Taking Care of the Business Side

Physicians in a group practice are often busy enough keeping up with the clinical aspects of the practice, let alone worrying about the non-medical functions of the business. That’s where a management services organization can come in handy.

An MSO is an organization owned by a group of physicians, a group of non-physicians or some combination of both. MSOs generally provide practice management and administrative support services to group practices. MSOs also provide a practice the financial advantages inherent in a larger centralized administrative operation.

While the MSO service model may be relatively simple and straightforward to explain, the more complex issue is determining whether this is the appropriate strategic decision for your practice. There are five critical questions you should consider carefully before making the MSO decision.

Practices and physicians have been besieged by ever increasing administrative burdens. The health care regulatory and compliance environment, day-to-day considerations of office management and the constant planning required to run a “medical business,” all conspire to drain physician time and attention away from clinical matters. And as the size of the average practice continues to grow, there is greater operational complexity and the need for more professional management. Some of the questions to ask of your self when considering an MSO arrangement are as follows:

Does my practice need the professional management offered by an MSO?

• Are you having difficulty with your billing and collection functions?
• Are decreased reimbursements and/or increased costs affecting your practice’s cash flow?
• Will your practice be able to meet the challenges of increased clinical integration?
• Are you having trouble recruiting new physicians?
• Has adopting new technologies (i.e. EMR) adversely affected your operations?
• Has becoming “Accountable Care Ready” placed an undue strain on your practice?

The more of these issues you identify as potential “road blocks” to continued growth and profitability, the greater case you can make for considering an MSO relationship.

Once you have made the decision to consider an MSO, there are several factors that will help you to assess and differentiate MSO providers. Chief among these are:

What do I need to look for when hiring an MSO?

• Current and prior experience in managing other practices.
• Specific experience with similar specialties.
• Managed care contracting experience.
• Professional and industry contacts of the MSO.
• Depth of MSO management.
• Shared staffing issues.
• Financial strength of MSO.
• Experience implementing EMR and other new technologies.
• Experience with meeting government/managed care initiatives, i.e., NCQA certification, EMR/meaningful use.
• “Buying power” of MSO.
• Check references!

The menu of services provided by an MSO can range from full administrative and financial outsourcing

— including real estate and equipment lease arrangements — to a specific sub-set customized for your situation. Standard services include:

What are the common services provided by an MSO?

• Overall practice management.
• Billing and collection.
• Credentialing.
• Statistical reporting.
• Accounting and finance.
• Purchasing.
• Payroll and human resources.
• Information technology.

As in all transactions and agreements, you must arm yourself with a healthy dose of “caveat emptor” when considering or negotiating an MSO agreement. However difficult the struggle to achieve clarity and unanimity may be, it is well worth the resultant management of expectations on both sides. Factors to be discussed and agreed upon include:

What do I need to consider in an MSO agreement?

• The specific services provided.
• MSO personnel provided.
• Who pays for what (practice vs. MSO).
• Special projects — included in MSO fee?
• Shared staffing and employee benefits.
• Space and/or equipment to be provided.
• Terms for termination of services.
• Non-compete/restrictive covenants.
• Financing, if any, provided by MSO.

Depending on the vendor selected, scope of services to be provided and other terms, the MSO fee structure can vary as well. Common MSO fee arrangements can be based on:

Are there options in the MSO fee arrangement?

• A fixed fee.
• Cost plus fixed fee.
• Cost plus mark-up.
• Success fee.
• Some combination of above.

Bear in mind that you must be cognizant of fair market value (“FMV”) considerations when establishing the fee structure.

Adopting an MSO model is a profoundly important step in the development of your practice. A comprehensive MSO service model will affect every aspect of your practice and as such, must be judiciously considered before making the commitment.

Lee Ferber, CPA, is a senior member in GMSL’s Health Care Group, a division of Gettry Marcus Stern & Lehrer CPA P.C., a New York-based accounting and consulting firm. Mr. Ferber specializes in new group formations, mergers and acquisitions, partner/shareholder agreements, succession planning, physician-hospital arrangements and developing physician compensation models. He can be reached at (516) 364-3390 ext. 206, or via e-mail at lferber@gmslny.com.

Mr. Ferber is a proud member of the National CPA Health Care Advisors Association. The HCAA is a nationwide network of CPA firms devoted to serving the health care industry. Members provide solutions to the accounting and financial needs of physicians and physician groups. For more information contact the HCAA at info@hcaa.com.