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’sDon’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 practiceThe 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 activitiesPay 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 personnelRequire 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 contractIncorporate 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 servicesA 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 expensesIf 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.

Tags: Corporate Practice of Medicine, Corporate Practice of Medicine Doctrine, CPOM
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Photo of James A. Robertson James A. Robertson

Partner and Practice Leader, Healthcare

Jim serves as trusted counsel to the entire healthcare sector. His practice spans the full spectrum of legal, regulatory, and corporate challenges facing healthcare entities.

With a deep technical command of reimbursement and payer strategy, Jim regularly represents…

Partner and Practice Leader, Healthcare

Jim serves as trusted counsel to the entire healthcare sector. His practice spans the full spectrum of legal, regulatory, and corporate challenges facing healthcare entities.

With a deep technical command of reimbursement and payer strategy, Jim regularly represents hospital systems and providers in high-stakes Medicare, Medicaid, and charity care subsidy matters. He possesses particular expertise in navigating disproportionate share hospital (DSH) and graduate medical education (GME) issues before state agencies and the federal Provider Reimbursement Review Board (PRRB). Jim further ensures the long-term sustainability of provider-payer relationships by negotiating complex Medicare Advantage and Managed Medicaid risk-sharing arrangements.

In the transactional arena, Jim provides comprehensive representation for mergers, acquisitions, joint ventures, and divestitures. He serves a diverse array of industry leaders, including for-profit and nonprofit hospital systems, academic medical centers, pharmaceutical companies, integrated delivery networks (IDNs), physician practices, and healthcare private equity funds. Jim is instrumental in the structural development of Clinically Integrated Networks (CINs), Accountable Care Organizations (ACOs), and Multiple Employer Welfare Arrangements (MEWAs), frequently securing necessary certifications from the New Jersey Department of Banking and Insurance (DOBI). His work encompasses the establishment and sale of individual and group practices, ambulatory surgery centers, nursing homes, and assisted living facilities, as well as the negotiation of executive contracts, recruitment initiatives, medical directorships, hospital department management, and office or equipment leases.

To mitigate operational risk, Jim guides clients through the development of robust corporate compliance programs and manages internal audits, government inquiries, and voluntary self-disclosures. His counsel ensures that provider arrangements satisfy the Stark Law, the federal Anti-Kickback Statute (AKS), and New Jersey’s Codey Law. He assists clients in seeking advisory opinions, obtaining Certificates of Need, and securing transaction approvals from the New Jersey Department of Health and the Attorney General under the Community Healthcare Asset Protection Act (CHAPA). His counsel ensures compliance with the Corporate Practice of Medicine (CPOM) doctrine and federal mandates including HIPAA, HITECH, the ACA, and Emergency Medical Treatment and Labor Act (EMTALA)—from drafting Business Associate Agreements (BAAs) to managing medical record retention and the physical or electronic storage of medical records.

Jim’s advocacy extends to medical staff matters, where he designs state-of-the-art bylaws and provides guidance on fair hearing requirements and strategic initiatives. Finally, he represents healthcare entities in business-critical litigation, including provider-payor disputes, restrictive covenant matters, and medical staff privileging hearings. By combining this granular knowledge of reimbursement and regulatory compliance with a veteran litigator’s perspective, Jim provides the strategic foresight necessary to navigate the administrative and operational hurdles of the modern healthcare landscape.

Results may vary depending on your particular facts and legal circumstances.

Contact information:

jrobertson@greenbaumlaw.com | 973.577.1784 | vCard | LinkedIn

For more information visit the Greenbaum, Rowe, Smith & Davis LLP website.

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