Most U.S. states have codified some protective aspect of the Corporate Practice of Medicine Doctrine (CPOM) into law to ensure medical and surgical physicians are free to make medical judgments in the best interests of their patients. These prohibitions generally prevent physicians from being employees of for-profit corporations, but they can create challenges when physicians in states like California, New York, or Texas want to pay third party management companies for physician practice management services.
Webinar Duration: 44:00
During this webinar, attendees will learn about:
- Common structures for physician practice management arrangements
- Varying scopes of services provided under physician practice management arrangements
- Fair Market Value management fee analysis approaches
- How management fee ranges can differ by physician practice specialty
Speaker: Nick Newsad, MHSA, Healthcare Advisory Services
Audience: Healthcare Management and Healthcare Attorneys
Navigating the Fair Market Value of Physician Practice Management Fees
Physician practice management arrangements are common across the U.S., especially in states where the Corporate Practice of Medicine Doctrine (CPOM) imposes restrictions on physician employment by for-profit corporations. While these structures help physicians focus on clinical care, they raise critical legal and valuation questions — particularly around how much a management company should be paid.
Nick Newsad, MHSA, from LBMC’s Healthcare Advisory Services, breaks down key factors that influence fair market value (FMV) and how healthcare organizations and attorneys can align management fee structures with regulatory expectations.
Understanding Management Services Agreements (MSAs)
Physician practice management fees are typically tied to Management Services Agreements, or MSAs. These contracts outline what services the management company provides — ranging from billing and HR to IT, compliance, and facilities management.
Nick explains that not all MSAs are created equal. The scope, complexity, and risk assumed by the management company can vary significantly between agreements, and those differences play a major role in determining FMV.
Common MSA Structures
There are a few prevalent structures in the market today:
- Fixed fee per month: A flat rate regardless of practice performance.
- Percentage of revenue: Tied to gross collections or net revenue.
- Tiered or hybrid models: Blending fixed and variable components.
Each has different implications for valuation and regulatory compliance. For example, percentage-based fees can raise red flags under CPOM or federal fraud and abuse laws if not appropriately valued and documented.
Key Considerations in FMV Analysis
Determining FMV for a management fee starts with a careful analysis of:
- The specific services provided
- The size, scope, and specialty of the practice
- Comparable market data
- The level of operational and financial risk transferred to the management company
Nick emphasized that FMV should be evaluated objectively and independently. Relying on internal assumptions or standard formulas can lead to overpayments — or undervaluing the complexity of services rendered.
How Specialty Affects Management Fees
Practice specialty has a material impact on FMV. For example:
- Primary care practices may require lower-touch administrative support.
- Surgical or multispecialty practices often demand higher-intensity services, more sophisticated billing systems, and deeper infrastructure support.
These differences explain why two practices of similar size may pay vastly different management fees and why benchmark ranges should always be specialty-specific.
Legal and Compliance Implications
For healthcare attorneys and compliance professionals, the key takeaway is documentation. It’s not enough to claim a management fee is at FMV — it must be supported by a credible, data-driven analysis. Regulators and transaction stakeholders are increasingly focused on whether management fees reflect true market value, especially in CPOM-restricted states.
Conclusion
Physician practice management arrangements can be an efficient and effective way to support clinical operations. But management fees must reflect fair market value to withstand regulatory scrutiny and maintain physician independence.
If your organization needs a defensible FMV opinion or support structuring compliant MSAs, LBMC’s valuation and healthcare advisory teams are here to help. Contact us today to schedule a consultation.