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The Management Services Organization (MSOs) Role in California

California prohibits the corporate practice of medicine (CPOM), a broad legal doctrine prohibiting non-licensed persons, including individuals and business entities, from practicing medicine. The CPOM doctrine arises from the idea that those with similar values and desire to uphold similar ethical principles should control the business of medicine. In other words, the purpose of the doctrine is to prevent non-licensed persons from influencing medical treatment decisions that could cause a physician to divide his or her loyalty between generating profits and delivering quality care.

The prohibition on CPOM is why, in California, the only permitted corporate form for an entity that practices medicine is a physician-owned Professional Corporation (PC). Per California law, other healthcare professionals, such as RNs or PAs, can collectively own up to 49% of the PC. However, a physician or group of physicians must own at least 51% of the PC.

What does all that mean? Unlicensed persons can never own any part of the PC. So, how can an unlicensed person profit from the PC? They can create a Management Services Organization (MSO) and contract with the PC to manage the administrative and non-clinical operations of the medical practice. For example, the MSO can oversee a non-clinical HR department, the finances of the PC, and marketing efforts. Under such an arrangement, it is critical that the MSO has no control or authority over the PC and that payment to the MSO is not linked to the MSOs referral of patients to the PC. In simpler terms, the PC must only pay the MSO the fair market value for the services it provides.

An MSO can be a valuable tool for a PC and a good way for non-licensed persons to get around California’s prohibition on the CPOM.

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As a boutique law firm dedicated to supporting the healthcare community, our goal is to help healthcare professionals comply with all laws so that they can be safe in their profession and practices.If you would like to learn more about the corporate practice of medicine in California and MSOs and get advice on how to proceed, contact us at Florida Healthcare Law Firm to set up a consultation today.