental to the physician’s practice, or the physician may wish to mitigate the risks he or she bears under a separate indemnification agreement with the MSO. Careful attention and specification of the rights and responsibilities of each party is necessary to protect the interests of the physician and the viability of the MSO.
Legal Aspects of MSO Agreements
While the text of an MSO agreement may be simple on its face, parties must consider important legal factors when drafting and signing the agreement. If these factors are not considered, a party may be giving up rights and incurring liabilities that could have been prevented through strategic negotiation of the agreement.
Payers are concerned with MSOs because most contracts are directly between payors and participating providers. If MSOs also participate in the network of providers under participation agreements with the payer, the payer is concerned about various issues related to network management and claims payment.
The National Association of Insurance Commissioners (NAIC) has drafted guidelines, "Managed Care Plan Network Adequacy Disclosure," or "Network Adequacy Guidelines." The NAIC guidelines suggest that plans allow for frequent changes in network participation, and thereby MSO participation. However, the NAIC guidelines also encourage confidentiality of negotiated compensation. Transparency is the best practice, and is key to working with payors.
State insurance regulatory bodies are concerned with MSOs and negotiates with the Department of Health and Human Services (HHS) regarding MSOs using Medicare billing numbers. Iowa, for example , is attempting to compel the MSO to sign up with Medicare and obtain a billing number. The Centers for Medicare & Medicaid Services (CMS) issued a "Medicare Learning Network (MLN) Matters Special Edition Article about Physician Assistants." The CMS noted that PAs must enroll in the National Plan provider Enrollment System (PECOS) and get a Medicare billing number to order Medicare Part B services and durable medical equipment.
Two relevant statutes are the False Claims Act (FCA) and the False Claims Act Whistleblower Protection Provisions. The FCA authorizes suits against health care providers who submit claims for reimbursement to the federal government for care that was not provided, or not medically-necessary, or any other improper claim for reimbursement. The FCA Whistleblower Protection Provisions protect "whistleblowers who report fraud, including improper billings in connection with the delivery of goods and services through federally funded programs authorized by [Title VI of the Social Security Act, Title XIX of such Act, and the Public Health Service Act]."
If a provider is concerned that an MSO is submitting improper claims for reimbursement, the provider should consider consulting with counsel and and/or state insurance department.
Navigating a Successful MSO Agreement
The implementation of a successful MSO agreement requires careful planning from the outset. First, start by selecting an MSO partner that has experience and a strong track record with similar healthcare clients. During negotiations, the parties will need to be clear on the scope of the management services to be provided and how those services will be managed and performed. For example, the agreement should state whether the MSO will be providing the management services itself or whether it will subcontract with other providers to fulfill its obligations. The agreement should further enumerate the specific functions to be performed or overseen by the MSO and specify the performance standards for the management services. When applicable, the agreement should also delineate the MSO’s responsibility regarding any applicable regulatory requirements (i.e., HIPAA, Texas Medical Privacy Act, OSHA) for the particular healthcare industry that the MSO is providing services to.
Beyond having a clear understanding of the MSO’s role and responsibilities, the parties should also agree on a method for evaluating the performance of the management services. For example, an MSO’s performance may be evaluated by comparing its aggregated key performance indicators (KPIs) against relevant benchmarks. There are various metrics by which MSOs can be evaluated including cost per service, growth in patients served, employee productivity, and patient satisfaction. The agreement should also address the length of the relationship, terminating and renewing the agreement, and escalation remedies if the parties cannot reach agreement on a renewal of the agreement.
Current MSO Agreement Trends in Healthcare
Current trends suggest that MSO agreements will continue to play a significant role in the healthcare industry, particularly as practices seek to address the constant pressures to change and adapt in a rapidly shifting regulatory and technological environment. These pressures include the advent of value-based purchasing models, the push for efficiencies through population health management, and an eventual consolidation of providers seeking a path toward greater financial stability. The MSO model is a flexible alternative that affords practices the ability to outsource their non-clinical functions to focus on providing premium patient care.
In many cases, MSOs will support independent physician practices, since more practices are seeking to align as independent physician associations (IPAs). IPAs can help physicians by establishing a collective identity that serves a variety of economic purposes, including negotiating contracts with payors as groups rather than as individuals, acquiring needed infrastructure, and developing their own strong electronic health records and delivery systems to compete with, and provide alternatives to, the large integrated systems (see our blog post on IPAs).
Furthermore, MSOs may offer an alternative to the more traditional model of Accountable Care Organizations (ACOs). Over the last decade, Medicare-sponsored ACOs have gained much attention, as have commercial-sponsored ACOs, for their potential to achieve efficiencies. Yet, recent studies reveal that going forward, ACOs are increasingly likely to have limited success because of the level of risk that providers – especially small, independent providers – face in shifting to this model. At the same time, contestations between commercial insurers and hospitals, physicians, other providers, and patients have escalated during the last year, resulting in higher costs that many would prefer to avoid in the future. In response , providers are looking for alternative ways in which they can compete for payor business while providing first-class and affordable health care services.
In this regard, and paralleling the rising interest in MSOs, there is also renewed interest in Independent Practice Networks (IPNs). An IPN is a closely-knit network of independent medical practices that share resources and information in order to succeed under value-based care payments. IPN members are able to share financial risk with multi-disciplinary specialists who are part of the network. In addition, IPN members are able to bear financial risk as a collective entity, as opposed to as individual practices.
Technology is playing an increasingly dominant role in the healthcare industry, and MSOs are well-positioned to offer key technological and administrative services to their MSO clients in ways akin to accountable care organizations. For example, MSOs can offer electronic medical record and practice management system support, and provide services in claims management, electronic billing, and remittance processing. Some MSOs are even forming joint ventures with hospitals and physician groups to deliver or co-manage certain hospital-based services. Moreover, the advent of artificial intelligence (AI) and machine-learning algorithms may fundamentally alter the way in which administrative and other tasks are delivered by MSOs, making the relationships more streamlined and efficient in the future. These and other innovations may render the delivery of administrative and other non-clinical services more effective at lower costs, and thus further drive the growth of MSOs.
Finally, the proliferation of telehealth services is also likely to result in the expansion of MSO-type services, rooted in the desire of burgeoning telehealth entities to partner with full-service MSOs to create a seamless ecosystem to more efficiently deliver robust clinical care.