The Veterinary landscape has been significantly impacted by the growth of management service organizations (MSOs). While establishing an MSO allows non-veterinarians, including family members, to participate in a veterinary practice, maximizing the financial rewards of this business structure requires the advice and guidance of experienced veterinary lawyers.
Mahan Law is a premier veterinary practice representing veterinarians and other market participants in the veterinary space. Through a nationwide network of co-counsel, we provide informed representation to clients who are exploring veterinary management services organizations. We understand the structural complexities involved in MSOs and have extensive experience helping clients establish MSOs in local markets throughout the country.
By collaborating with financial professionals who understand the nuances of the veterinary space, we will work strategically to help you achieve your business objectives. When you become our client, you will have confidence, knowing that veterinary lawyers are in your corner.
What Are Management Service Organizations?
Most states require a veterinary practice to be owned by one (or more) licensed veterinarians; however, some states allow non-veterinarians to own practices directly, as long as patient care decisions are made by licensed veterinary professionals.
In states where practice ownership is restricted to licensed veterinarians, non-licensed individuals are permitted to own a management services organization (MSO), which is a separate and distinct legal entity from a veterinary practice. Potential non-veterinary MSO owners include:
- Members of management
- Family investors
Basically, an MSO provides certain administrative or management services. The flexibility of this structure provides a number of benefits:
- Family members can own the MSO and reap the financial rewards of the practice
- Veterinary owners can acquire additional practices through the MSO without assuming additional debt liability
- MSO investors can provide capital for practice acquisitions
- The profits generated by the practice and its book value represent a significant return on investment (ROI) for MSO owners
How Does an MSO Operate in the Veterinary Space?
The MSO’s involvement in the practice depends on factors such as the goals of the participants, the applicable state regulations MSOs and the practice of veterinary medicine.
Generally, an MSO may be involved in non-clinical aspects of the practice and assume a wide-range of administrative and management services, including:
- Professional management
- Financial accounting
- Billing and collections
- Human resources (hiring and leasing support staff to the practice)
- IT support
- Payor contracting services
The MSO will typically enter into long-term agreement to provide such services in exchange for a management fee. On the other hand, an MSO may contract to provide certain services on a fee-for-service basis.
In short, an MSO can provide overall management and administration, support services, facilities, staffing, equipment and supplies — all the tools a veterinary practice needs to operate, except for patient care. By handling the administrative minutiae of operating the business, MSOs allow veterinarians to focus on patient care and growing the practice.
In practice acquisitions, MSOs typically buy the seller’s office and clinical equipment, while launching a new practice may involve purchasing or leasing new space and equipment. In either scenario, the MSO assumes (1) all financial obligations for the equipment (e.g. maintenance, repair, replacement) and (2) responsibility for purchasing and supplying the practice with required office and clinical supplies.
In addition, the MSO can assume the building lease, including payment of rent and all other landlord relations. If the practice owns the real estate, the MSO can either act as the property manager or own the real estate and lease the premises to the practice.
The Pros and Cons of Management Service Organizations
An MSO offers a number of operational advantages, such as:
- Economy of scale
- Greater efficiency
- Higher level of services
The economy of scale and enhanced efficiency can be realized by providing administrative services and business operations to multiple practices. This gives an MSO increased purchasing power for office supplies and equipment as well as the ability to negotiate more favorable rates on employment-related insurance (e.g health coverage, workers’ compensation). In the end, the value of an MSO for investors is the ability to deliver efficient processes and professional business management across multiple locations.
There are disadvantages to maintenance service organizations worth noting. One is the layer of structural complexity that it adds to veterinary practice, as well as the additional costs (e.g. legal, accounting fees). Operating an MSO with one or more levels of management raises the potential of disputes, while structuring the sale of acquisition of a MSO-held veterinary practice involves a host of complications. Ultimately, the best way to protect your rights is to consult with the experienced legal team at Mahan Law.
Contact Our Experienced Veterinary Lawyers
If you are considering establishing or entering into an agreement with a management services organization, Mahan Law will provide you with informed representation and professional service. Our veterinary lawyers are well-versed in the rules and regulations governing MSOs and veterinary medicine throughout the nation. We have a proven history of helping our veterinary and non-veterinary clients achieve their business objectives. Please contact our office today to see how an MSO can help you capitalize on the opportunities in the veterinary space.