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Building Your Own MSO: Fees, Profits Interests and the New State Laws
More independent concierge physicians are splitting their business in two: a medical practice that delivers care and a physician-owned management services organization that runs everything else. Done well, the split can reward key staff and make a future sale cleaner. Done carelessly, it can create a fee-splitting problem, a missed state filing or a tax bill. This brief covers what to get right first.
New in October 2026. A companion to Brief No. 22, which covers outside MSOs and private equity. Prompted by an MSO session at CMF 2026 and checked against statutes, official guidance and law firm trackers.
Start here: the questions this brief answers
Tap a question for the short answer, then jump to the evidence.
A physician-owned MSO separates the clinical practice from the business functions that support it, under a written management services agreement and a management fee. Get the fee right first: percentage-of-revenue fees are allowed in some states and restricted in others, and any method should track fair market value for the services actually provided. Next, check your state’s rules. Since 2023, a growing list of states require notice of health care transactions, and Oregon now limits MSO control of medical groups. Profits interests in an MSO taxed as a partnership can give non-owner staff a share of future growth, under IRS safe-harbor rules with real conditions. Treat this as a list of questions for your attorney and tax adviser, not a template.
What is a physician-owned MSO, and why would a concierge practice form one?
It is a separate company, owned by the physician, that provides nonclinical management services to the practice for a fee. Physicians form them to organize the business, share upside with non-owner staff, and prepare for a possible sale or investment. Brief No. 22 covers MSOs owned by outside investors.
Go to the full answer ↓How should the management fee be set?
The common methods are a percentage of practice revenue, a fixed fee, and cost plus a markup. Some states restrict percentage fees under fee-splitting rules. Whatever the method, document what the MSO actually does and support the amount with an independent valuation when the stakes justify it.
Go to the full answer ↓Do I have to tell my state about the MSO?
Possibly. One law firm tracker lists 16 states with health care transaction notification laws, and some, such as New York and California, name MSOs directly. Thresholds vary widely, so a small practice may fall below them. Check with counsel before forming or selling.
Go to the full answer ↓Can I give my practice manager or an associate a share of the business?
Often the MSO is where that happens, because many states bar non-physicians from owning the medical practice. IRS guidance treats a properly structured profits interest in a partnership as not taxable on grant, subject to conditions and exceptions.
Go to the full answer ↓What will a buyer look at?
Membership agreements, the management fee, HIPAA practices including texting, patient credit balances, exclusion screening, referral rules, telehealth licensing and real estate leases. Part 5 turns these into a readiness checklist.
Go to the full answer ↓Two companies, one physician
CMT Research Brief No. 22 looked at management services organizations owned by outside investors. This is its do-it-yourself companion: the physician-owned MSO, built by an independent concierge physician for their own practice.
The idea is simple on paper. At CMF 2026, an MSO attorney described a physician at the top of two entities. The medical practice employs the clinicians, pays the physician’s salary and keeps the clinical assets. The MSO provides nonclinical management under a written agreement, and the management fee the practice pays is the MSO’s revenue. The physician can take distributions from the MSO.1 Practice Insight The presenter warned that the clean diagram hides real tax, contract and state-law work, and urged physicians to involve accountants and tax counsel before moving any assets.1
What problem is the MSO solving? Physicians at the session gave several answers: rewarding a practice manager who cannot own a medical practice, separating the business so it can be valued, preparing for a buyer. If the honest answer is “someone told me to,” the second entity may add cost and filings without adding much value.
The fee decides most of what follows
The management fee is how money moves from the practice to the MSO. It matters twice: once for compliance now, and again later, because an investor who buys into the MSO is buying that fee stream.1
| Fee method | How it works | Main caution | Evidence type |
|---|---|---|---|
| Percentage of practice revenue | The MSO receives an agreed share of practice collections | Permitted in some states and restricted in others under fee-splitting rules (see the state examples below)1, | Practice Insight |
| Fixed monthly or annual fee | A set amount for a defined scope of services | Needs review as staff, locations, services and overhead change, or it drifts away from value1 | Practice Insight |
| Cost plus a markup | The practice reimburses MSO costs plus a percentage | The markup has to be supportable; the presenter suggested a third-party health care appraiser1 | Practice Insight |
| Fixed fee plus pass-through costs | A set fee for management, with actual costs such as rent or software billed at cost | CMT reading: a common variation that some counsel prefer, but it still needs a written scope and periodic review | Practice Insight |
Fee-splitting law is state law, and it differs more than physicians expect. A few examples, from sources CMT opened:
New York
The Education Law bars arrangements in which payment for space, facilities, equipment or personnel services is a percentage of, or otherwise dependent on, the licensee’s income. In 2014 an appellate court declared a practice’s management contracts void as unlawful fee splitting after finding they were a pretext for the manager to take a third of profits.6 Policy and Law
California
Business and Professions Code section 650 bars paying for referrals, but says a percentage-based payment for other services is not unlawful if it is commensurate with the value of the services furnished or the fair rental value of what is provided.7 Policy and Law
Florida
The medical practice act lists split-fee arrangements for referred patients as grounds for discipline.8 In a 1990 declaratory statement, the Board of Medicine said a management company paid a percentage of revenue was not necessarily illegal by itself, but found parts of that deal tied to patient referrals appeared to violate the statute.9 Policy and Law Later rulings may differ; ask Florida counsel.
Other states
One law firm’s review points to fee-splitting or patient-solicitation provisions in Arizona, Texas and Washington as well, and recommends a third-party fair market value appraisal to support MSO fees.5 Practice Insight
Where Medicare or other federal program referrals are involved, federal rules add their own vocabulary. The physician self-referral law, known as Stark, covers referrals for designated health services such as clinical laboratory and imaging services when the physician has a financial relationship with the entity.10 Its regulations define a commercially reasonable arrangement as one that furthers a legitimate business purpose and is sensible given the parties’ size, type, scope and specialty, and they add that an arrangement can be commercially reasonable even if it does not make a profit. Fair market value for office space is the value in an arm’s-length deal for general commercial purposes, without extra value for the referrals either side could send.11,
Even in a state that allows percentage fees, a fee that tracks the value of the work done is easier to defend and easier for a buyer to underwrite. Write down what the MSO does, price that work, and revisit both every year. This is editorial reasoning, not legal advice.
States are watching MSO and ownership deals
The MSO presenter at CMF 2026 called state oversight a growing area of attention, driven largely by private equity.1 The statutes bear that out. Most target large transactions, but several now name MSOs or physician practices directly, and thresholds vary widely.
New York’s material transactions law takes effect. Covered health care entities include physician practices and MSOs that provide all or substantially all administrative services to a practice. Notice is due at least 30 days before closing when a deal adds $25 million or more in in-state gross revenue.13 Policy and Law
Minnesota enacts its health care transactions law. Entities averaging at least $80 million a year must notify the attorney general and the commissioner of health at least 60 days before completion; group practices of two or more providers are covered entities, and a separate section reaches smaller deals from $10 million to $80 million.14 Policy and Law
California’s Office of Health Care Affordability begins requiring 90 days’ advance notice from regulated health care entities.15 Policy and Law
Indiana requires notice to the attorney general at least 90 days before closing for mergers and acquisitions involving an Indiana entity when at least one party has $10 million or more in total assets.16 Policy and Law
Massachusetts signs H.5159, extending notice of material change to deals involving significant equity investors, sale-leasebacks and other new categories, and expanding reporting on MSO relationships. Notice remains due 60 days before closing.17 Policy and Law
Oregon signs SB 951. Limits on noncompete, nondisclosure and nondisparagement agreements take effect at once.4 Policy and Law
California AB 1415 takes effect, adding MSOs that provide rate negotiation or revenue cycle management, along with private equity groups and hedge funds, to the entities that must notify OHCA.15 Oregon’s MSO ownership and control limits apply to entities formed, sold or transferred on or after June 9, 2025.4 Policy and Law
Maine (January 1) and Vermont (March 1) transaction notice laws are listed as taking effect.3 Policy and Law
Oregon’s MSO limits reach pre-existing MSOs and medical groups that were not sold or transferred.4 Policy and Law
Washington’s statute requires the parties to a merger, acquisition or contracting affiliation among hospitals, hospital systems or provider organizations to give the attorney general written notice at least 60 days before the change.18 Policy and Law
Oregon matters most for a do-it-yourself MSO because it reaches control, not only notice. Under SB 951, an MSO and its agents may not own or control a majority of a medical group it manages, may not serve as director, officer, employee or contractor of both, and may not hold final say over hiring licensees, schedules, billing policies or payer contracts. There are exceptions, including one for a medical group that itself acts as an MSO or owns a majority of one, and one for owners with small or “incidental” stakes, a term the law does not define.4,
Ask counsel two questions. Does forming the MSO, moving assets or contracts into it, or later selling part of it count as a reportable transaction in my state? And do any rules on who may control a medical practice apply when I own both sides? The answer for a solo concierge practice may well be no, since many thresholds are set far above its size. It should still be a documented no.
Profits interests for the people who cannot own the practice
Many concierge practices depend on a practice manager or an associate physician who will never buy into the medical practice. In states that limit practice ownership to licensed physicians, a manager could not even if they wanted to. The CMF 2026 presenter proposed profits interests in the MSO as the answer: a share of future growth, including sale proceeds, without a large check up front.1
The federal tax basis for that idea is narrow and specific. IRS Revenue Procedure 93-27 says the IRS will not treat receipt of a profits interest, received for services to a partnership, as a taxable event. A profits interest is any partnership interest other than a capital interest, meaning one that would pay the holder nothing if the partnership sold its assets at fair market value and liquidated on the grant date. Revenue Procedure 2001-43 extends that treatment to interests that are not yet vested, if the holder is treated as a partner from the grant date and no one deducts the interest’s value.20 Policy and Law The safe harbor does not apply to an interest tied to a substantially certain and predictable stream of income, one disposed of within two years, or a limited partnership interest in a publicly traded partnership.21 Practice Insight
Confirm the MSO’s tax status
This guidance concerns partnership interests. CMT reading: an MSO taxed as a corporation would need a different incentive tool, so settle the entity choice with a tax adviser first.
Value the MSO on the grant date
The interest only qualifies if it would be worth nothing in a liquidation that day. That usually means a documented valuation and a threshold above current value.
Decide who and why
The session gave associate physicians, executives and office managers as examples.1 Write down what each award is meant to reward.
Set vesting
The presenter suggested service-based vesting, such as an award after two years, and performance-based tranches tied to MSO profitability.1
Paper it and follow it
An operating agreement amendment, a grant agreement and consistent tax reporting from the grant date onward. Rev. Proc. 2001-43 says no section 83(b) election is required when its conditions are met; many advisers still discuss a protective filing.20
Revisit before any sale
Profits interests change the cap table. A buyer will ask who holds what and on what terms.
The MSO can be where a practice shares its future with the people who built it, as long as the paperwork matches the promise.
The same session raised real estate. When a physician owns the building, the lease between their own entities can be an afterthought. The presenter argued a future buyer will value the property and the practice separately and will care whether rent is durable, recommending fair-market-value rent, a long term (10 to 15 years in the presenter’s view), an escalator and a clear split of taxes, insurance and upkeep.1 Practice Insight Federal rules define fair market value for office space without regard to referral value.11 CMT reading: get an independent rent opinion and map the landlord structure with counsel rather than copying a template from a conference talk.
What a buyer will check, and a readiness tool
The presenter’s advice was to clean up early, years before a sale, because problems found in a buyer’s diligence reduce value or stall a deal.1 These were the areas named, with the sources CMT checked.
The session warned against language that looks like insurance-style risk.1 CMT Research Brief No. 44 covers that question.
The presenter said concierge practices often overlook how protected health information travels by text and app, even outside insurance billing.1 CMT Research Brief No. 36 covers cybersecurity.
Small refunds owed to patients can grow when state deadlines, interest and penalties apply, the presenter said.1 Rules vary by state.
OIG says anyone who hires an individual or entity on its exclusion list may face civil monetary penalties, and that health care entities should routinely check new hires and current employees, confirming matches by identifier and keeping records of each search.22 Policy and Law
Financial relationships with entities that furnish designated health services need an exception.10 Policy and Law
Named by the presenter for practices that see patients across state lines or use NPs and PAs.1 CMT Research Brief No. 47 covers licensing.
MSO readiness checklist
Check what is true today. This is a discussion aid for meetings with your attorney and tax adviser. It does not tell you whether your structure is lawful.
Fee method question finder
CMT’s Media Desk reports that corporate-affiliated membership practices grew about 576% from 2018 to 2023 in the Health Affairs data (membership medicine, concierge and DPC combined; not a concierge-only figure).23 Population Data
CMT reading: Outside ownership is growing fast. A physician-owned MSO is one way to get scale while keeping control.
CMT original
Know your state
Fee-splitting, corporate practice and transaction-notice rules decide what your MSO may look like. Start there, with counsel.
Build the fee on value
Write down what the MSO does, price that work with support, and review it every year.
Lead with the team
If the MSO exists to share the future with non-owners, tell them how it works and keep the promise in writing.
How this brief was built
This brief began with notes from an MSO formation session at the Concierge Medicine Forum 2026 (CMF 2026), summarized by AI note-taking software and reviewed by CMT editors. The presenter is not named, and the session is cited only for what was said, labeled Practice Insight. CMT then checked the legal points against primary and secondary sources opened in October 2026: state statutes and official pages (Washington, Minnesota, New York, Florida, California), a New York appellate decision, a Florida Board of Medicine declaratory statement, IRS Revenue Procedure 2001-43, HHS OIG exclusion guidance, CMS physician self-referral materials and the federal definitions at 42 CFR 411.351. Where CMT relied on law firm summaries or trackers (Oregon, California AB 1415, Indiana, Massachusetts, the multistate list), the reference says so.
Concierge medicine and direct primary care (DPC) were kept separate. The only practice-count figure in this brief covers concierge and DPC practices combined and is labeled that way. No DPC-only data are used. The diagram, timeline and tools are CMT editorial aids, not legal, tax or valuation advice.
How to read the evidence types
Every key finding is labeled by evidence type. Labels describe the type of evidence, not its value. Each type answers different questions. Funding is disclosed on every source.
Randomized trials and systematic reviews.Best for cause and effect.
Large observational studies and government data.Best for trends at scale.
Surveys, smaller studies and expert consensus.Best for real-world experience.
Company-sponsored or company-reported data that is not peer-reviewed.Best for early signals and operating data.
Statutes, regulation and official guidance.Best for what is required.
What we don't know
- How many concierge practices operate a physician-owned MSO, and which fee methods they use. No public dataset tracks this.
- Whether state transaction-notice thresholds will fall low enough to reach most single-physician practices. Several laws are new and their rules are still being written.
- How Oregon will apply SB 951’s dual-role and “incidental” ownership language to a physician who owns both the practice and the MSO.
- Which state requires a separate registration for third-party billing companies. The CMF 2026 presenter raised it, and CMT did not confirm a specific state statute for this brief.
- Whether moving staff into an MSO changes what patients experience. Attendees at the session disagreed, and no study CMT found measures it.
How to cite this brief
External review: this brief has not yet been reviewed by an outside expert. When review is complete, the reviewer is credited by name above with any conflicts of interest, and the version number is updated. Reviewers check accuracy and fairness; CMT is responsible for the final content.
Corrections policy: when an error is identified, CMT corrects it in the open and updates the version number above. Send corrections to the editor through conciergemedicinetoday.net.
Related CMT Research Briefs
References
- Concierge Medicine Today. Concierge Medicine Forum 2026 (CMF 2026), October 2026: MSO formation session and audience discussion, recorded October 16, 2026, summarized by AI note-taking software and reviewed by CMT editors. Presenter not named; statements are the presenter's own assertions, not verified findings or legal advice. CMT original; unpublished notes. conciergemedicinetoday.netFunding: Concierge Medicine Today (organizer of the Forum and publisher of this brief; the event is supported by attendee registration and exhibitor fees). CMT original
- Zhu JM, Marsh T, Huntington A, Polsky D, Song Z. Growth in number of practices and clinicians participating in concierge and direct primary care, 2018-23. Health Affairs. December 2025. doi:10.1377/hlthaff.2025.00656. www.healthaffairs.orgFunding: mixed: federal (Agency for Healthcare Research and Quality, R01HS029467) and foundation (Commonwealth Fund; NIHCM Foundation)
- Wilson Sonsini Goodrich & Rosati. State Healthcare Transaction Notification Laws Resource (state list with statute and rule links; most recent linked alert August 13, 2026). Accessed October 2026. www.wsgr.comFunding: not stated (law firm resource)
- Romney AD, Maughn RD, Pakzad E. Oregon SB 951 restricts corporate medical practice. Davis Wright Tremaine LLP. June 13, 2025. www.dwt.comFunding: not stated (law firm commentary)
- Harris Sliwoski LLP. Fee splitting and ketamine clinics: doctors and MSOs beware (Psychedelics Law Blog; undated). Law firm commentary. harris-sliwoski.comFunding: not stated (law firm commentary)
- South Shore Neurologic Associates, P.C. v Mobile Health Management Services, Inc., 121 AD3d 881 (2d Dept 2014), 2014 NY Slip Op 06963. New York State Unified Court System, Law Reporting Bureau. October 15, 2014. www.nycourts.govFunding: government (New York court decision)
- California Business and Professions Code, section 650 (2018 edition as published by Justia). Check the current edition before relying on it. law.justia.comFunding: not stated (public statute as republished by Justia, a free legal information site)
- Florida Statutes, section 458.331(1)(i): grounds for disciplinary action (split-fee arrangements). 2015 Florida Statutes, Florida Senate. Check the current edition before relying on it. flsenate.govFunding: government (Florida Legislature; public statute)
- Florida Board of Medicine. In re: Petition for Declaratory Statement of Joseph M. Zeterberg, M.D. (management company arrangement under section 458.331(1)(i)). Final order following February 2, 1990 hearing. Florida Department of Health. www.floridahealth.govFunding: government (Florida Board of Medicine order)
- Centers for Medicare & Medicaid Services. Physician Self-Referral (overview of section 1877 of the Social Security Act and rulemaking history). Last modified February 9, 2026. www.cms.govFunding: federal (Centers for Medicare & Medicaid Services publication)
- Code of Federal Regulations, 42 CFR 411.351: Definitions (commercially reasonable; fair market value, including rental of office space). Legal Information Institute, Cornell Law School. www.law.cornell.eduFunding: federal regulation (as republished by the Legal Information Institute, Cornell Law School)
- Centers for Medicare & Medicaid Services. Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations. Final rule. Federal Register 85 FR 77492. December 2, 2020 (effective January 19, 2021). www.federalregister.govFunding: federal (Centers for Medicare & Medicaid Services rulemaking)
- New York State Department of Health. Public Health Law Article 45-A, Material Transactions: frequently asked questions. Accessed October 2026. healthweb-back.health.ny.govFunding: government (New York State Department of Health publication)
- Minnesota Statutes, section 145D.01: Health care transactions (history: 2023 c 66 s 2; 2024 c 85 s 34; 2024 c 127 art 57 s 46). Office of the Revisor of Statutes. www.revisor.mn.govFunding: government (Minnesota Office of the Revisor of Statutes; public statute)
- Marblestone C, Shalom AB. California AB 1415 signed: enhanced health care transactions scrutiny for weary investors. Foley & Lardner LLP. October 22, 2025. www.foley.comFunding: not stated (law firm commentary)
- Greis JS, Radovic N. Indiana: new law requires written notice of mergers or acquisitions of healthcare entities (Senate Enrolled Act No. 9). Benesch, Friedlander, Coplan & Aronoff LLP. March 25, 2024. beneschlaw.comFunding: not stated (law firm commentary)
- Shalom AB, Vernaglia LW, Meyer I, Organ SA. Massachusetts: new year, new law. Governor signs An Act enhancing the market review process (House Bill No. 5159). Foley & Lardner LLP. January 14, 2025. www.foley.comFunding: not stated (law firm commentary)
- Revised Code of Washington, section 19.390.030: Notice of material change (2023 archive edition). Washington State Legislature. lawfilesext.leg.wa.govFunding: government (Washington State Legislature; public statute)
- Keetch C, Stewart K. Oregon law restricts common management service organization and professional entity structure. Mintz. June 20, 2025. www.mintz.comFunding: not stated (law firm commentary)
- Internal Revenue Service. Revenue Procedure 2001-43: clarification of Rev. Proc. 93-27 for substantially nonvested profits interests. Internal Revenue Bulletin 2001-34. www.irs.govFunding: federal (Internal Revenue Service publication)
- Scofield BW, Martin J. CPE: what to know about profits interest. Today's CPA (Texas Society of CPAs), July/August 2025. July 3, 2025. www.tx.cpaFunding: not stated (published by the Texas Society of CPAs in its member magazine)
- HHS Office of Inspector General. Exclusions: tips for checking the List of Excluded Individuals/Entities (LEIE). Accessed October 2026. oig.hhs.govFunding: federal (HHS Office of Inspector General publication)
- Concierge Medicine Today. Media Desk: quotes from the Editor-in-Chief, FAQs and data. Accessed October 2026. conciergemedicinetoday.netFunding: Concierge Medicine Today (self-published; no outside funder) CMT original
Educational and informational only. This CMT Research Brief does not constitute medical, legal, tax, financial, accounting or other professional advice, and it does not create a professional relationship of any kind. Statements about laws, regulations, tax rules and payer policies are general, may not reflect the rules in your state, and can change after publication. Consult a qualified attorney, accountant, tax adviser, compliance professional or licensed clinician before acting on anything here.
Independence. Concierge Medicine Today is an independent publication. It does not accept payment for favorable coverage, and it does not favor one practice model over another. Company names and products are mentioned for context only and are not endorsements. Funding is disclosed for every source in the reference list.
Accuracy. CMT verifies figures against their original or best available sources at the time of publication. Where a figure is an estimate, an inference or a company-reported number, the brief says so. This content is not without possible error or omission.
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