Article
Key considerations: Management services organization tax and fee structures
March 7, 2023 · Updated Feb. 13, 2025 · Authored by Sarah Buhl, Robert Grannum, Shane Griffiths
A version of this article was published in the March 2023 edition of Healthcare News.
The management services organization (MSO) structure has gained prominence in the healthcare sector, driven by ongoing M&A activity in digital health and provider groups. As healthcare organizations increasingly seek to expand their service offerings, MSOs play a critical role in enabling nonphysicians to have legal ownership while navigating complex regulatory environments.
When a company operates across multiple states through contracting, employing providers, and maintaining a physical presence, compliance can become intricate and challenging. Understanding the nuances of MSO and professional corporation (PC) structures is essential for healthcare organizations to effectively manage these complexities and capitalize on growth opportunities.
What is a management services organization structure?
The MSO structure is increasingly common among private equity or venture capital firms, which can invest in the MSO but can’t directly own the PC, which is wholly owned by one or more licensed clinicians. Companies with a multistate presence may have multiple PC entities in their organizational structure.
Typically, the professional fees are billed and collected by the PC that employs the providers and pays management fees to the MSO in exchange for administrative, management, and technology services. The economics of the intercompany agreement will often result in the corporation having no net income, or an overall net loss for a start-up or expanding business.
Regulatory and corporate practice of medicine laws specific to each state can vary significantly and may impose restrictions on the management fee and intercompany agreements. If the management services agreement is silent on pricing, that could create issues under a state taxing authority exam.
How the MSO fee structure is determined can vary greatly, but there should be support and consideration of fair market value and a regular cadence for payment.
IRS rule on consolidation for income tax filings
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