What Is a Management Services Agreement and What Must It Include?
TL;DR — Key Takeaways A management services agreement (MSA) is the contract between a management services organization (MSO) and a professional medical corporation (PC). It governs the non-clinical services the MSO provides and how it gets paid. The MSA must respect California’s Corporate Practice of Medicine doctrine. The MSO cannot control clinical decisions, regardless of what the contract says. Compensation must be set at fair market value. Fee structures that look like a percentage of medical revenue often trigger fee-splitting concerns under BPC § 650. After SB 351 (effective January 1, 2026), MSAs involving private equity or hedge fund-backed MSOs cannot include certain non-compete and non-disparagement clauses, and those provisions are statutorily void. An MSA without an MSO is just a service contract. The terms are most often referred to as MSA when describing the friendly PC structure used to comply with CPOM. Full Draft What Is the Difference Between an MSO and a Management Services Agreement? An MSO is the entity. A management services agreement is the contract. The MSO is a separate corporate entity, typically an LLC, that provides non-clinical services to a medical practice. It can be owned by anyone — physicians, non-physicians, investors, private equity. The MSA is the document that defines what the MSO does, what it charges, and how it operates within California’s corporate practice constraints. Together, the MSO and MSA form the friendly PC structure. The professional medical corporation (PC) holds the medical license and employs the clinicians. The MSO handles the rest. The MSA is the legal glue that connects them. What Clauses Must a Management Services Agreement Include in California? A California MSA generally addresses several core categories. Skipping any of them creates regulatory or contractual gaps. Scope of services. A detailed list of the non-clinical services the MSO will provide. Common items: billing and collections, accounting, payroll, HR, marketing, IT and EHR support, supply chain, real estate and equipment leasing, scheduling, regulatory compliance support, and credentialing. The list should be specific. “All necessary management services” is too vague. Compensation. How the MSO is paid. Fair market value compensation is required. Common structures include flat monthly fees, time-and-materials billing, fixed fees per service category, and hybrid arrangements. Percentage-of-revenue fees draw scrutiny and require careful structuring. Term and termination. Initial term, renewal, and termination rights for cause and without cause. Restrictive termination provisions can be problematic when they create an effective lock-in. Reservation of clinical authority. Language reserving exclusive control over clinical decisions to the PC and its physicians. This is the CPOM compliance backbone of the agreement. Records and ownership. The PC owns the medical records. The MSO does not have ownership rights in patient files, charts, or clinical data. Indemnification, insurance, and liability allocation. Standard commercial provisions, allocated to reflect each party’s role. Compliance representations. Representations about CPOM, fee-splitting, anti-kickback, HIPAA, and any applicable state and federal healthcare laws. How Should MSO Management Fees Be Structured to Avoid Fee-Splitting? California Business and Professions Code § 650 prohibits splitting professional fees. Compensation arrangements between MSOs and medical practices must be structured to avoid characterizing the MSO’s payment as a share of professional fees. Safer fee structures include flat monthly fees set at fair market value (FMV) for the services delivered, fee structures tied to operational metrics rather than medical revenue (square footage of space provided, number of full-time-equivalent staff, hours of services rendered), and time-and-materials billing for services with documented hourly rates. Riskier structures include flat percentages of gross revenue, percentages of net medical income, and any compensation that varies with patient volume or referrals. These don’t automatically violate § 650, but they require detailed FMV justification and careful drafting. An FMV opinion from a qualified valuation firm is the standard defense. The opinion documents that the management fee corresponds to the actual market value of the non-clinical services, not a share of medical practice profits. [VERIFY: confirm BPC § 650 current text and recent enforcement examples.] Can an MSO Take a Percentage of Medical Revenue in California? Possible but risky. California has not categorically banned percentage-of-revenue management fees, but courts and regulators have scrutinized them under BPC § 650, and practitioners typically avoid them where alternatives exist. Where percentage fees are used, the structure should pass the safe harbor analysis: the percentage must reflect FMV of the services actually provided, the services must be genuine and documented, and the parties must be able to demonstrate that the fee is not a disguise for splitting professional fees. After SB 351, MSO compensation structures are getting renewed scrutiny when private equity is involved. The statute does not directly prohibit percentage fees, but it gives the Attorney General new enforcement tools and explicit statutory authority to challenge interference with clinical judgment, which percentage fees can imply. What Makes a Management Services Agreement Non-Compliant? Several recurring problems push an MSA from compliant to non-compliant. Clinical control language. Provisions giving the MSO authority over hiring or firing clinicians, setting patient volume, choosing diagnostic tests or treatment options, owning medical records, or directing referrals. Each of these is now explicitly addressed by SB 351 for PE-backed MSOs and by Medical Board guidance for all MSOs. Above-FMV compensation. A management fee that exceeds fair market value can be recharacterized as a kickback or fee-split. Termination penalties that lock in the relationship. If the PC cannot realistically exit the relationship, the MSO effectively controls the practice. Asset ownership shifts. MSAs that transfer patient lists, EHR access, or clinical IP to the MSO disrupt the CPOM-required separation. Non-compete and non-disparagement clauses against providers. After SB 351, these clauses in PE-backed MSAs are void. Even outside SB 351, California’s Business and Professions Code § 16600 already makes most non-competes against employees unenforceable. [VERIFY: BPC § 16600 and recent amendments.] How SB 351 Changed MSAs in 2026 SB 351, effective January 1, 2026, codified specific limits on MSAs involving private equity groups and hedge funds. Codified at Health and Safety Code §§ 1190 and 1191. [VERIFY: confirm exact code
Can a Non-Physician Own a Med Spa in California?
TL;DR — Key Takeaways A non-physician generally cannot directly own a California med spa that provides medical services. The Corporate Practice of Medicine doctrine restricts ownership of medical entities to licensed physicians. The most common workaround is the MSO model: a professional medical corporation (owned by a physician) provides the medical services, while a separate management services organization (which can be owned by anyone) provides non-clinical support. Nurse practitioners, physician assistants, and registered nurses cannot own a medical corporation in California. The professional corporation must be physician-owned. [VERIFY: confirm latest Medical Board of California guidance.] Investors can participate financially through the MSO. They cannot own the medical practice itself or control clinical decisions. SB 351 (effective January 1, 2026) added new restrictions for private equity and hedge fund involvement in physician practices, narrowing what MSO arrangements can do. Why California Restricts Med Spa Ownership California has one of the country’s strictest versions of the Corporate Practice of Medicine doctrine, often shortened to CPOM. The doctrine, rooted in the Medical Practice Act (Business and Professions Code §§ 2000 et seq.) and decades of Medical Board of California guidance, holds that only licensed physicians can practice medicine, and that medical practices must be owned and controlled by physicians. The goal is to keep clinical decisions in the hands of trained clinicians rather than corporate owners with profit motives that might conflict with patient care. Med spas occupy a tricky space because they offer a mix of medical procedures (Botox, fillers, laser treatments, IV therapy, prescription weight loss drugs) and non-medical services (facials, massages, microdermabrasion). Anything that involves a prescription, an injection, or the use of energy-based devices for medical purposes is the practice of medicine in California. That means the entity providing those services must comply with CPOM. Can a Nurse Practitioner Own a Med Spa in California? Generally no, not as a medical corporation. California’s professional corporation law restricts ownership of a medical corporation to licensed physicians, with limited shareholder participation by other licensees. Nurse practitioners and physician assistants can own businesses that operate within their own scope of practice. A nurse practitioner can own a nursing corporation. But a med spa offering services beyond NP scope (or treating patients under standardized procedures or physician oversight) generally cannot be NP-owned and serve as a medical practice. AB 890 expanded the autonomy of certain experienced California nurse practitioners starting in 2023, but that statute addresses scope of practice and supervision, not corporate ownership of medical entities. The CPOM ownership rules still apply. What Is the MSO Model and How Does It Let Non-Physicians Participate? The management services organization model — usually called the MSO model or the friendly PC model — is the standard structure California uses to allow non-physician participation in medical businesses. It works through two separate entities. The first is the professional medical corporation (the PC), owned by a licensed California physician. The PC employs the clinicians, holds the medical license, and provides all clinical services. The PC owns the patient relationship and the medical records. The second is the management services organization (the MSO), which can be owned by anyone — investors, entrepreneurs, nurses, physician assistants, family members, private equity. The MSO provides non-clinical services to the PC: marketing, billing, IT, HR, equipment leasing, real estate, scheduling. The MSO is paid a management fee for these services. Done correctly, the MSO model lets non-physicians invest capital and participate in the business side of a med spa without practicing medicine or violating CPOM. Done incorrectly, the structure becomes a pretext that the Medical Board, the Attorney General, or a court can pierce. Can an Investor Own Part of a California Med Spa? An investor can own all or part of an MSO. They cannot own the medical practice itself. The MSO can hold significant value: trademarks, real estate, equipment, patient management software, accounts receivable, and the management contract with the PC. Investors who purchase MSO equity get exposure to that value and to the management fees the MSO collects. What investors cannot do is direct clinical operations. They cannot decide which procedures the medical staff performs, set patient volume requirements, dictate referral patterns, or override clinical judgment. After SB 351, some of these limits became explicit statutory prohibitions when the investor is a private equity group or hedge fund. What Happens if a Med Spa Is Structured Without a Physician Owner? The risks are serious. A non-CPOM-compliant structure exposes the business to multiple enforcement paths. The Medical Board of California can investigate and refer the matter to the Attorney General. The AG can seek injunctive relief and civil penalties. Physicians associated with the arrangement can face license discipline. Insurance reimbursement gets disrupted. Payers can refuse to honor claims billed by a non-compliant entity, demand recoupment of past payments, and terminate provider contracts. Management fees and profits paid to non-physicians can be challenged as fee-splitting under Business and Professions Code § 650, which carries criminal penalties as well as civil exposure. Contracts are vulnerable. After SB 351, certain MSO contract provisions are statutorily void and unenforceable. A non-compliant structure can also create successor liability problems for an acquirer in a sale. Can a Spouse or Partner of a Nurse Own a Share of the Business? Family members can own MSO equity without restriction. The MSO is not a medical entity, so the ownership of the MSO is not regulated by CPOM. What family members cannot do is own shares in the medical corporation itself. California law restricts shareholders in a medical corporation to licensed physicians and a limited group of other healthcare licensees, with caps on the percentage of stock the non-physician licensees can hold. A spouse who isn’t a healthcare licensee cannot hold any equity in the PC. [VERIFY: BPC § 13401.5 lists the specific licensees permitted as minority shareholders in medical corporations.] If the spouse is a registered nurse, physician assistant, or psychologist, they may be able to hold a minority stake in the PC under the