What Exactly is an MSO Agreement?
A Management Services Organization Agreement (MSO), often utilized in the healthcare and business service industries, refers to a contract between an MSO and a health system, health plan, or other business entity that commoditizes and aggregates non-clinical services for third parties. What differentiates an MSO from a traditional company, is the provision of integrated management services that relate to, or support, a professional’s delivery of a clinical service. In contrast, a traditional company provides professional services without the delivery of ancillary services . The MSO is hired to handle the standard business operations associated with a health system or health plan, such as accounting, insurance, medical billing, regulatory compliance, licensure, staffing and other typical business processes and procedures. Below is a basic example of a possible breakdown of MSO shared services.
COMPONENT SHARED SERVICES
CONTRACT ADMINSTRATION "HOLDING COMPANY"
ACCOUNTING PAYROLL BILLING HR FINANCE INSURANCE "CO-OP"
CLINICAL LEGAL GOVERNMENT REGULATORY NPI CREDENTIALING "HOLDING CO. INDEPENDENCE"
The Essentials of an MSO Agreement
The key to a successful MSO agreement is to efficiently address the key issues in a manner that all parties can accept. While each agreement is unique, some of the basic elements are fairly common as follows:
- Services Provided. The MSO agreement should clearly identify the services to be performed by the MSO; for example, all necessary administrative, professional and clinical services required to assist the group practice in terms of efficiency, compliance, quality assurance and management functions, or general office administrative services, accounting, billing and collections, staffing and human resources functions, human resource services, business and strategic planning and development and compliance with HCFA, state and local laws, licenses, regulations, Medicare and Medicaid policies and procedures and accreditation standards. It is also important to remember that some services may have cost ramifications; accordingly, the parties may want to address the sharing of cost savings derived from administrative efficiencies implemented by the MSO.
- Financial Arrangements. The MSO agreement should describe the fee to be paid to the MSO for its services, which will frequently be a fixed monthly amount for a specific period of time (as opposed to the use of a per-visit, per-service, shared savings or percentage compensation structure that may be prohibited under Stark or Anti-Kickback). The agreement may also include a provision allowing the MSO to develop and implement new billing codes, payor contracts and managed care contracts with respect to the health care services provided by the physician practice group providers. In addition, the agreement may provide that all fees payable to the MSO are subject to periodic review to ensure that the rates are consistent with fair market value.
- Compliance Requirements. It is important for the MSO agreement to contain compliance provisions directed to ensure that the activities of the MSO do not implicate the Stark Law or other applicable fraud and abuse laws. For example:
- Duration. The term of an MSO agreement should be limited to the maximum extent consistent with the parties need to plan for the future. An appropriate duration may be based on a certain number of years, or a percentage of the gross charges (or revenues) of the physician practice group. The renewals should automatically renew for consecutive periods of time, (typically not to exceed 5 years in total), unless the MSO or physician practice group gives at least 60 days prior written notice that such automatic renewals will not take effect. The MSO agreement may also include a right of either party to terminate at will upon written notice.
The Advantages of an MSO Agreement
MSOs can provide several advantages to healthcare providers and organizations. A major reason healthcare entities choose to enter into MSO agreements is for cost efficiency. For example, healthcare organizations do not have to maintain a full-time revenue cycle management department on staff, or a full-time coder to ensure coding compliance, because MSOs will perform and handle these functions on behalf of the healthcare organization, and will often provide these services to multiple third party providers.
MSOs can also prove beneficial for risk management. They can assume practice liabilities by hiring employees or contractors — responsible for their own actions — or by purchasing liability coverage with respect to services performed by providers on behalf of the practice. Further, MSOs can help mitigate liability related to the performance of delegated activities, because, for example, they may assume joint employer liability.
In addition to cost efficiency and risk management, MSOs can provide administrative support so providers can spend more time on core business operations and less time on administrative functions.
Potential Downsides of an MSO Agreement
MSO agreements can pose various risks and challenges that must be considered by both MSOs and the practices they serve. One of the biggest concerns is regulatory compliance. MSOs are subject to numerous federal and state laws, including, but not limited to, the Stark Law, Anti-Kickback Statute, False Claims Act, Medicare/Medicaid Program Integrity Regulation, licensure laws, corporate practice of medicine laws and state anti-kickback and anti-self-referral laws. If proper safeguards are not implemented, MSOs can be in violation of these laws or regulations, and as a result, physicians or other healthcare organizations that enter into relationships with MSOs could also be implicated in these violations.
Another significant concern is potential financial risks associated with MSO arrangements. While these arrangements may seem economically beneficial to physicians and other healthcare organizations, businesses should proceed with caution. Some MSOs are supported by billing companies or other ancillary providers, which can significantly increase the costs of an MSO arrangement. This is particularly troubling for independent physician practices that already struggle to compete with larger health systems. An MSO agreement also could have an impact, favorably or unfavorably, on your overall payer contracting effort, so you also will want to consider these risks.
Finally, the intricacies of providing services under an MSO agreement can pose challenges to ongoing service delivery. As a result, MSOs and their clients must continually monitor and evaluate the effectiveness of their arrangements and make changes to their operations and compliance activities as necessary.
Legal Aspects of MSO Agreements
Given the complexities and ever-changing nature of healthcare regulatory requirements, retaining legal counsel early in the process of drafting and negotiating an MSO agreement can be very beneficial. There are a number of different contract term provisions that should be carefully considered, including the following:
- duration of agreement – MSO agreements are usually for one to three years, although they may expire sooner or later based on the intentions of the parties;
- termination rights – the agreement should discuss the conditions under which either party may terminate the agreement and the obligations arising after termination;
- compensation – compensation provisions should be reviewed for compliance with TBSE and other compensation laws, and should address issues such as: sources of revenue (e.g., set fees vs. percentage of gross revenue) , payment methods and timing, remedies upon non-payment, and potential sale of the right to collect receivables;
- insurance – consultation with knowledgeable insurance professionals is recommended to ensure the types and amounts of insurance required by the MSO are adequate. The parties also should review whether carve out coverage might be available to enable the MSO to purchase insurance at a lower cost; and
- dispute resolution – the parties should consider alternative dispute resolution clauses to reduce risk and avoid costly litigation.
MSO agreements must comply with all applicable state and federal laws including:
– state law prohibitions on the corporate practice of medicine, self-referral, and fee-splitting; and
– federal and state anti-kickback and anti-referral laws which can be implicated by MSO agreements.
Negotiating Your MSO Agreement
The process of negotiating an MSO agreement with a physician group is often a complex and challenging exercise. However, best practices in such negotiations can facilitate the creation of an effective and mutually beneficial MSO relationship. Accordingly, we offer the following suggestions for negotiating an MSO agreement.
- Negotiating from a Position of Strength. We have observed that a health system’s initial position in negotiations is often driven by its perception of the desirability of the MSO relationship to the physician group and the size of the "purse" it needs to entice the physicians. For example, a strong system serving an MSO market that is not well served by other MSOs is clearly in a position to dictate more favorable terms than a weaker system in a similar MSO market. Conversely, a strong system serving an MSO market that is well served by MSOs may have to use its "purse" to compete for MSO physicians, rather than to dictate terms.
- Understanding your Organization’s Needs. A thorough analysis of the needs of the health system is essential prior to embarking on the MSO negotiating process. At the outset, the System must identify what the goals and objectives of the MSO relationship will be. Will it be an MSO designed to provide services to the system’s employing physicians, or will it be a broader MSO that provides services to independent and employed physicians? How many physicians are expected to enroll in the MSO? In order to develop a solid understanding of its needs, the System should utilize its internal physician resources to obtain their feedback about the expected terms and conditions of the MSO contract. It is also helpful to review the other MSO contracts in the area to understand the competitive offerings of other MSOs.
- How to Conduct Effective Negotiations. As with any negotiation, the key to being successful is to negotiate effectively. It is important that the System does not take the same approach as the dreaded used car salesman who gives you a small price for the trade, but offers a huge price for the purchase. A better approach is to offer minor concessions at the beginning of the negotiations and then "tighten up" at the end, without compromising the economic aspects of the originally agreed to deal. In addition, it is critical to provide the MSO management team adequate time to review the contract terms before executing the agreement.
MSO Agreement Success Stories in Action
The following are three (3) brief case studies that we have experienced during our employment. This is not a comprehensive list of our experiences, nor are the names of providers or MSOs provided due to confidentiality agreements.
Case Study #1: MSO Service Provider A entered into an MSO Agreement with a small group of dermatologists and plastic surgeons to provide billing, collection and other on-going medical office services from its home office in another state. The physicians were fearful of realizing a cost savings because of the reputational risks of cutting billing staff. After six months as an MSO client of Service Provider A, the physicians were ecstatic because the cost per claim was reduced by 29% in the first six months, compared to their old in-house billing staff.
Case Study #2: MSO Service Provider B entered into an MSO agreement with a local cardiology group of eight parents. Each parent had separately entered into ‘call coverage agreements’ with other cardiology groups. Upon entering into the MSO contract, Service Provider B discovered that one or two of the mothers occasionally billed insurance for the services of her spouse, who was also a cardiology physician. Service Provider B informed the moms of the matter and new billing policies were instituted for the group which eliminated the practice.
Case Study #3: MSO Service Provider C provides services for a regional physician organization comprised of more than twenty (20) specialties. Each specialty used their own MSO and internal IMIS system. The result was that the members paid approximately 30 to 40 % higher. via fees and reduced efficiencies. Service Provider C recently consolidated all of these medical practices into one MSO using one IMIS, thereby reducing the costs by 22.59% in the first year.
The Next Era of MSO Agreements
As the healthcare landscape continues to evolve, MSO agreements are no exception. The digital revolution is fundamentally reshaping traditional MSO agreements and driving changes in the way that they are structured.
Artificial Intelligence (AI) has emerged as a key sector disruption, empowering MSOs to handle large datasets with greater precision than ever before. Practically speaking, this means that MSOs with AI-enabled platforms can more readily analyze patient histories, which can be leveraged for cost-saving efficiencies and to enhance patient experience. The growing use of technology is increasing the demand for information technology systems in MSO agreements.
CMS has also been ramping up the use of value-based and outcome-based incentive programs. The most current CMS reimbursement framework, the Quality Payment Program, relies on the adoption of these client-centric technologies to assist providers in reporting and achieving their quality measures . Because performance and success are tied to quality, we can expect to see increased demand for MSOs that can provide trackable quality data to their clients.
Lastly, developing policies in Washington DC are impacting MSO agreements. To date, Washington’s most significant contribution to the MSO conversation is their adoption of network adequacy standards. In a nutshell, Washington now requires managed care plans to have a standardized method for measuring access to healthcare providers for all of its members (commercial and Medicaid). Plan administrators are now faced with the challenge of evaluating and reporting on adequate provider networks within quarterly certification timelines. Successful managed care plans that have developed effective networks are a good ideal partner for MSOs offering network management services.