The consolidation of health care practices and health systems continues to be a paramount theme underlying the industry. Spurred by hyper-regulation, overbearing pressure by commercial and government payors and the trend towards value-based reimbursement schemes, practitioners found that affiliating with larger entities able to coordinate care more efficiently provided them the stability required to optimally treat patients.
At the same time, it decreased their administrative responsibilities. There is a benefit to scale, these entities also provided practitioners access to additional ancillary services, improved infrastructure, and increased reimbursements from payors.
As a result, health care practices have become much more attractive to private investors. Approaching almost 20% of the national GDP, private investors are seeking to capitalize on these trends by entering into financial relationships with these health care practices and health systems. Of course, that is not without its own legal implications. In New York state, non-physician ownership in a medical practice remains strictly prohibited. Colloquially known as the Corporate Practice of Medicine (“CPOM”) doctrine, the law in New York generally provides that medical licenses are provided to individual practitioners whose practice and judgment must be free from the intrusion of outside business interests.
In light of these prohibitions, private investors have acquired, or otherwise invested in, what is known as Management Service Organizations (“MSO”). For a fee, MSO’s generally perform some or all of the administrative functions of medical practice, allowing practitioners to focus their attention on patient care. These services are memorialized in a management service agreement that emphasizes the role of the MSO as being non-clinical and distinct from those judgments required for the actual treatment of patients. Leaving these “back-office” and business functions to the MSO results in a more efficient and productive practice. Since the management services performed by the MSO are not considered the actual provision of medicine, these arrangements do not run afoul of the CPOM doctrine or related regulations.
These arrangements are not without legal jeopardy, however. Physicians must consult with health care counsel to ensure the management services agreement and the actions of the parties remain compliant with the applicable law.
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