MSO / PC Structuring

Many telehealth and healthcare businesses operate through a dual-entity structure involving a management services organization (MSO) and a professional corporation (PC) or professional entity. This structure is designed to address the corporate practice of medicine doctrine — a prohibition in most states that prevents non-licensed business entities from directly employing physicians or controlling clinical decision-making.

In a typical arrangement, the MSO handles administrative, management, and non-clinical functions, while the PC employs or contracts with licensed healthcare providers who exercise independent medical judgment. The relationship between the MSO and PC is typically governed by a management services agreement (MSA) that defines the scope of services, compensation, and governance.

The corporate practice of medicine doctrine varies significantly by state. Some states strictly prohibit corporate entities from employing physicians or exercising control over medical decisions. Others permit corporate employment under certain conditions or do not enforce the doctrine at all.

A threshold analysis of applicable state laws is essential before structuring a telehealth company or healthcare business. This includes evaluating whether the proposed business model implicates the corporate practice of medicine, whether the state permits exceptions (such as for professional corporations), and how the entity should be structured to maintain compliance.

Related to the corporate practice of medicine, many states prohibit or restrict fee-splitting — the sharing of professional fees between licensed healthcare providers and unlicensed entities or individuals. Fee-splitting rules directly affect how an MSO may be compensated and how management fees are calculated.

Compensation models must be carefully structured to comply with state-specific fee-splitting prohibitions while maintaining the economic viability of the MSO / PC arrangement. Common issues include percentage-based compensation, revenue-sharing arrangements, and management fees tied to collections or production.