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Should I set up a Management Company?

Provided by:  Jennifer Kirschenbaum, Esq.

August 8, 2017

 

Question: 

Hi Jennifer,

I let my accountant know I am expanding my practice and she mentioned I should consider a management company.  Specifically, I am looking to bring in a physical therapist I want to share profits with.  What do you think?  How does a management company work, and should I proceed?

Thanks, Dr. P

 
Answer:

Dr. P, this is a great question many independents ask who may be looking to find ways to collaborate.  My answer, as your counsel, is fairly simple.  Management companies, historically, were set up to avoid corporate practice of medicine rules - which many states have - NY's being a stricter one.  The corporate practice of medicine says an MD cannot share profits or revenues with under licensees.  So you cannot make your PT colleague a partner in your medical practice and share revenue.  However, in NY, you can hire a PT or PA or RN to work for your practice and pay that person a percentage of collections attributable to that persons services personally rendered (except as related to Designated Health Services or items sold - seen as an inducement/kickback).  So, some clever advisors started structuring physicians in lay entities where anyone can own and revenues can flow freely.  As happens, the regulators caught on and realized the scheme.  We are currently in a highly scrutinized regulated environment where I am cautioning, the jig is up.  

The true purpose of a management company in today's environment is to function as a completely operational administrator - typically formed as a Limited Liability Company - the management services organization (or MSO, as acronym-ed) must provide actual services - possibly be the property holder, employer of administrators, renderer of services such as billing.  Otherwise if no services are rendered, there is no supported reason for money to be flowing from the medical practice to the MSO - and no reason for any splitting of profits between owners.  

Now, an MSO is absolutely appropriate in certain circumstances where the operation supports the outsourcing of administrative services.  The services being provided by the MSO should be quantifiable at fair market value, and the structure must be properly vetted and applied through appropriate contracts.  Proceeding without a knowledgeable tax advisor working in tandem with your healthcare attorney is also a tremendous mistake.   

To talk about specifics please set up a consult with Taryn by emailing TCrimi@kirschenbaumesq.com or calling 516 747 6700 x. 310.  For a project like this, we need to chat and, yes, the work will be on the clock. 


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