The PC Owner Model in Healthcare and Telehealth
The healthcare industry is undergoing a transformative shift, with telehealth and other innovative healthcare solutions gaining significant traction. Central to this evolution is the Professional Corporation (PC) and Management Services Organization (MSO) structure.
This model, often referred to as the PC-MSO structure, separates clinical and non-clinical functions to comply with laws like the corporate practice of medicine (CPOM) doctrine.
In this post, we break down the PC-MSO model, exploring its components, the common legal agreements that underpin it, and its relevance to telehealth and other healthcare businesses.
Understanding the PC-MSO Model
The PC-MSO model is designed to address the unique regulatory and operational needs of healthcare businesses. It separates the clinical and non-clinical functions of a healthcare practice to ensure compliance with laws such as the corporate practice of medicine doctrine. Here's a breakdown of its components:
Professional Corporation (PC): This entity is owned and operated by licensed healthcare professionals. It is responsible for providing clinical services and ensuring that all medical decisions are made by qualified practitioners.
Management Services Organization (MSO): The MSO is a non-clinical entity that provides administrative and management services to the PC. These services can include billing, human resources, marketing, IT support, and more. The MSO is typically owned by non-physicians, which allows for greater flexibility in business operations.
The relationship between the PC and MSO is governed by a series of legal agreements designed to ensure compliance with healthcare regulations while facilitating efficient management and operation of the healthcare practice.
Key Legal Agreements in the PC-MSO Structure
To ensure compliance and operational efficiency, several legal agreements are essential in a PC-MSO structure. Below, we explore these agreements in detail:
1. Management Services Agreement (MSA)
The Management Services Agreement (MSA) is the most important element of the PC-MSO relationship. It details the scope of services provided by the MSO to the PC, including administrative support, billing and collections, marketing, and IT services. Key elements of the MSA include:
Scope of Services: A comprehensive list of the services the MSO will provide to the PC.
Compensation: The fee structure for the MSO's services, which can be a fixed fee, a percentage of revenue, or a combination of both.
Term and Termination: The duration of the agreement and the conditions under which it can be terminated.
Compliance: Provisions ensuring that the MSO’s activities comply with healthcare regulations and do not interfere with clinical decision-making.
2. Physician Advisor Agreement
The Physician Advisor Agreement outlines the relationship between the MSO and the PC Owner. It outlines the role, responsibilities, and payment structure for the PC Owner. This agreement includes:
Scope of Work: Responsibilities and duties of the PC Owner.
Compensation: Payment terms for advisory services.
Insurance: Requirements for Directors & Officers insurance, a type of liability insurance that covers the directors and officers of a company against lawsuits alleging a breach of fiduciary duty. Requirements for malpractice insurance.
Confidentiality: Outlines confidentiality commitments for the PC Owner.
Compliance: Ensures the PC Owner complies with CPOM and other relevant laws.
3. Business Associate Agreement
The Business Associate Agreement is vital for ensuring compliance with the Health Insurance Portability and Accountability Act (HIPAA). It governs the handling of patient information between the PC and MSO. Key elements include:
Data Security: Requirements for protecting patient information.
Breach Notification: Procedures for notifying the PC in case of a data breach.
Use and Disclosure: Guidelines on permissible uses and disclosures of patient information.
4. Stock Transfer Restriction Agreement
A Stock Transfer Restriction Agreement (STRA) is designed to control the transfer of ownership interests in the PC It can be used to protect the MSO’s interests by managing the PC Owner’s ability to sell or transfer the company's stock when it becomes more profitable. It also provides procedures for managing stock ownership and addressing changes in ownership due to retirement, death, or other factors.
This agreement includes:
Stock Transfer Restrictions: Conditions under which stock can be transferred to ensure it remains with licensed healthcare professionals.
Stock Management: Procedures for managing stock ownership and addressing changes in ownership due to retirement, death, or other factors.
Compliance Assurance: Ensures the PC’s stock management aligns with CPOM laws and regulations.
Approval Processes: Procedures for obtaining necessary approvals for ownership transfers.
5. Technology Agreement
The Technology Agreement outlines the terms for providing technological support and services from the MSO to the PC. Technology agreements can include licenses for technology platforms and intellectual property. This is especially important in telehealth, where technology is integral. Key aspects include:
Scope of Services: Details of the technological services provided, such as telehealth platforms, IT support, and software. This can include provisions that give the PC access to proprietary software and ensure that it is used legally.
Service Levels: Performance standards and metrics to ensure quality service.
Data Security: Measures to protect patient information and comply with HIPAA.
6. Indemnification Agreement
The Indemnification Agreement protects both the PC and MSO from many potential legal liabilities arising from their respective operations. Key components include:
Indemnification Clauses: Provisions detailing the circumstances under which each party will indemnify the other.
Liability Limits: Limits on the extent of indemnification.
Procedures: Steps to be followed in the event of a claim.
7. Security Agreement
The Security Agreement is crucial for securing the assets and financial interests of the MSO and PC. This agreement includes:
Collateral: Description of the collateral securing the obligations under the agreement.
Security Interest: Granting of a security interest in the collateral.
Default Provisions: Procedures in case of default, including remedies and enforcement.
8. Line of Credit Agreement
The Line of Credit Agreement provides financial flexibility to the PC by establishing a line of credit from the MSO. Key elements include:
Credit Terms: Conditions and terms of the line of credit, including interest rates and repayment schedules.
Usage: Permissible uses of the credit line to ensure it supports the PC's operations.
Repayment: Procedures for repaying borrowed amounts.
The Relevance of the PC-MSO Model Within Telehealth
The PC-MSO model is particularly well-suited to telehealth businesses, which require a robust and compliant framework to operate effectively. Below are three major reasons why the PC-MSO structure is advantageous for telehealth.
Regulatory Compliance
Telehealth businesses must navigate a complex regulatory landscape, including state-specific telehealth laws, licensure requirements, and data privacy regulations. The PC-MSO model helps ensure compliance by clearly delineating clinical and non-clinical functions. The PC, being operated by licensed healthcare professionals, is responsible for clinical services, while the MSO handles administrative and operational tasks, ensuring that all activities comply with relevant laws.
Scalability
The telehealth industry is characterized by rapid growth and scalability. The PC-MSO structure allows telehealth businesses to scale efficiently by leveraging the MSO’s expertise in administrative functions. This enables healthcare providers to focus on delivering quality care while the MSO manages the operational aspects of the business.
Focus on Core Competencies
The separation of clinical and non-clinical functions in the PC-MSO model allows each entity to focus on its core competencies. Healthcare providers can concentrate on patient care, while the MSO handles administrative tasks such as billing, marketing, and IT support. This division of labor enhances the overall efficiency and effectiveness of the telehealth business.
“When selecting outside counsel, ensure the firm has a deep subject matter expertise. PC-MSO requirements continue to evolve at the state level...which could have significant implications for the digital health industry.””
Legal Considerations and Best Practices
Establishing a compliant and effective PC-MSO structure requires careful navigation of the legal landscape. Here are some best practices:
Engage Legal Counsel
Engaging experienced legal counsel is crucial when setting up a PC-MSO structure. Healthcare regulations are complex and vary by state, so it is essential to work with attorneys who specialize in healthcare law and understand the nuances of telehealth regulations.
Griffin Mulcahey, founder of Wheel, a company that powers the virtual care programs of leading consumer and digital health brands, recommends thorough vetting of legal counsel to validate their understanding of CPOM doctrine.
“When selecting outside counsel, ensure the firm has a deep subject matter expertise,” said Mulcahey. “PC-MSO requirements continue to evolve at the state level, with recent heightened scrutiny in several states, including California, considering further legislative restrictions on the model which could have significant implications for the digital health industry.”
Draft Clear and Comprehensive Agreements
The legal agreements that underpin the PC-MSO structure should be clear, comprehensive, and tailored to the specific needs of the telehealth business. Each agreement should outline the roles, responsibilities, and expectations of both parties, ensuring no ambiguity or overlap in functions.
Ensure Ongoing Compliance
Healthcare regulations are constantly evolving, so it is essential to monitor changes and ensure ongoing compliance. Regular audits and compliance checks can help identify potential issues and ensure that the PC-MSO structure remains compliant with all relevant laws.
Prioritize Data Security
Data security is critical in telehealth, where sensitive patient information is transmitted electronically. Implementing robust data security measures and ensuring compliance with HIPAA and other data privacy regulations is essential to protect patient information and maintain trust.
Conclusion
The trusted PC-MSO model provides a robust and compliant framework for telehealth and other healthcare businesses. By clearly delineating clinical and non-clinical functions, this model ensures regulatory compliance, enhances operational efficiency, and allows healthcare providers to focus on delivering quality care. The common legal agreements that form the backbone of the PC-MSO structure are essential for defining the roles, responsibilities, and expectations of both entities.
By following best practices and engaging experienced legal counsel, telehealth businesses can establish a compliant and effective PC-MSO structure that supports their long-term growth and success.
