Management Services Organizations: What Are They And Why Are They Good (Or Bad) For Me?
In this era of increasing consolidation, declining reimbursements and at least hypothetical universal health care, the business of medicine is becoming increasingly competitive. One strategy doctors employ in order to create economies of scale and cost savings, while at the same time maintaining their practice’s independence, is to form Management Services Organizations (MSOs). Here are a few general points to help you understand what an MSO is and whether it might be worth pursuing in your practice.
The Management Services Organization.
The Management Services Organization is a separate company that is set up, sometimes by a group of doctors, and sometimes by hospitals or other third parties to handle certain aspects of a doctor’s practice. Under the traditional structure, a doctor will outsource many of the non-clinical functions of the practice, such as management, administrative, personnel, marketing, insurance, billing and purchasing, to the MSO.
MSOs first began gaining steam in the 1990s, as managed care began driving down reimbursements to doctors. Providers and hospitals began to consolidate, hoping to use larger numbers to achieve increased leverage against insurers and suppliers, increase efficiency and cut costs. Growth of MSOs slowed in the early 2000s, due in large part to technical problems associated with making medical and billing information uniform across multiple offices, as well as with a failure to achieve the hoped-for economies of scale.[1]
With the advancements in the implementation of electronic health records (EHR), the technical drawbacks that plagued MSOs twenty years ago have been reduced or eliminated. Additionally, the passage of the Affordable Care Act and the creation of accountable care organizations (ACOs), have created new economic pressures on doctors to seek more leverage against insurers and to operate their practices more efficiently. As a result, MSOs are again on the rise.
How An MSO Works.
The most common MSO arrangement is that you enter into a contract with the MSO to handle whatever non-clinical functions you decide to outsource. The MSO enters into the same contracts with multiple doctors to handle the same functions. This creates a single point of contact for the doctors’ suppliers or payors. In exchange, you pay the MSO a set fee for its services.
Therefore, if an MSO handles purchasing for its doctors, all of the negotiations with the supplier for 10, 20 or more doctor’s offices will be handled by the MSO. This allows the MSO to negotiate better prices than you could negotiate on your own. Similarly, if your contract with the MSO includes billing services, the MSO can theoretically negotiate a higher reimbursement rate from insurers, as well as save costs by having dedicated personnel assigned to process the necessary paperwork for the third-party payor and bill and collect your receivables.
In the past, many MSO structures involved the MSO actually purchasing your practice, and then entering into leasing agreements to rent the office space and equipment back to you. Since the advent of the Stark Law, these arrangements are less common, as an MSO purchasing the practice will trigger many more potential Stark issues than an MSO strictly providing administrative services will. There are exceptions that will apply in most situations, but it is often safer simply to avoid these arrangements.
Benefits And Drawbacks Of An MSO.
The benefits of an MSO include:
- Freeing up time for you to devote to clinical practice, rather than administration;
- Potentially lower overhead costs through outsourcing administrative functions and negotiating lower supply and equipment costs;
- Potentially increased profitability by negotiating higher reimbursements; and
- Potentially increased efficiency by creating uniform systems for EHR, billing, scheduling, and staff performance.
The drawbacks of an MSO include:
- Reduced flexibility and decision-making authority in your practice, as you must adhere to the uniform standards created by the MSO;
- Potentially little or no cost savings. The administrative fee you must pay may exceed the amount you currently pay your staff; and
- Potential regulatory compliance issues.
Although MSOs can be a potentially lucrative opportunity, the decision as to whether an MSO makes sense to you should be made only after consulting with your legal and financial advisors and careful review and drafting of the MSO agreement.
[1] Lawton R. Burns and Mark V. Pauly, Accountable Care Organizations May Have Difficulty Avoiding The Failures Of Integrated Delivery Networks Of The 1990s. 11 Health Affairs 2407 (2012).