Acquiring via MSOs

May 10, 2024

by a searcher from Bridgewater State College in Providence, RI, USA

Has anyone made an acquisition (med spa, longevity clinic, dermatology etc.) using an MSO?

We're trying to understand MSOs in greater detail, specifically how value (profit) flows from the practice to the MSO (investor group).

Thanks all!

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Reply by a professional
from Harvard University in Lynbrook, NY 11563, USA

There are generally three ways the MSO can charge the PC/PLLC (i.e., the actual medical practice). 1) cost plus (e.g., all the MSO's costs plus 20%), 2) fixed fee (e.g., $50k a month), or 3) percentage of revenue (e.g., 20% of revenue), though in some states with strict corporate practice of medicine laws (e.g., NY), you can't charge a percentage of revenue.

What many people fail to realize is that the MSO can't just be a ruse, i.e., a shell that non-doctors hide behind to really run a practice: it has to really be an independent business, providing true value to the medical practice. If scrutinized, it has to be able to justify its existence as a business matter.

People who are doing this properly will commonly get an FMV analysis done by an expert to validate how the MSO is charging the practice.

Reply by a searcher
from Tufts University in Malden, MA, USA

Following as I'm also interested in the MSO model. Not sure if Joseph or anyone in this larger thread knows the answer, but if for example I'm using a holding company to make acquisitions of similar companies (e.g., a number of landscaping and lawn care providers), can the holding company also serve as the MSO? Or would I have to create a separate MSO entity under the holding company? In this case, the MSO would be serving the day to day business operations (accounting, HR, marketing, etc.)

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