Dan
Welcome to Sound Business Insights. I’m Dan Watkins. This episode is about Management Service Organizations or MSOs. This podcast is not intended to provide legal advice.
Neil
Dan, we do so much work with the medical practices and healthcare businesses, and one of the things that’s really changed over the last several years as a Management Service Organization. What is a Management Service Organization MSO?
Dan
Consider an MSO like your administrator for your business. But if you’re in the healthcare business, your administrator can’t do it all. It’s complicated. And there are actual schools that can take people to learn some of the things that your administrator’s supposed to do, like coding, like billing, like compliance, like HR, like leasing, like software programs. So many things that you have to deal with so many more clients, patients, you have to do so much that MSOs are a good option. Also, you can get non-doctors to partner with you and invest in your company to make you more profitable while you focus on being a doctor.
Neil
Amazing. So let’s dig into this. You covered a lot of ground there. What’s the principle benefit of owning both a Management Service Organization and a separate entity for your practice?
Dan
For example, Let’s think of two dynamics here in how the government has established an M S O for doctors. On the one hand, the evil side, they don’t want doctors to have what is called corporate practice of medicine, right? That’s evil. Where corporations can say, you know, the kidney’s fine, <laugh>. It costs too much. They don’t want that. So there’s all these laws stopping non-doctors, investors, entrepreneurs from coming into your practice and saying, you can’t do that for this patient.
Neil
Right? Medical decisions are made by licensed medical professionals, period.
Dan
And those laws will continue to expand.
Neil
Yes,
Dan
As big brother is the scariest thing when it comes to people and business. Now on the other side, business can really benefit a medical practice. All these technologies, all these experts there to help you as a doctor, they can really help. And you can bring in resources, financial resources to make you stronger, more competitive. You can get better contracts, better pay contracts with your payers. I mean, all those things can be accomplished by MSOs with qualified resources and people in them.
Neil
So in essence, the Management Service Organization takes over all the aspects of running the business and that really frees up the licensed professionals to do what they do best, which is care for patients.
Dan
They’re all different. Some of your biggest organizations in the United States are run by MSOs or a combination of MSO and other entities. Sometimes you get so big you have to have individual contracting entities that just do that. Yes, they go out and find you the best pricing, or they’ll work with a multitude of other healthcare practices and do a group location of better pricing and contracts for the doctors
Neil
Centralizing things.
Dan
But for right now, let’s just talk about MSOs. Great. MSOs are different for every kind of practice. Hmm. And every kind of practice has a classification under the code as to what they can’t do, who they can’t hire, and who they can practice medicine with, or who can supervise who. Hmm. And we do that with various different types of ancillary service organizations, which means like X-ray companies, MRI, PT, physical therapy, imaging, all those things that you run your business with and the rules on how you can and cannot work with them, those can be covered with your MSO.
Neil
So when do you look at a client, say what we need here, doctor is an MSO.
Dan
Sometimes they’ll be approached by people who want to set up MSOs. And sometimes the driving factor is the MSO itself who’ll go out and locate a doctor and say, look, I’ve got this great business model. We collect more. We save your personal time and we make you more profit. Once you come with us. Then they’ll come to us and say, write up a custom MSO with this doctor in mind with these parameters, and set it up for us. And we do that. Hmm. We bring two parties together and write it up in such a way that they can start a business
Neil
In a medical practice. Generally speaking, Dan, in California, you have to have a professional license in order to own any piece of that medical practice. How is the ownership requirements in a Management Service Organization different than a medical practice? For example,
Dan
MSOs don’t practice medicine and there lies the choice between the evil managed care of corporate managed care or the good old doctors just practicing medicine. You’re right down the middle.
Neil
Interesting. Dan, can you explain a little bit more about that thought?
Dan
Sure. Drafting an MSO doesn’t mean you’re safe. <laugh>. How you draft the MSO will make you safe. Because if you have an arrangement where you get more money, every time the doctor sees a patient, your MSO is practicing medicine. Yes. If you have arrangements where you’re entangled financially in your agreements and they don’t pass muster, your MSO is practicing medicine and your doctor’s in trouble. And the kind of trouble you get in is federal because we have all this money coming from the feds to pay for healthcare and it’s all based on the fed rate. It’s based on your contracts with the Fed. So if you don’t comply with Safe Harbor anti-Kickback and all those rules because your MSOs written up wrong, then you are going to be penalized. You’re going to, your doctor’s going to be in trouble. And all the investments that everyone has in that MSO is going to be in danger.
Neil
And ultimately it’s the license at risk.
Dan
Well, the license is not, we don’t go right to at risk. Okay. But the license is on the hook. Right. Your doctor is going to be the one questioned about his structure or her structure and how they’re practicing medicine. And so, yeah, it’s very important. Very touching.
Neil
So Dan, now we’ve got an MSO set up. Where do you go from there?
Dan
You have to decide how much money comes out of your overall practice. From rental equipment, <laugh>, from landlord lease to software programs, to distributions from the M MSO to the owners of the MSO. You want to grow your practice. I kind of hinted at this a little bit. You’re a doctor, you want to grow your practice. In the old days, you took out a line of credit and you tried to grow your practice. You weren’t an expert at that. And other savvy business owners who are great at growing businesses come in with their MSOs and they get better collection rates, they got better admin, they have fewer employee problems and they can do it cheaper, faster, and better than you. And you want to hire doctors. They have lawyers on staff that can do employment agreements, that have arbitration clauses that are enforceable. They can do it all, but that costs money and it costs incentive. And you can’t have a partner who’s not a medical doctor in your medical practice, but you can have investors come in and make your practice amazing. Open up more than one office, hire more than one doctor, and just take you big while you still get to care for your patients. And you don’t have to have all your time spent worrying about everything on the planet while you’re trying to run a practice.
Neil
And the amazing part of that is it not only makes you more money just from the efficiencies in the exceptional business management side, but it actually increases the patient’s experience, the quality of the care that they get and how they’re treated. And that comes back when Medicare is reviewing patient stats scores.
Dan
Correct. And hence we’re back to the evil versus good too much. MSO turns into not so great patient experience. Right? Because you end up, like a friend of mine had a mole and he couldn’t get to the doctor for six months. By the time he got in, it like covered half his body, so, that’s the evil corporate practice of medicine versus a solid MSO. And you feel good about your practice and yet you can make more money and bring in more doctors and healthcare providers to make the pie bigger. And then also choose how you get your money distributions. Like the doctor can own part of his own MSO. And normally you say, why would you do that? A, you can control a little bit. You could be on the board, you can have some shares to make sure the MSO isn’t doing too many things that run down your own profit. You can also, you know, be part of the team that entices other investors and other doctors to bring in their expertise. But you’ve really got to be careful because you don’t want to be in a situation where you’re bringing in doctors to bring in work where you make a profit.
Neil
And what you’re really talking about here is the risks that are associated for the medical professional. If they’re involved with an MSO,
Dan
Let me give you a good example. Historically speaking, how do we get to MSOs? They’ve been around but they’re really popular now. We used to have something called a surgery center. We still do. Mm-hmm <affirmative>. And now we have all kinds of different surgery centers. We have cosmetic, we have everything you can imagine. They’re ancillary services, but doctors can own them a certain portion as long as they comply with the law. They have partnership agreements. They have how many patients you can bring with you or not how many hours or how much effort you have to deal with the surgery center or not. But they are profitable. And now we have MSOs that can make doctors more profitable. But there’s risks. And a good thing about it, MSO, is they can come with better insurance, better procedures and a buffer between the doctor and what is happening on the business side. For example, HIPAA.
Neil
Yes.
Dan
I don’t know how many doctors are in there in charge of their own filing systems, but they, in their regular practice, they are, they’re the CEO and president. They have staff, they’re handling their files and then someone decides to surf the web on their business computer and before you know it, you got a bug and now you’re exposed to liability for HIPAA. You’re exposed to liability for personal information, generally speaking from a computer source base. And a good MSO manager would know how to get the best insurance policy for that <laugh> and how to implement the best procedures and also how to do things with the training of your staff. That costs way less money because they’re in that business.
Neil
Dan, with Stark and the kickback legislation, is there a risk to a doctor when they’re joining an MSO that isn’t one they’ve set up for their own specific practice? And are there limitations that are associated with who they can send patients to or the relationship between their patients and others?
Dan
If your MSO is written correctly and it’s reviewed on a regular basis, because laws change, yes. Judges change their mind, then you shouldn’t have any risk with your MSO. It should be your proxy medicine, your MSO is not right. Although you are generating income, it’s not tied to the actual direct profitability of the patients that come in or the patients that they bring in through marketing efforts. It is written with rules and regulations internally that stop those kind of things from happening and stop any government agency from accusing you of doing such.
Neil
How does California feel about MSOs?
Dan
Well, California is just like a lot of states, but a little more strict. They don’t want the corporate practice of medicine. They believe that it should be 100% doctors running everything. Whereas entrepreneurs and business people say they see a lot of waste. Yes, there’s always a group of lawmakers out there trying to bring up more stringent rules on MSOs and corporate practice of medicine. And we follow that every year. And for the last four years it hasn’t made it to the floor, but we’ll see if it does it again this year.
Neil
And in essence, managing a medical business comes down to how doctors get paid and then how money leaves the practice for overhead and other expenses. So how does an MSO fit into that simple equation?
Dan
It’s a missing part that doctors are not trained to provide. Some are great at it, but bringing in partners who are experts at what they do and are motivated by making you more money is what an MSO really is. They look at, are you spending too much money and are you getting paid too little money? They look at your contracts, they look at coding, they looked at all the efficiencies of achieving more money from the payers, your insurance companies and
Neil
Medicare.
Dan
Medicare, correct. And they also look at, are you spending too much money? And they also look at, are you not spending enough money going after other ventures and other ways to bring in revenue?
Neil
You once told me that not all doctors make the same amount for the same services. And that just floored me. How is that possible?
Dan
Contracting! If we take this MSO to the next level, to our larger medical practice hospitals and large groups, MSOs will be part of an entity and you’ll end up with a contracting entity <laugh>, where you join other medical practices and get even better prices. And so if you have a really good MSO and great MSO partners, that’s where they’ll be looking on the horizon for you. They’ll always be thinking about when they can get that extra two or 3% and how they can get there. And while you’re going to your medical seminars, they’re going to administrative and management seminars on how to grow your practice. And if they win, you win. And if they don’t do a good job, then you don’t make more money. But they’re invested without charging you a dime for being invested. They’re bringing their own money to the table and they’re making big promises of making you more money. And if you’re right up your MSO correctly, then you can. If they don’t, they don’t perform. They get out.
Neil
From an MSO perspective, Dan, what are the services that Watkins firm offers around MSOs? Do we create them? Do we review them? Do we advise our medical clients? Tell me, tell me what we do.
Dan
We advise both the medical clients and the MSO administrators and also MSO entrepreneurs, the ones who like to put MSOs together and then and gather more different types of investors and doctors to join the MSO. And we draft custom MSOs based on a doctor’s need, a specialties need, whether it’s just a doctor or it’s a healthcare organization or any type of ancillary service organizations. We draft them for those and we make sure they’re custom and they fit their expectations.
Neil
Do MSOs apply to any other area of business?
Dan
Yes, but we’re focusing on healthcare right now. The healthcare MSO is quite unique in all the regulations doctors have to face.
Neil
What else do our clients need to understand about the process of an MSO and the management of it and the legal side of it?
Dan
It’s really simple to start. You just diagram what you’re thinking and you identify some issues and you send us over a little memorandum of things you’d like to see. And then we provide you with a punch list of other items to consider because we have forms and, and articles and publications and research material that we use that’s updated on a daily basis based on the current law. And we give you a punch list of like a laundry list or I mean a grocery list. Think about this, what do you want to do with this? This is what I recommend, but you can do differently. So you get a whole list of what you should do and you can change it. And then by the time we’re done, it doesn’t take much time and didn’t take much money. You’ve got our custom MSO.
Neil
So if I was going to say this, short and sweet Dan: MSO should mean more profit, better patient experience, potential for growth of a practice. That sounds like a pretty magical formula.
Dan
Okay. If you’re not doing it, you know your competitors are!
You can learn more about the Watkins firm at https://watkinsfirm.com or call our office at (858) 535-1511.