This is not legal advice. Foundry PC is not a law firm.
The management fee is how value moves from the PC to the MSO, and therefore to your company and your investors. It's also the term regulators scrutinize most closely after the ownership structure itself. Here's how to think about it.
The three models
Flat fee. The PC pays the MSO a fixed amount per month for the defined services. Simple, easy to defend as fair market value if the number is tied to the actual cost and value of services, and doesn't fluctuate with clinical revenue. Downside: it doesn't scale automatically, so it needs periodic reset.
Cost-plus. The PC reimburses the MSO's actual costs of providing services plus a margin (commonly in the range of 10 to 30 percent depending on services and risk). Scales with the business, transparent, and generally viewed as the most defensible model because the fee is explicitly tied to services rendered.
Percentage of revenue or collections. The PC pays the MSO a percentage of net collections. Scales perfectly, easy to administer, and the most common model historically. Also the most scrutinized, because a fee that rises with clinical revenue can look like fee-splitting or like the MSO sharing in the professional fees of a physician.
Where percentage fees are restricted
Several states prohibit or limit fee arrangements where a non-licensed entity shares in professional fees, or treat percentage-based management fees as fee-splitting. The details vary and change, but states where percentage fees require particular care include New York, California, Illinois, Texas, and Florida in certain contexts. In some, a percentage fee is workable if it reflects fair market value for services and doesn't compensate for referrals; in others, counsel will steer you to flat or cost-plus.
Oregon's 2025 law adds another layer: an MSO fee structure that gives the MSO effective control over the professional entity's finances can itself be evidence of prohibited control.
The practical result: a single national percentage fee is increasingly hard to defend. Many multi-state structures now use cost-plus or a hybrid (flat base plus a cost-based variable component), with state riders where needed.
What "fair market value" means in practice
Fair market value means the fee is what an arm's-length PC would pay an unrelated MSO for the same services. To defend it, you need:
- A written description of the services the MSO actually provides
- A basis for the fee (cost buildup, market comparables, or a third-party valuation for larger structures)
- Periodic review, at least annually, and documentation of adjustments
- No component that varies with referrals, patient volume from a particular source, or anything that looks like payment for business generation
If an investor or acquirer asks "how did you set the fee," the answer should be a document, not a shrug.
Common mistakes
- Fee set to sweep 100 percent of PC profit. The PC should be able to show it retains something. A PC that is structurally insolvent every month looks like a shell.
- Fee changed by MSO unilaterally. Fee changes should be mutual and documented.
- Services list doesn't match reality. If the MSA says "billing support" and the MSO actually controls coding, the fee is defending the wrong thing.
- No true-up. Cost-plus fees drift when the MSO's costs change. Reconcile at least annually.
- Same fee in every state. States with fee-splitting sensitivity need their own analysis.
The startup version
For an early-stage company where the MSO is funding PC operations at a loss, the fee question is often paired with a working capital or line of credit agreement: the MSO advances funds to the PC, the PC repays from collections. Structure this carefully; an MSO that "owns" the PC's debt and can call it at will is another form of control.
How Foundry PC handles it
Foundry's document suite supports flat, cost-plus, and hybrid fee structures. Independent healthcare counsel performs a management-fee analysis per client rather than baking a number into the template, because the right structure depends on your states and your model. We flag percentage-fee states in the eligibility review before anything is drafted.
Book a 20-minute call if you're unsure whether your current fee structure would survive diligence.