Management Service Organization


Measurable value and greater market strength for independent practices.

By Jim Hoyme, PT, MBA

Consolidation. We have seen it for years in hardware, office supplies, and banking. Now look around you. Hospital mergers and acquisitions. Integrated care systems. Accountable care organizations (ACOs). Specialty and multi-specialty clinic integration. Health care organizations are growing.

What Is Your Strategy? What are you doing with your practice? Staying the course? Business as usual? Will the powerful decision-makers pay attention to you as they organize larger care delivery systems?

What if staying small is not the best option in your market, but you do not want to sell your practice or merge with anyone else? You want to maintain ownership of the practice that you started, nurtured, and developed into a valuable asset to you and your community.

You can have it both ways. You can create a large organization that delivers the strength of size and still maintain control of your small independent practice through a management service organization (MSO).


What Is an MSO?

There are a number of ways you can grow your company through integration. Full asset merger, an MSO, Independent Practice Association (IPA), and networks are several options. Each has advantages and disadvantages (Download Comparison Table Here).

An MSO is an organization through which independent practices come together as members to integrate various administrative services and provide them centrally. The MSO, organized under a single tax identification number (TIN), creates economies of scale with reduced administrative costs for members. Member practices outsource “tactical” services to the MSO such as revenue cycle management , electronic medical record (EMR) and billing technology and information technology support, health plan contracting, credentialing, outcomes and care management, professional development, compliance, patient registration/verification, group purchasing, financial management, and human resources functions. Practices can reduce their administrative costs and practice leadership can focus on strategic activities that improve patient care, build a stronger brand, develop relationships, and grow their business.

MSOs have flexibility in organizational design, services offered, and ownership. MSOs can involve physician hospital groups or multi-specialty groups, such as physical therapists. One individual, a few individuals, or a partnership of the members can own an MSO. MSO structure must comply with certain federal and state laws such as Stark, Anti-Kickback, and Anti-Trust. The MSO can have ownership in the practices; however, in most cases, the MSO is strictly a service provider.

Simply stated, an MSO exists to reduce costs and improve the market position of the practices.


Delivering Value

MSOs can add tremendous value to independent therapy practices, risk-sharing partners (e.g., health plans, ACOs, medical homes, or self-insured businesses), and the patients served by the MSO clinics.

Member Practices: By consolidating administrative services, the MSO helps practices reduce their operational costs, especially in the areas of revenue cycle management, payment processing, clinic support, and technology. An MSO is an excellent solution for a new practice because it reduces start up costs, provides solid contracts, and offers collaboration with other practice owners. Consolidating a number of practices with multiple clinics and many therapists under a single TIN results in convenient access and serves many patients. Size gets the attention of payers and affords negotiating strength.

If the MSO provides outcome tools and care management support, the MSO and its member clinics gain dramatic market strength. All benefit from the ability to engage in risk-sharing arrangements due to their size and measurable care value. Size and effective, value-driven care brings practices the opportunity for improved reimbursement, value-based payer relationships, and a stronger position in their local health care market.

Risk-Sharing Partners: An MSO brings tangible value to payers and others with whom the practices share financial risk, such as health plans, ACOs, medical homes, and self-insured businesses. Thus, payers are more likely to be willing to pay MSO practices at higher than standard rates. Most MSOs obtain all payer contracts for their members under the MSO’s TIN. An MSO—with its many clinics and therapists—brings broader patient access, which is important to payers. Single TIN contracting and payment processing simplify processes and greatly reduce payer costs, making MSO providers more valuable to the payer.

If the MSO provides outcomes, care management, and a willingness to engage in risk-sharing arrangements, the MSO assures consistent, predictable functional and cost outcomes across many clinics. This consistency increases the likelihood that value-based, risk-sharing arrangements will be successful for both payer and providers. The Affordable Care Act and other drivers of health care reform force health plans, ACOs, medical homes, and self-insured businesses to take on greater financial risk. Providers who can mitigate that risk bring these powerful decision-makers real value.

Patients: Patients benefit from the best of practices and care management efforts of MSO clinics and therapists. MSOs that measure outcomes and effectively manage patient care will quantitatively improve their functional outcomes and deliver care at a more reasonable cost. What patient wouldn’t appreciate that kind of value?


Success Factors and Challenges

For an MSO to be successful, the following critical factors should be in place:

  • Visionary Leaders. Practice owners must be change agents, big picture leaders who see the future of health care reform and have a vision for delivering value in a new health care world.
  • Trust. Practice owners must first and foremost trust and like each other.
  • Shared Values and Vision. Owners must display the same core principles and embrace a common “big picture” direction for the MSO.
  • Respect. Practice owners and their teams must respect the other practices and their teams.
  • Team. Everyone must view the other practices as their “partners,” “allies,” and “teammates.”
  • Collaboration. Practices must be willing to work in close collaboration with other practices.
  • Compromise. Practice owners will continue to make about 75-80 percent of decisions based on their own practice. However, 20-25 percent of activities will be based on MSO needs and opportunities.
  • Communication. Practice owners and MSO committee members must take the time to share information and listen.
  • Commit to Value. Real value is realized when the clinics work together to attain measurable, high value outcomes.
  • Embrace Risk Sharing. An MSO that delivers size, efficiencies, and excellent outcomes will be well positioned to create long-lasting, trusted partnerships with powerful decision-makers through risk-sharing arrangements.
mso-quote4 Challenges? There are plenty, but they are surmountable. The MSO requires visionary leadership and focused management teams at each practice to successfully guide their clinic teams during these times of change.
  • Resistance to Change. Practice owners who resist changing organizational design, systems, and people should not be part of an MSO. They will hold back the team.
  • Cost. There will be upfront and ongoing costs involved in building a successful MSO. You must obtain space, infrastructure, technology, and put a visionary leader in place.
  • Time. Practice owners and their leadership teams must devote time and effort to organizing the MSO and moving it forward.
  • Branding. Owners must decide how to brand the MSO relative to their practices.
  • Single Tax ID Health Plan Contracts. Practice owners must give up their own contracts and accept all health plan and ACO arrangements under the MSO TIN. The MSO must work with health plans to manage the challenges that accompany the TIN change.
  • Single Billing/EMR technology. For efficiencies, all practices must use a common billing and integrated EMR. Outcomes. Practice owners and team members should embrace an outcomes tool and use their outcomes in risk-sharing arrangements.
  • Care Management. If you engage in risk sharing, you must be able to manage that risk to achieve high-level outcomes and reduce total costs. This may involve new care models and focused management efforts.
  • Culture. The changes each practice must work through in collaboration, organization, staffing, systems, and care models will require a re-focused, “MSO Team” culture. In the words of Peter Drucker, business management expert, “Culture eats strategy for breakfast.”
Over the next several years, with health care reform, we will see clear winners and losers. Some practices will succeed. Some will fail. There is no denying that the health care market is changing and the industry is consolidating. Will the market powers find you appealing as a small independent practice? Is an MSO the right solution to position your practice for long-term success in a changing health care market? Only you can answer these questions, but one way or another, you must show the decision makers that you deliver proven value.

Jim Hoyme, PT, MBA, is a PPS member and one of the principal owners of Therapy Partners, Inc., in St. Paul, Minnesota. He can be reached at

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