What is an MSO Structure?
An MSO setup involves two separate legal entities:
- __Your MSO:__ Handles all non-medical business operations
- __Physician's PC:__ Provides all medical services to patients
The two entities work together through a management services agreement.
Step 1: Form Your MSO Entity
Create a separate legal business entity for your MSO:
- __Entity Type:__ Typically LLC or corporation
- __State Registration:__ Register in your state
- __EIN:__ Obtain federal tax ID
- __Banking:__ Open separate business bank account
Step 2: Physician Forms Their Professional Corporation
The physician must create a separate entity:
- __PC or PLLC:__ Professional corporation or professional LLC
- __Physician Ownership:__ Must be owned entirely by licensed physician(s)
- __Independent Operation:__ Must be genuinely independent from your MSO
Critical: The PC cannot be a subsidiary or controlled entity of your MSO.
Step 3: Draft the Management Services Agreement
This agreement defines the relationship between entities. It must include:
MSO Responsibilities
Your MSO typically handles:
- Marketing and patient acquisition
- Billing and collections
- Facility and equipment
- Non-medical staff employment
- Administrative support
- Accounting and bookkeeping
PC Responsibilities
The physician's PC handles:
- All medical services and patient care
- Medical decision-making
- Employment of medical providers
- Clinical protocols and standards
- Quality assurance
Financial Arrangements
The agreement must specify:
- Management fee structure (typically percentage of revenue or fixed fee)
- Payment terms and schedule
- Expense allocation
- Revenue collection and distribution
The fee must be reasonable and allow the PC to remain financially viable.
Step 4: Establish True Physician Independence
The physician must have genuine control over:
- All medical decisions and protocols
- Hiring and firing of medical staff
- Setting clinical standards
- Refusing to perform procedures
- Patient care quality
Medical boards look for these independence markers during audits.
Step 5: Set Up Proper Documentation Systems
Maintain clear separation:
- __Separate Accounts:__ MSO and PC must have distinct bank accounts
- __Clear Billing:__ Patients contract with PC for medical services
- __Distinct Records:__ Separate books and records for each entity
- __Documentation:__ Written protocols showing physician control
Step 6: Implement Ongoing Compliance
Schedule regular reviews:
- Quarterly verification of physician independence
- Annual review of management fee reasonableness
- Regular updates to clinical protocols
- Compliance with changing state regulations
Common MSO Setup Mistakes
Avoid these critical errors:
- Management fee that's too high (undermines PC viability)
- MSO controlling medical decisions
- Poor documentation of separation
- Generic agreements not tailored to state law
- Failing to maintain true independence
State-Specific Considerations
MSO requirements vary by state:
- __California:__ Especially strict about physician independence and fee arrangements
- __Texas:__ Requires clear delegation and supervision protocols
- __Florida:__ Mandates specific facility registration and documentation
Ensure your MSO structure complies with your specific state's requirements.
Learn more in our complete [Med Spa Compliance Guide](/med-spa-compliance/), including MSO vs PC comparisons and state-specific requirements.
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