In the wake of the New Jersey Supreme Court’s 2017 decision in Allstate Insurance Company v. Northfield Medical Center, P.C., management services organizations (MSOs), physicians, private equity funds, and practicing healthcare attorneys should keep the following “do’s and don’ts” in mind when structuring their MSO arrangements to comply with New Jersey corporate practice of medicine (CPOM) rules:
| Do’s | Don’ts |
| Allocate the majority of shares and/or voting rights in the medical practice to the plenary licensed physician-owner(s) | Allocate more than a minority of shares or voting rights to any limited licensed professionals and never to an unlicensed individual |
| Require the physician-owner(s) to contribute start-up capital to the medical practice | The management contract should not contain a provision allowing the termination and replacement of the physician-owner in the event of a conflict of interest between proper medical judgment and cost-containment |
| Clearly delineate the roles between the physician-owner’s clinical activities and the management company’s administrative activities | Pay all remaining medical practice profits after expenses to the management company in exchange for the provision of management services, leased space, and leased equipment |
| Physician-owner(s) should participate in or oversee day-to-day patient care and supervision of clinical personnel | Require the physician-owner of the medical practice to pre-sign undated documents or certificates which permit physician’s removal from the practice |
| Physician-owner(s) should retain the right to terminate the management contract | Incorporate a “break fee” in the management agreement, space rental, or equipment lease which is intended to penalize the medical practice’s physician-owner for breaking the management agreement or lease |
| The medical practice must pay fair market value for management services | A management company should not make above-market loans to a medical practice |
| Monies earned from the provision of patient services should be kept within the medical practice and used to pay salaries, bills, and other medical practice expenses | If possible, a medical practice should not contract with the management company that also leases space and equipment to the medical practice |
By following these simple do’s and don’ts the ownership, control, and direction of a medical practice will stay in the hands of the plenary licensed physician-owner, giving the MSO structure the greatest chance of being upheld by a court if ever challenged.