A management services organization (“MSO”) can provide a variety of benefits, especially in the realm of legal compliance for medical professionals. One underutilized benefit is that an MSO can enable a compliant asset protection structure, which may otherwise be unavailable to a licensed medical professional.
An asset protection structure generally arranges legal ownership in a manner that insulates assets (including a business interest) from potential claims which arise against an individual. The sources of potential claims are innumerable, but a few common examples include divorce, malpractice, or other torts. The diagram below, discussed in greater detail in the previous post, represents a robust asset protection structure (APS) where ownership is shown in blue and cash flow is shown in green.
Now, instead of owning assets (i.e., business interests, securities, real estate, etc.) at an individual level (Bob), the assets are owned by a holding company. In turn, the majority of the holding company is owned by a specialized Trust, for which the original owner (Bob) can be a beneficiary and receive distributions of property and/or cash. Now Bob’s personal creditors cannot reach the assets because they are no longer his.
Potential Malpractice Claims Leave Medical Professionals Uniquely Vulnerable
While the asset protections structure in the diagram is extraordinarily effective for most individuals, it is often unavailable to medical professional because they are typically subject to regulations that restrict ownership. For example, if “Business, LLC” from the diagram engages in the practice of medicine and functions as a “Clinic,” then the corporate practice of medicine (“CPOM”) doctrine would exclusively limit ownership of the Clinic to persons with relevant medical licensure, which would exclude other business entities (including the holding company), and most trusts.
The unavailability of an asset protection structure is especially troubling because medical professionals are more vulnerable to potential claims than other business owners. For most business owners, an LLC can generally insulate their personal assets from the business’ creditors. However, an LLC cannot insulate an owner from activities they personally perform within the business, which is precarious for medical professionals because a Clinic usually revolves around their personal services and their oversight. In the event a medical professional is scrutinized for malpractice, nearly all of the medical professional’s personal assets are exposed since claims can be levied against the Clinic and/or the medical professional individually.
How can an MSO be Applied to an AP Structure?
While the CPOM may require a medical professional to own a Clinic individually, any of its operations which do not constitute the “practice of medicine” can be exported to an MSO. This can include activities such as buying/leasing medical equipment or office space, paying non-clinical staff, bookkeeping and accounting, billing and collecting, record-keeping and storage, patient and general administration, etc. The MSO can also own, and safeguard, the Clinic’s intellectual property.
As demonstrated in the diagram above, the MSO can be incorporated into an asset protection, since it will not be subject to the corporate practice of medicine doctrine, and the cash the MSO receives from the Clinic can reside within the APS away from the reach of creditors of the medical professional or the Clinic. While this may seem like a simple concept, various regulations come into play, and it is unlikely to be compliant without the assistance of an attorney who is well versed in both corporate law and healthcare law.