MSAs for Medical Practices in California: Uncover Hidden Costs and Minimize Risk

Do you own and/or operate a medical practice in California? If so, you may be considering entering into a medical services agreement (MSA). Broadly explained, these are contracts between a professional practice and a third party company that offers administrative/business services. An MSA can be a useful tool for a medical practice in California, but it needs to be properly structured. Here, our Fremont business lawyer for medical practices provides a guide to MSAs in California.

What is a Medical Services Agreement (MSA)?

An MSA is a contract between a licensed medical practice and a third party management and/or administrative services company. The agreement allows the non-medical entity to handle business functions such as billing, human resources, accounting, marketing, facilities management, and technology systems. At the same time, the professional medical corporation (PC) retains control over all clinical decisions.

In California, these arrangements must be carefully structured to comply with the state’s Corporate Practice of Medicine (CPOM) doctrine. The law prohibits non-physicians or unlicensed entities from owning, managing, or influencing medical decision-making. The Medical Board of California enforces strict boundaries to ensure that only physicians direct patient care.

Why Medical Practices in California Enter into MSA

Many professional medical practices in California enter into MSAs. At their best, these agreements can help to make business operations more efficient and reduce administrative burdens. Running a compliant and profitable practice in California requires substantial time and resources unrelated to patient care. A management company can provide economies of scale by handling functions such as insurance credentialing, revenue cycle management, and payroll. MSAs also allow smaller practices to access advanced systems (such as electronic health records (EHR) management) that they may not be able to reasonably afford independently.

Be Prepared: Know the Hidden Costs and Risks of MSAs

Despite their benefits, MSAs carry significant legal and financial risks. The most common problem arises when an agreement crosses the line into impermissible control over medical decision-making. If an MSO sets physician compensation, directs clinical staffing, or influences patient scheduling, regulators may find a CPOM violation. Here are key points to know:

• Hidden financial risks: In many cases, MSAs can conceal substantial costs. Flat fees, revenue-sharing provisions, and performance bonuses tied to patient volume may violate federal and state anti-kickback or fee-splitting rules.
• Data privacy and HIPAA liability: Because MSAs often manage patient billing and records, they may become business associates under HIPAA (45 C.F.R. §160.103). A proper business associate agreement (BAA) must accompany the MSA.
• Unfavorable contract: Some MSAs include restrictive termination clauses or automatic renewal terms that leave the physician practice trapped in a long-term agreement. It is imperative that any MSA is drafted and/or reviewed by an attorney.

Speak to Our Fremont Employment Lawyer for Employers today

Lynnette Ariathurai is a California business attorney who has considerable experience representing medical practices. If you have any questions or concerns about MSAs, we can help. Contact us today for your completely confidential consultation. From our Fremont office, our team provides business law services to medical practices throughout the Bay Area.