Featured in the Journal of the Nassau County Bar Association June 2018: Understanding the Legal Implications Involving Management Services Organizations

By Mathew J. Levy, Esq., Seth A. Nadel, Esq. & Stacey Lipitz Marder, Esq.

Weiss Zarett Brofman Sonnenklar & Levy, P.C.

Introduction

Management Services Organizations (“MSOs”) can provide real and appreciable benefits to busy practitioners, allowing them to provide better patient care, unencumbered by the demands of micromanaging the business. MSOs can also be a productive venture for those who own and operate them. The ability to provide a turn-key office for busy physicians, and the diverse array of administrative services and equipment that physicians typically require, present an opportunity for MSOs. Additionally, unlike physician practices which must be owned by physicians, there is no impediment for outside capital investment in an MSO. However, the potential for abuse in the MSO model is vast, and that potential is reflected in the applicable laws and regulations on both the state and federal level. From the services provided by the MSO, to the manner in which the MSO is paid, physicians and MSOs need to be aware of whether the management services arrangement they are contemplating (or are already involved in) is, in fact, a legal one.

The Corporate Practice of Medicine

It is well-established that New York law includes a prohibition on the “corporate practice of medicine.” This prohibition reinforces the basic principle, reflected in New York law, that only persons licensed to provide medical services is permitted to engage in the practice of medicine.[i] Thus, a physician may practice medicine only in his/her individual capacity, or as a member of a solo or group practice (either in the form of a professional corporation (PC) or limited liability company (PLLC) where all members or shareholders are licensed physicians themselves). Limited exceptions to this rule apply only to hospitals, clinics, and certain other entities licensed under the New York Public Health Law. In any circumstance not prescribed by New York law, a physician is prohibited from being employed by a non-physician and partnering with a non-physician in a medical capacity.

Fee Splitting

Another issue which arises frequently in the context of MSO’s is New York’s prohibition on fee-splitting. According to New York law, it is professional misconduct to permit “any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice medicine, or a legally authorized trainee practicing under the supervision of a licensee. This prohibition shall include any arrangement or agreement whereby the amount received in payment for furnishing space, facilities, equipment or personnel services used by a licensee constitutes a percentage of, or is otherwise dependent upon, the income or receipts of the licensee from such practice, except as otherwise provided by law…”[ii]

The Anti-Kickback Statute

The Anti-Kickback Statute (“AKS”) prohibits offering, paying, soliciting or receiving anything of value in order to reward or induce patient referrals where services will be paid by a federal health care program.[iii] The AKS is a criminal statute, and provides that giving or receiving any kickbacks for referrals is a felony punishable by a fine of up to $25,000 and five years in prison, and can