123’s of MSAs

Michael S. Byrd | 4.15.19

Performance of a car may be best measured by the engine, not the outer workings. A computer monitor or program does not deliver performance for a computer – that is found in the hardware.  One must dig beneath the surface to find the source of performance. The same may be said about the management services agreement (MSA) for the management services organization (MSO) model commonly deployed in health care arrangements.  The arrangement performs by the design of the MSA.

The MSO is the tried and true model for non-physicians to own a business in the medical services market.  Alex Thiersch, partner at ByrdAdatto and CEO of the American Med Spa Association, published an article about unpacking MSOs. ByrdAdatto also published an article about nuances that may impact the design of the MSO model. We’ve even written an article about the influx of private equity into the medical and dental markets and the use of the MSO model for these investments.

Yet, to truly understand the essence of the MSO model, like the engine of the car or the hardware for computer, you must understand the MSA. The MSA defines the relationship between the medical entity providing medical services and the MSO entity providing management services. The importance of the MSA can be seen by the essential components of the arrangement that are defined in the MSA:

  • the flow of funds from patient encounter to profit;
  • the economic sharing of funds between the medical practice and the MSO entity;
  • the precise services to be provided by the MSO entity to the medical entity;
  • the separation of clinical responsibility to the medical entity in a way that complies with state regulations; and
  • the role of the physician often found in a medical director agreement (123s of a Medical Director).

A well-written MSA should look approximately 80% the same as another well-written MSA in another arrangement. This 80% should define boundaries from a compliance perspective and hopefully it’s tailored in a way to work from one arrangement to the other. The other 20% deals with the heavy details of the particular arrangement. The 20% addresses the economics between the parties, as well as the roles and responsibilities of the physician providers, the use of space, the payment of personnel, and the use of equipment.

The number one mistake with MSAs is for clients to grab onto a previously used MSA or, even worse, an MSA used by a colleague to memorialize their arrangement. The risk is obvious from a business perspective if the MSA flow of funds do not match the business plan. However, if the MSA does not reflect the reality of how the arrangement is functioning, the greater risk becomes one of compliance violations and risk of enforcement that may lead to invalid arrangements, medical board sanctions, and in some cases, arrests and criminal prosecution.

The greatest risk for using a faulty engine for a car or faulty hardware for a computer is economic loss.  The greatest risk for using a faulty MSA is economic loss AND compliance enforcement.

For more information on setting up a compliant MSA, please schedule a consult at info@byrdadatto.com or (214) 291 – 3200.

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