We are pleased to announce that BuckheadFMV has published a new primer on fair market value management fees for management service organizations (MSOs).
The purpose of the primer is to outline the framework we use to assess management fees for FMV compliance to help attorneys, physician groups, and MSO leadership teams structure management fees that further their business goals while remaining compliant with corporate practice of medicine (CPOM) and healthcare fraud and abuse laws and regulations. There is no singular benchmark or rule of thumb, like MSO cost plus 30% or 20% practice revenue, that reflects fair market value for management fees, as each arrangement is truly unique. This is why we refer to this as an "FMV framework.”
Some of the key variables that create this variance across management fees include:
Parties Involved: The combination of parties entering into MSAs typically fall into three main categories, each requiring a unique compliance analysis:
Third-Party MSO: MSOs that have separate ownership from the physician group, and typically provide services to multiple groups
Captive MSO/Friendly PC: MSOs that provide services to one related practice or group of physicians (professional corporation), often with common ownership
Quasi-JV (joint venture): Situations where two healthcare providers (or entities at least partially owned by providers) enter into an MSA, and are often in position to refer patients to each other
Management Fee Structures: MSO management fees are typically structured using one, or a combination, of three main structures:
Percentage of revenue (e.g. 20% of practice revenue)
Fixed fee (e.g. $200,000 annually)
Cost plus (e.g. MSO cost plus 30%, or 130% of MSO costs)
Management Services Included: The services provided by the MSO can vary from simple managerial oversight to coverage of the entire cost structure of the group, and the specific bundle of services provided has a significant impact on the FMV management fee:
Sometimes only back-office administrative services are provided, resulting in relatively low management fees if structured as a percentage of revenue or on a fixed fee basis.
However, in captive MSO/friendly PC models, the MSO often provides clinical office space, medical supplies, clinical staffing, and a variety of other resources depending on state CPOM laws, resulting in significantly higher management fees.