MSO OVERVIEW (Co-management Model)

In today’s constantly changing market, health systems across the country are faced with enormous challenges.  The overall size of the inpatient market is decreasing and the revenue per sale is consistently trending downward.  Operational costs and capital needs continue unabated and options for alternative outpatient business development are met with competition from the very distributors and vendors the administrator must work with to achieve inpatient equilibrium. Adding to the unequal playing field created by collaborating with physicians on inpatient care while competing with them in the outpatient environment, is the advantage that the privately capitalized entity has when competing with public and non-profit health care institutions.  Legally, and from the perspective of the public trust, the private entrepreneur can be much more flexible and responsive and can usually access capital in a more efficient fashion. All of the above are forcing health system boards to redefine their relationships with the marketplace, the consumer and their distribution base of physicians.

At the same time, physicians are witnessing both a real and an anticipated loss of actual spending power.  Their practices have suffered from continued inflationary pressures, even in times of minimal inflation in the general economy.  These factors, coupled with the impact of RBRVS, and an increasing emphasis on managed care has caused increasing numbers of physicians to seek alliances.  These alliances can take the form of group practices, PHOs, IPAs, consolidations, mergers and acquisitions.  Whatever the form, very few medical communities have been unaffected.

In the past, the typical marketing orientation toward the physician by the health system has been to assist and enhance the private practice of medicine, develop sales programs or product line initiatives or to assist in recruiting.  In today’s fast paced market, however, such hospital oriented marketing efforts are not enough when viewed from the physician perspective, especially if the doctor is in a transitional stage in his/her practice (growth, startup, slowdown or exit).  Progressive health systems are beginning to develop effective options to the marketing based efforts of yesterday. They are constantly pursuing new and innovative relationships with their medical staff (or at least favorable components of their medical staff) that will allow them to become more collaborative and more integrated. However, because of the heightened awareness of issues inherent in regulatory requirements, such as inurement and fraud and abuse, these options must be carefully constructed.  The Medical Services Organization is one of the more flexible and functional approaches to binding physicians into a closer working alliance without forcing them to relinquish the autonomy they strongly value.  Recently, it has been emerging with a new name – “co-management” which suggests the potential for collaboration among many providers (hospitals and doctors).  This can also be the basis for ACO (accountable care organization) collaboration.


The core component of an MSO is a defined array of services made available to physicians and structured in a cooperative fashion.  Often initially funded by a health care system, the MSO skirts fraud and abuse or inurement problems by developing a revenue base and a customer panel which manages the services and their costs to the client base.  There is actually a fee paid for the services which are provided to the practices. However, the hospital or health system may initially provide capital and expertise in the early formation, thus building trust (and a business relationship) between a health system and its physicians.  This trust is earned by allowing the governance and management to be balanced between the expectations of the individual physician and the needs of the health care system.


The MSO is a very flexible integration model as it can take the form of a hospital sponsored business or one which involves physician equity positions.  The key to the initiative is the continued accommodation of physician autonomy without forcing the hospital into the ownership of physician assets or practices.  The goal of the model is assistance and guidance without interference.  Since the MSO is a stand alone business, initial financial support can be offered without fear of outside criticism (provided there is a business plan which demonstrates that there will be an eventual return on this investment).

The services that are key to an MSO usually include overall management and consultative practice reviews, billing and collection, equipment and personnel pooling, risk management and recruiting.The key to developing successful MSOs is to allow the physicians to be involved in an advisory policy-making capacity, to prioritize efforts and to pick services which will have universal appeal, are apolitical, and offer immediate payback.

Eventually, the MSO can assist in preparing practices for coordinated managed care contracting, equity transition (sale or retirement), or mergers and acquisitions.  Essential to the development is a stable group of practitioners involved in a collaborative process which will allow them to participate with the health system in developing initiatives and services from the traditional “co-op” model.  That is, if there are savings or reductions in service cost, the group shares in them through a dividend or a reduction in fees after the health system has recovered its initial investment.

The MSO is a transitional entity.  Most health care futurists believe the eventual model will be a community based health care system with providers and consumers involved in caregiving and carepaying considerations.  Group practices, PHOs and PPOs are all steps in the learning curve for most communities.  The MSO allows a hospital and a group of supportive physicians the chance to practice the art of collaborative planning and product delivery in a virtually threat-free fashion while they ponder the next step on the integration continuum.   For most of the physicians who did not fare well under competition and who abhor managed care, the thought that the next phase of the delivery system will combine these aspects will be enough to send them to the nearest administrator seeking shelter of some kind.  The development of the MSO model may be the best way for health systems to respond.

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