How to Build Your Multi-Jurisdictional Telemedicine Company in the US
A Crash Course on the MSO Friendly PC Model
So you’ve spotted a tricky healthcare problem, designed a solution, built (or bought) a platform, secured the domain and a chic new logo, worked with a clinician to design care protocols, and you’re ready to bring your healthcare innovation to consumers. Ready to roll, right?
This is the point at which I often get a phone call that goes something like this:
Founder: “My doctors are going to start seeing patients on the first of next month. I need to get everything set up from a legal standpoint. We’re going to change the world!”
Me: “Amazing! Next month, you say? In which states do you plan to operate?”
Founder: “We’ve set up a social media marketing campaign and have spent a boatload to really blow this out—we’re going to be expanding immediately into all 50 states.”
Me: “What is your budget?”
Founder: “We’re bootstrapping. I think we just need a contract for our clinicians and a review of the privacy policy on the web site.”
What comes next is a tough discussion for the unprepared entrepreneur. Delays and expenses can threaten potential investment opportunities, create cash flow and budget problems, and even force the company to pivot to a new business model.
We don’t want to see that happen to you, so here’s our crash course on the corporate structure of the “MSO-Friendly PC Model”, and the time and resources that companies invest to implement it.
This article outlines the basics of the model and considerations for those contemplating building a virtual care network. It also contains a simple graphic of the model, which can be helpful for visual learners (like me).
OK, let’s demystify this thing a bit.
Why Use an MSO-Friendly PC Model?
Companies leverage the MSO-Friendly PC model to create scalable multi-jurisdictional telemedicine companies. The model exists because of something called the “Corporate Practice of Medicine” or CPOM. If you’re curious about the nuts and bolts of the doctrine, the American Bar Association wrote a comprehensive article on the topic in 2020 you may want to read before you get to the meat of this post. The TL;DR is that CPOM was created to prevent corporate interests from interfering with a physician’s independent clinical judgment. Practically, this means that in states that follow the CPOM, non-licensed individuals cannot own, manage, or invest in companies that hold themselves out as providing clinical care.
Depending on what kind of telehealth company you’re creating, you may also run into the Corporate Practice of Dentistry (CPOD), the Corporate Practice of Veterinary Medicine (CPOVM) or even the Corporate Practice of Therapy (CPOT). The intent of these doctrines, which vary in applicability from state to state, is similar–to prevent corporate interests from influencing the administration of patient care.
The MSO-Friendly PC model is constructed to preserve the separation of patient care from corporate interest, while enabling non-licensed individuals and corporations to participate in growing and scaling healthcare companies.
Every single telemedicine provider you can name is structured using this model.
So, let’s look under the hood. What IS it?
The Three Primary Participants in an MSO-Friendly PC Model
The MSO-Friendly PC Model has three primary participants: the MSO, the Physician Owner or Physician Executive, and the “Friendly” professional corporation (PC). In this section, I describe the roles of each of these entities, and their role in a properly constructed multi-jurisdictional telemedicine company.
The MSO
MSO stands for “Management Services Organization”. You may also hear this called an “ASO”—this stands for Administrative Services Organization. This company provides technology and administrative, management, operational, and financial support to the PCs that are responsible for the clinical care of patients.
The MSO enters into a management services agreement (MSA) with the Friendly PC. That agreement generally obligates the MSO to provide non-clinical infrastructure to support the business in exchange for a management fee. This infrastructure can include things like the telehealth platform, billing support, tax and accounting, EMR, and non-clinical staffing.
The MSO also generally owns the “brand” and licenses that brand to the PCs as part of their services. This ties the MSO and the PCs together from a marketing perspective.
To the consumer, it appears there is only one company—in fact, there are at least two (depending on which jurisdictions the company chooses to operate in), including the Friendly PC.
The MSO’s revenue is often completely dependent on the revenue of one or more Friendly PCs.
The Friendly PC
The PC is an important piece of this model, and is required for most multi-jurisdictional telemedicine models because of the CPOM. The PC is the entity through which all patient care is provided. It is empowered to set clinical standards, hire and supervise licensed providers, and to bill for clinical services.
In national models, there are multiple Friendly PCs operating in various states, each of which has an MSA with the MSO.
What makes these PCs so “friendly”? The MSO is involved only in the delivery of the administrative and management services, but because the MSO’s income and profitability are highly dependent upon the success of the PC (more on that later), the proper functioning of the PC is of utmost importance to the MSO. For this reason, the PC and the MSO work together closely to help the PC provide a high-quality consumer experience and maintain a profitable business.
The Physician Owner
This is the equity owner of the Friendly PC, sometimes referred to as the “Physician Executive”. In general, a non-physician cannot own a medical PC. So, this physician is a requisite part of the multi-jurisdictional telemedicine model.
The Physician Owner plays a vital role in developing clinical protocols, supervising, hiring and disciplining clinical staff, monitoring quality of care for the PC, and in some cases, providing care to patients.
If the physician has relevant expertise, she may also provide consulting services to the MSO. For some companies, the Friendly Physician is integral to the development of the telehealth platform and the patient experience of the platform offered by the MSO to consumers on behalf of the PC. If the company’s founder is a physician, she may own both the MSO and the PC!
How the Three MSO Participants Fit Together
A very basic structure looks something like this:
The Physician Owner is the sole shareholder of the Friendly PC, and the MSO contracts with the PC to provide management services in exchange for a fee that reflects the value of the services provided–lawyers will call this “fair market value”.
The MSO, Physician Owner, and Friendly PC engage in a tri-party agreement regarding their “friendly” relationship. This agreement should be carefully crafted to comply with the relevant state laws that apply to it. Some states, like California, are attempting to legislate against the use of these agreements, so it’s important to keep up with the latest developments.
Structuring a Telehealth Network That Scales
Part of what makes building a multi-jurisdictional telemedicine company difficult is the patchwork of state laws applicable to the model. In this article, I address only those impacting the corporate structure, but suffice it to say there are many more (e.g., scope of practice, consent, privacy, reimbursement, tele-prescribing, asynchronous telemedicine, etc.).
As it relates to the corporate structure, one goal to keep in mind is creating a structure that is compliant but also minimizes the administrative burden of managing a large number of corporate entities.
One aspect of building the corporate map, for example, is to identify the appropriate corporate entity required in each of the states in which your telehealth company plans to operate. Some states require a domestic PC—that is, a corporation formed in that state. Other states permit another state’s domestic PC to be registered in their state—this is called a “foreign entity”.
Once the map is identified, and you begin executing on registrations to cement the corporate structure, the next step is designing a compliant revenue model, which depicts the flow of money between the corporate entities.
It’s important to get this piece right because failure to properly collect and distribute funds can implicate both state CPOM rules and fee-splitting regulations at the state and federal level. With the proper corporate structure, funds flow, and foundational agreements in place for your initial state implementation, scaling into multiple jurisdictions should not require an overhaul of the model, but merely additional extensions of the base structure.
What’s the Timeline and Lift for an MSO-Friendly PC Model?
The MSO-Friendly PC model’s corporate setup can take anywhere from 1-3 months, depending on the scope of the network (e.g., one state launch vs. 5-state launch) and the responsiveness of state agencies processing the corporate registrations.
Keep in mind, however, that implementing the model in a compliant form requires much more than creating the underlying corporate structure. Like any other healthcare business, companies need to address compliance, revenue model, employment, technology, insurance, vendor/fulfillment, accounting and finance, marketing, and other considerations.
Soup to nuts rollouts can take up to a year, so entrepreneurs should factor in at least 6 months for a beta launch.
One way to expedite rollout is for companies to assign a resource to partner with outside advisors (e.g., lawyers, accountants, and consultants). With lots of moving pieces, an internal project manager can shave weeks off a launch by collecting information, turning around documents with comments, aligning on business model, etc.
Also, companies should not underestimate the importance of securing the relationship with the Physician Owner. This process, which requires education, collaboration, and negotiation of several key contracts, can delay implementation for weeks or months.
Are you thinking about building a multi-state telemedicine or digital health company?
Many digital health platform companies are evolving into digital clinics–we’re seeing dozens of companies each month in need of a compliant model to bring new clinical solutions to the market. If you are looking to add a clinical care component to your digital health platform, I’d love to hear more about your journey.
What did I miss here? What other insights would be valuable for you? Click here to email me.
And if you’re ready to add additional services, check out this article on integrating lab services into your telemedicine model.