MSO Investment Opportunities Require Thorough Vetting

On April 4, 2022, the Department of Justice (DOJ) filed another complaint in a lengthening chain of litigation and settlements involving allegations of kickbacks paid for physician referrals by True Health Diagnostics LLC (True Health) and Boston Heart Diagnostics Corporation (BHD). On May 26, the complaint was amended as six more physicians were accused of receiving kickbacks. According to the complaint, the problematic payouts were allegedly disguised as “investment returns” from at least 8 different management services organizations (MSOs). The chain of events (summarized in more detail below) serves as a reminder to exercise caution in any transactional arrangement in which any party stands to profit through patient referrals.

The latest complaint alleges that New York-based True Health and Massachusetts-based BHD executives and employees conspired with several small East Texas hospitals, including Rockdale Hospital dba Little River Healthcare (LRH), to pay physicians to induce referrals for laboratory testing performed by BHD or True Health within hospital facilities. Allegedly, True Health and BHD affiliated with multiple MSOs in order to conceal the scheme and to more effectively market to potential referring doctors. The doctors were actively sought out by MSO recruiters and offered opportunities to buy ownership interests in the MSOs. Participating physicians would then receive referral-based payments that were labelled as MSO investment returns. In one complaint it is noted that MSO payments to physicians were not based on returns from genuine investments. Allegedly, one physician received a 17,000% return on his MSO investment and other physicians received similar sized returns.


Related settlements preceding the latest complaint include the following:

  • In late 2015 and early 2016, True Health and a partner company allegedly offered Richard DeFoore, CEO of Jones County Regional Healthcare d/b/a Stamford Memorial Hospital (Stamford) in Texas, an arrangement under which Stamford could profit by billing for diagnostic laboratory tests. According to the Department of Justice (DOJ), the United States announced a settlement with him. DeFoore agreed to pay $50,000 and cooperate with investigations of and litigation against other parties; he is also excluded from participation in federal healthcare programs for three years.

  • According to a January 2022 article, in Sherman, Texas, seven physicians and a Chief Executive Officer (CEO) will pay over $1.1 million to settle similar allegations and have agreed to cooperate fully with all future litigation involving other parties.

  • On March 22, 2022, an article was published naming ten additional physicians and another CEO for the same alleged False Claims Acts violations. Brett Markowitz, the founder and CEO of Florida Rejuvenation Holdings, LLC, was allegedly paid by True Health for referrals. The physicians agreed to pay $1,680,430 to resolve allegations and cooperate with the investigation; Markowitz agreed to pay $185,000 and cooperate fully as well.

According to the April 4 release, these cases are being handled by the Civil Division’s Commercial Litigation Branch, Fraud Section, and the U.S. Attorney’s Office for the Eastern District of Texas. Investigative support is being provided by the Department of Health and Human Services’ Office of Inspector General and the Defense Criminal Investigative Service. As a result of its efforts, the United States has already recovered more than $31 million relating to conduct involving BHD, THD, and LRH, including False Claims Act settlements with 29 physicians, two healthcare executives, and a laboratory company.


BFMV offers valuation consulting services toward compliant arrangements for MSOs, among many other types of healthcare transactions. The BHD/True Health complaints highlight several valuation-related situations that we would advise physicians and healthcare executives to avoid:

  • The MSO is not structured to prevent management’s interference with — or undue control over — clinical decision making

  • The MSO promises high financial returns from nominal investments (i.e., low risk/high return opportunities)

  • MSO investment returns are based on factors or formulas other than ownership percentage (i.e., returns that are linked to referrals)

  • MSO returns are predicated on physician practice patterns changing significantly following the investment

  • Under the MSO arrangement no notable services are being provided and/or the MSO fee is not fair market value for the management/administrative services being provided

  • MSO returns are paid before investment payments are made or deposited

Ultimately, MSO arrangements should be commercially reasonable and payments should be at fair market value rates and not fluctuate with the volume or value of referrals. Contact BFMV for a consultation, or if you have valuation questions about FMV MSO arrangements.


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