What Every Doctor Needs to Know About the Difference Between a Medical Practice and a Management Services Organization (MSO)

As the healthcare industry evolves, many doctors seek business structures that enhance efficiency, compliance, and profitability. One critical distinction that medical professionals must understand is the difference between a medical practice and a Management Services Organization (MSO).

A medical practice is owned and operated by licensed physicians who provide direct patient care. An MSO, on the other hand, handles the business and administrative functions of the practice, allowing physicians to focus on patient care.

For doctors considering partnerships, expansions, or alternative business structures, understanding how MSOs work, their benefits, and their limitations is essential. This guide explores the key differences between medical practices and MSOs, their legal implications, and how doctors can use MSOs to streamline operations while maintaining compliance.

1. What Is a Medical Practice?

A medical practice is a business entity that delivers direct patient care and is owned and operated by licensed healthcare professionals.

Key Features of a Medical Practice:

  • Owned by physicians (or other licensed healthcare providers).
  • Provides direct medical services to patients.
  • Complies with state medical board regulations.
  • Doctors control all clinical decisions and patient care.
  • Subject to corporate practice of medicine (CPOM) laws, which prohibit non-physicians from owning or controlling medical practices.

Because of CPOM laws, only licensed physicians can own and operate a medical practice in California and many other states. This restriction has led to the rise of Management Services Organizations (MSOs), which provide business support without violating ownership rules.

2. What Is a Management Services Organization (MSO)?

An MSO is a business entity that provides non-clinical administrative support to medical practices.

Key Features of an MSO:

  • Owned by non-physicians or investors, making it an alternative business model for those who cannot own a medical practice.
  • Provides administrative services such as billing, marketing, HR, and IT support.
  • Does not make medical or clinical decisions—these remain under the control of licensed doctors.
  • Operates through a Management Services Agreement (MSA), which defines the relationship between the MSO and the medical practice.

An MSO allows doctors to focus on patient care while outsourcing business operations to a professionally managed organization.

3. How an MSO Supports a Medical Practice

An MSO helps medical practices reduce administrative burdens and improve efficiency by handling:

  • Revenue Cycle Management (RCM) – Billing, coding, and insurance claim processing.
  • Human Resources (HR) and Staffing – Recruiting, hiring, payroll, and employee benefits.
  • Compliance and Regulatory Support – Ensuring HIPAA, OSHA, and state regulations are met.
  • Marketing and Business Development – Advertising, patient outreach, and reputation management.
  • IT and Technology Services – Managing electronic health records (EHR), cybersecurity, and telehealth systems.
  • Facilities and Equipment Management – Leasing office space, purchasing medical equipment, and overseeing maintenance.

By outsourcing these non-clinical tasks to an MSO, doctors can focus on patient care without being overwhelmed by business operations.

4. Legal and Compliance Considerations

While an MSO can be highly beneficial, it must be structured properly to comply with state and federal laws.

Key Legal Considerations:

  • Corporate Practice of Medicine (CPOM) Laws:
    • In California and many other states, non-physicians cannot own or control a medical practice.
    • An MSO must not interfere with clinical decision-making.
  • Management Services Agreement (MSA):
    • The contract between the MSO and medical practice must clearly define roles and financial terms.
    • Compensation should be based on fair market value (FMV) to avoid regulatory issues.
  • Stark Law and Anti-Kickback Statutes:
    • Prohibits financial incentives between healthcare providers and referral sources.
    • MSO agreements must be structured carefully to avoid legal violations.
  • Fee Splitting Rules:
    • Physicians cannot share medical service revenue with non-physicians.
    • MSO fees must be structured as fixed management fees rather than a percentage of revenue.

Failure to comply with these regulations can result in legal penalties, fines, and loss of medical licenses.

5. When Should a Doctor Consider Using an MSO?

A doctor or medical group may benefit from partnering with an MSO in the following situations:

  • Expanding a medical practice but lacking administrative expertise.
  • Focusing on patient care while outsourcing business operations.
  • Reducing regulatory risks by ensuring compliance with changing healthcare laws.
  • Scaling a multi-location practice with consistent management and operations.
  • Securing investor funding while keeping clinical control in physicians’ hands.

An MSO offers strategic business advantages, but must be set up correctly to avoid regulatory pitfalls.

6. Structuring an MSO for Compliance and Success

To ensure legal compliance and operational efficiency, structuring an MSO correctly is essential.

Best Practices for Structuring an MSO:

  • Hire experienced healthcare attorneys to draft a legally compliant Management Services Agreement (MSA).
  • Ensure a clear separation between clinical and administrative roles.
  • Set up independent financial accounts for the medical practice and MSO.
  • Use fair market value (FMV) compensation models to avoid illegal revenue sharing.
  • Regularly review compliance with CPOM laws, Stark Law, and Anti-Kickback Statutes.

By following these best practices, doctors can successfully integrate an MSO without violating medical practice laws.

How We Can Help

At KMSD Law, we specialize in helping medical professionals navigate the complexities of structuring medical practices and MSOs. Our legal team can:

  • Ensure compliance with CPOM laws to prevent ownership violations.
  • Draft legally sound Management Services Agreements (MSAs) to protect your practice.
  • Structure MSO partnerships to maximize efficiency while avoiding legal risks.
  • Provide ongoing regulatory guidance to keep your business compliant.

We offer free case consultations to discuss your business and legal needs. Whether you’re a doctor looking to expand or an investor seeking a compliant MSO structure, we can help.

Contact KMSD Law today to ensure your medical business operates legally and successfully.