The following document offers several specific issues to consider when developing an MSO.


  1. The MSO should be an autonomous corporation operating separately and independently of both the health system and the physician group. Its management staff should be ultimately responsible and accountable for its profitability and effectiveness.

  2. The MSO could potentially serve other physicians and groups.

  3. The MSO arrangement should transfer all risk to the MSO and leave the physicians, as a P.C., intact and autonomous in their own corporate dealings.

  4. A representative of the physician group should be a voting member of the governing body of the MSO, with all the rights and privileges associated with this responsibility.

  5. Specific items such as quality assurance and risk management should require the active participation of the group physicians in various committees and other activities on an on-going basis. Medical decisions should remain the purview of the physicians in the professional corporation.

  6. The MSO can be for-profit, taxable or non-taxable. It can be an LLC and/or produce dividends (equity returns) or cost savings (co-op model) for its clients. This should be determined before the end of the initial planning phase.


  1. To reduce the risk for participating physicians.

  2. To support and enhance growth of the physician practice and improve market share.

  3. To provide operating efficiencies for the group which ultimately stabilize or reduce overhead costs.

  4. To provide an opportunity to enhance revenue streams for the physicians through collective contracting efforts coupled with service development.

  5. To stabilize the professional practice in order to provide for stability of admissions to system hospitals from this referral source.

  6. To expand services available in a variety of environments through expansion and diversification of the physician membership.

  7. To develop a critical mass which becomes the integral service provider to the professional practice in the local market area.


  1. Hire, evaluate, promote, discharge all employees. This would mean that all present employees of the physician group would become employees of the MSO. The goal would be to maintain salaries and benefits at present levels.

  2. Provide all financial and accounting services for the practices including billing, collection, financial reporting, benefits coordination, etc.

  3. Negotiate all contracts with subcontractors. This would include the purchase of all equipment, supplies, services. Services may include those of the medical specialists.

  4. Negotiate managed care contracts. Potential contracts for IPAs, PPOs, PHOs, would be handled by the MSO.

  5. Manage the day-to-day operations of all facilities and services provided under the umbrella of the physician group.

  6. Provide for strategic planning, implementation and recruitment of physicians to expand the services provided by the physicians and, thereby, expand market share in the area.


All of the standard operating expense items to conduct the business of the physician professional corporation could be covered by the MSO including the following:

Salaries, benefits, payroll taxes, pension plan costs, etc. for all employees of the MSO practices.

Costs of contractual medical specialists.

Fixed overhead costs such as rent, utilities, insurance, etc., related to the offices utilized by the physicians.

All medical and business supplies utilized in association with the provision of services by the physicians.

Legal and accounting services related to the day-to-day business of the practice, but exclusive of any such expenses directly related only to the P.C. itself.

Marketing expenses related to the medical practice.

Recruitment costs for new physicians.

Other miscellaneous operational expenses attributable to the practice of medicine by the physician group.

The following list of expenses are not typically the responsibility of the MSO:

Administrative, legal, accounting, and other day-to-day expenses to support the physician corporation as a separate entity.

Salaries, benefits, payroll taxes, pension plan costs of all physicians employed by or shareholders in the physician P.C.

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