Cleveland·Miami·Basel·Tel AvivForce Multipliers  ·  Elevate Humanity
LeverVenture
Home / Reference / Management Services Organization
Reference

Management Services Organization (MSO)

A management services organization (MSO) is a company that provides administrative and management services to a medical practice under a written agreement, while licensed physicians own the practice and control clinical decisions.

Reviewed by Peleg Chevion, Managing Partner

As of October 10, 2026, state law sets the permitted scope of an MSO. In 2025 Oregon and California changed that scope, and a Massachusetts act approved January 8, 2025, Chapter 343 of the Acts of 2024, brought MSOs into the state's annual health care cost-trend hearings and provider reporting.

Oregon's SB 951, as amended by HB 3410, bars an MSO and its shareholders, directors, officers, employees and contractors, among others, from owning a majority of a professional medical entity or exercising de facto control, such as over clinical staffing, billing or payer contracts, that affects clinical decisions, beginning in 2026 for new entities and in 2029 for existing ones. California's AB 1415 requires an MSO to notify the Office of Health Care Affordability of covered transactions.

Mechanism

Most states restrict who may employ physicians or share their fees, a body of law called the corporate practice of medicine doctrine. The American Medical Association (AMA) states that it rests on three concerns, the commercialization of medicine, a corporation's obligation to its shareholders and interference with independent medical judgment, and that the rules vary widely by state.

California provides that "Corporations and other artificial legal entities shall have no professional rights, privileges, or powers" (Cal. Bus. & Prof. Code §2400). New York reaches a similar result through professional misconduct: N.Y. Educ. Law §6530(11) covers permitting an unlicensed person to perform licensed activities, and §6530(19) covers permitting anyone outside a short statutory list, including a partner, employee or associate in a professional firm or corporation, to share in professional fees.

MSO and professional corporation structure Investors own the MSO, which serves a physician-owned professional corporation under a written agreement. Physicians own the corporation and direct clinical care. Investors MSO Administrative services Professional corporation Clinical care Physician owners Owns Agreement Own and direct State law limits MSO ownership and control
Source: Cal. Bus. & Prof. Code §2400; N.Y. Educ. Law §6530; Oregon SB 951 §1 as amended by HB 3410; AMA, State momentum grows to curb corporate influence in health care.

In the structure the AMA describes, physician owners control the clinical aspects of a practice and the MSO operates nonclinical aspects such as financials, although the line between them is blurry.

Federal law constrains the fee. The Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b), is a felony punishable by a fine of up to $100,000 and up to 10 years in prison. Its safe harbor for personal services and management contracts, 42 CFR 1001.952(d)(1), requires a signed written agreement with a term of at least one year and a compensation methodology that is set in advance, consistent with fair market value and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties that federal health care programs pay for.

Since January 19, 2021 (85 FR 77684), the methodology, rather than aggregate compensation, must be set in advance. Medicare pays a billing agent only if, among other conditions, its compensation is "not related in any way to the dollar amounts billed or collected" (42 CFR 424.73(b)(3)(ii), applied through 424.80(b)(5)).

Worked Example

In a hypothetical year, a physician-owned professional corporation collects $10,000,000 and pays its MSO 15 percent of collections: $10,000,000 × 0.15 = $1,500,000. At $11,000,000 of collections the fee becomes $11,000,000 × 0.15 = $1,650,000, an increase of $150,000 that depends on the practice's receipts.

A fixed fee of $1,500,000 does not move with receipts. N.Y. Educ. Law §6530(19) names the percentage arrangement, reaching payment for space, facilities, equipment or personnel services that is a percentage of, or otherwise dependent upon, the licensee's income or receipts, with an exception for certain licensed facilities. Under the federal safe harbor, either fee can rest on a methodology set in advance, so the federal tests for both are fair market value and the volume or value of federal program referrals. Other states differ.

What It Means for a Limited Partner

A limited partner evaluating a fund that owns an MSO platform is evaluating the legality of the structure as well as the business. The rights an investor holds through the MSO are the rights some states now restrict: Oregon's SB 951 §1(2)(a), as amended by HB 3410 and subject to listed exemptions, bars an MSO and its shareholders, directors, members, managers, officers, employees and contractors from owning a majority of the professional medical entity, restricting the transfer of its shares or assets except under conditions the statute lists, or exercising de facto control over matters such as prices, billing and collection policies and payer contracts in a manner that affects clinical decision making.

California's SB 351 (Stats. 2025, ch. 409; Health & Safety Code §1191) voids contract provisions that let a private equity group or hedge fund control a physician practice's medical records, coding and billing, or payer-contract parameters, and voids noncompete and nondisparagement clauses in management contracts with those groups, subject to a sale-of-business exception. Because the AMA states that the rules vary widely by state, the allocator's questions are which states the platform operates in, whether any of those states restricts a percentage fee, and whether the fee is consistent with fair market value and independent of the volume or value of referrals.

In Life Sciences and Healthcare

Two sets of rules apply to healthcare MSOs in particular. The Stark law bars a physician from referring Medicare patients for designated health services, including clinical laboratory services, physical therapy, occupational therapy and radiology, to an entity with which the physician has a financial relationship unless an exception applies (42 U.S.C. §1395nn(a)(1) and (h)(6); 42 CFR 411.355 to 411.357). One such exception covers fair market value compensation for items or services an entity provides to a physician group (42 CFR 411.357(l)). Medicare Advantage plans receive advance monthly payments (42 CFR 422.304), while the Medicare Shared Savings Program is a shared savings program for fee-for-service beneficiaries (42 CFR 425.10).

Governing Authority and Sources

Frequently Asked Questions

What is an MSO in healthcare?

An MSO in healthcare is a company that provides management and administrative support to a medical practice without providing health services itself. California's Health & Safety Code §127500.2(o), added by AB 1415, defines it that way and includes provider rate negotiation and revenue cycle management in those services.

What is capitation in healthcare?

Capitation is a periodic payment made for each enrolled person regardless of whether the person receives services. Federal Medicaid managed care rules define it that way (42 CFR 438.2). At a hypothetical rate of $60 per member per month, 10,000 members produce 10,000 × $60 × 12 = $7,200,000 a year.

What is a clinically integrated network?

A clinically integrated network is a group of independent physicians who contract jointly with health plans while participating in a program that interdependently improves the quality and efficiency of their services. In a 2007 advisory, FTC staff reviewed a Rochester network of about 575 physicians in 41 specialties. The FTC and the Department of Justice withdrew their 1996 and 2011 health care policy statements in 2023.