Community Health

MSOs: A Third Way For Physicians

Healthcare is changing dramatically, and not just for patients. The nature of physician employment, too, is undergoing disruption. More and more, physicians who remain independent are banding together under a management services organization (MSO), a legal entity that allows physician practices to share resources, limit risk and gain the necessary efficiencies to compete in a consolidating market.
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Share resources, limit risk — while remaining independent — in the new healthcare era 

Healthcare is changing dramatically, and not just for patients. The nature of physician employment, too, is undergoing disruption, and the once-dominant entrepreneurial model is being replaced with traditional employment and a regular work schedule. 

While increasingly popular in medicine, this employment model isn’t a perfect fit for all physicians: About one-third of physicians still identify as independent practice owners, according to a recent survey by The Physicians Foundation. Why? It likely varies from doctor to doctor. But likely not everyone wants to work for a managed care organization (MCO), retailer, local integrated health system, academic hospital or other increasingly dominant provider model.

Ultimately, many physicians still prefer having more control of their work life.

It’s not that these organizations don’t offer good care; they often do. But traditional employment often comes with many tradeoffs, namely losing the independence of running your own business and, potentially, mandated time limits with patients. Consolidation overall is supposed to be a net positive for our industry. It’s creating efficiencies that should lower healthcare costs, improve outcomes and expand access to more patients. And as we enter the era of value-based care, integrated health systems and MCOs are evolving: They can have the scale to make necessary investments while working out the intricacies of delivering good medical care in a cost-effective framework. 

But Big Medicine isn’t the only way to bend the cost curve in healthcare and improve outcomes for patients. More and more, the roughly one-third of physicians who remain independent are banding together under a management services organization (MSO), a legal entity that allows physician practices to share resources, limit risk and gain the necessary efficiencies to compete in a consolidating market. 

How did we get here?

Although few observers predicted it at the time, the Affordable Care Act (ACA) set off a massive wave of consolidation in healthcare that continues to this day. In an attempt to expand healthcare access to millions of uninsured Americans, the landmark legislation’s authors expanded access by upending a delivery and payment system that ultimately advantages scale and integration across the spectrum of care. 

Along with promoting the growth of MCOs and physician hospital employment, ACA provisions also accelerated the transition from the fee-for-service to the value-based care reimbursement model. But adopting to this new model requires hefty investments in information systems and personnel, which is all but out of reach for everyone but the largest providers. Or so the conventional wisdom went until now.  

Private practice and MSOs: a third way

Typically backed by a private equity firm, MSOs create the economies of scale, access to ancillaries and increase in reimbursement rates that allow physician practices to compete in today’s hypercompetitive market. This prevailing model for independent-minded physicians provides demonstrable growth opportunities, little to no out-of-network exposure and a diverse revenue base where no one physician is responsible for more than 15 percent of a practice’s production. 

MSOs also give individual practices access to the latest information systems, imaging solutions and outpatient surgical facilities — similar to working for a traditional physician group. These legal entities also oversee the negotiation, implementation and ongoing administration of managed care contracting agreements. 

Risk sharing is also a primary benefit of MSOs, which can aggregate and manage the liabilities of multiple independent practices into one captive insurance pool. Independent practices also can be incentivized through risk sharing programs that reward high safety performers. Even more, MSOs provide the necessary scale for independent practices to participate in fast-growing alternative payment programs that often require the integration of other healthcare services like physical therapy and anesthesia.  

Today, alternative payment programs represent about one-third of all U.S. healthcare payments, an increase of about 50 percent from 2015, Health Care Payment Learning & Action Network data shows. MSOs provide a unique pathway for independent-minded physicians to remain in private practice while participating in bundled payment programs. Recent analysis published by the New England Journal of Medicine assessed the viability of traditional physician groups in the value-based era, listing four factors that success in this area requires: physician engagement, care coordination, data analytics and patient optimization — all initiatives that are supported by MSOs.  “We contend that private practice physician groups can provide integrated, coordinated care as effectively as, or perhaps more effectively than, large hospital and health care systems,” the NEJM piece concluded.

Jay Pruzansky, DPM, MBA

Jay Pruzansky received his doctorate from Temple University School of Podiatric Medicine and has been Board Certified in Foot and Ankle Surgery. He founded and managed one of the nation’s first Single Specialty Physician Management Groups and grew that organization to include 19 offices. Merritt Healthcare Advisors are experts in understanding and assisting physician practices in accessing the financial resources to assist in strengthening and enlarging your practice footprint to maintain your practice into the future.

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