By Mathew J. Levy, Esq., Seth A. Nadel, Esq. & Stacey Lipitz Marder, Esq.
Weiss Zarett Brofman Sonnenklar & Levy, P.C.


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.[1] 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…”[2]

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.[3] 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 also include civil penalties far in excess of that amount. Additionally, conviction under the AKS will also lead to automatic exclusion from all federal health care programs, such as Medicare and Medicaid. The AKS is not limited to health care providers; any person can be charged with violating the statute, and liability applies regardless of whether that person is giving or receiving a kickback.

The AKS contains exceptions for personal services and management contracts, and contracts involving equipment and space rentals. In order for an arrangement to fall within the applicable safe harbor, the arrangement must include the following factors[4]:  

  1. Be set out in writing and signed by both parties
  2. Cover all the services the MSO will provide to the physician
  3. Contain the schedule of services provided if not on a full-time basis
  4. Be for a term of at least one year
  5. Set aggregate compensation in advance, consistent with fair market value and not taking into account the volume or value of referrals generated
  6. Not involve the promotion of any business arrangement which violates any law
  7. Not set a level of services beyond what is necessary to accomplish the MSO’s purpose

Fair Market Valuations

Compensation structures for MSOs are so highly scrutinized, it is imperative that the fee be set at a flat rate which is fair market value and does not take into consideration the volume or value of referrals. The rate should remain the same whether the practice generates one dollar or ten million dollars, and cannot be based upon a percentage of the practice’s revenue. Therefore, it is highly recommended that physicians and MSOs contemplating doing business together obtain a fair market valuation from a reputable third party. By doing so, if the arrangement were to ever come under scrutiny, the parties would possess strong evidence that they considered the FMV issue at the time and set the compensation accordingly.

An Illustrative Case: The Aspen Dental Settlement

A good illustration of the above principles can be found in the case of Aspen Dental Management, Inc. (“Aspen”).[5] On June 15, 2015, the New York State Attorney General’s Office (“AG”) entered into a settlement agreement with Aspen, an MSO that provided management services to independent dental offices throughout New York. Although the Aspen Dental case, in particular, relates to dentists, the analysis is the same for any health care provider.

The AG ultimately determined that Aspen’s management arrangement was, in fact, illegal, and pointed to a litany of different types of misconduct in support of that conclusion. Most egregiously, the management company had unilaterally established clinical practices and protocols for the practices it managed with little input from the practices themselves. They had incentivized the staff of the practices to push products and had paid bonuses to staff members which were funded by increased management fees paid by the practices. All the practices were also marketed together under the umbrella of “Aspen Dental,” giving the false impression to patients that all the offices were a unitary conglomerate, rather than the independent offices of the practitioners themselves. Finally, all of Aspen’s fees were calculated as a percentage of the gross profits of the practices.

In addition to paying a $450,000.00 fine, the AG forced Aspen to make significant changes in its business practices in order to come into compliance with New York law. These changes included a restructuring of the agreements between Aspen and the practices to transfer decision-making power to the dentists themselves, modifying Aspen’s website so that it made clear that the practices were independent entities and not run by Aspen, and changing the compensation structure so that it reflected a fair market value and was no longer based on a percentage of revenues.

Investigations and EUO’s

The AG, Health and Human Services’ Office of Inspector General and other regulatory agencies have become empowered to seek out violations with respect to corporate structure and punish transgressors accordingly.

A common instance of investigation, well known to No-Fault providers, is an Examination Under Oath (“EUO”). No-Fault insurers will routinely issue EUO’s to providers, requiring them to appear at a specified time and place and produce documents to verify what care was provided to the insured and to inquire into the corporate structure of the provider.

The inquiries in EUOs regarding corporate structures seek to identify potentially problematic arrangements with management companies. If an insurer determines that a management company – rather than an individual provider – is the de facto owner and operator of a medical practice, then the insurer will take the position that it has no obligation to pay for services performed by that provider, even if those services were legitimately performed and medically necessary.

Additionally, practitioners who are deemed to be “fraudulently incorporated” also expose themselves to potential ramifications regarding their licensure, and civil and criminal penalties under state and federal law. It suffices to say that physicians who believe they might have an impermissible arrangement with an MSO, or problematic corporate structure, or who find themselves the subject of an EUO, should contact an attorney well-versed in healthcare matters immediately.

Structuring Management Agreements

When entering into an arrangement with a MSO, practitioners must also be cognizant of the contractual provisions applicable to the arrangement. For instance, all parties to an MSO agreement should be aware of the term (how long the agreement is for), as well as how the agreement can be terminated. A guaranteed exit strategy in the event things are not working out is essential in any arrangement between two parties. Additionally, the parties should review provisions relating to payment of the fees and any applicable penalties, and security agreements in the event of non-payment.  The specific services that the MSO will be rendering should also be clearly identified, including for instance staffing, billing services, medical record management, regulatory compliance, medical and office equipment, and the provision of office space, among others. The parties should also be aware of insurance requirements that may be set forth in an agreement, in addition to restrictions including for instance confidentiality and non-solicitation of staff. Furthermore, in the event that the MSO will have access to protected health information, a business associate agreement should be entered into between the parties in accordance with Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Health Information Technology for Economic and Clinical Health Act, Title XIII of the American Recovery and Reinvestment Act of 2009 (the “HITECH Act”), and related regulations. 


MSOs can be an extremely valuable tool for physicians who struggle to balance the provision of medical care with the day-to-day responsibilities of running a business, as MSOs can provide organizational and administrative services to physicians’ offices, However, in an environment as highly regulated as healthcare, MSOs also present many prospective pitfalls for practitioners to inadvertently run afoul of state and federal law. In light of the complexities with regard to MSOs, it is highly advisable to establish the details of the management agreement, with the guidance of legal counsel experienced in healthcare issues.. Similarly, practitioners currently involved with a management company in the absence of a written agreement, or with a written agreement which might be legally noncompliant, should contact an attorney promptly to be sure they are not inadvertently violating the law and to correct any potential deficiencies.

Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors' rights, and commercial real estate transactions. If you have any questions please contact Mathew Levy, Esq at 516-926-3320 or email:


[1] N.Y. Educ. Law § 6522, See People v. John H. Woodbury Dermatological Inst., 85 N.E. 697 (N.Y. 1908).

[2] N.Y. Educ. Law § 6530(19)

[3] 42 USC § 1320a-7b(b).

[4] 42 CFR 1001.952(d), 42 CFR 1001.952(b), 42 CFR 1001.952(c).

[5] In re Aspen Dental Management, Inc., N.Y.A.G., available at