How to Set the Management Fee in Your MSO
- Justin Marti
- 48 minutes ago
- 4 min read
When setting up a management services organization (MSO), funds flow from the clinical practice to the management company. (We wrote a full article explaining how that works here.) Understanding the flow of funds is one thing. But the most common question we get isn’t about how it works; it’s about how to set the management fee.
In this article, we break down different ways to approach the management fee for MSOs.
More Resources from MLG:
Want more insight? Check out this episode of Office Hours. Justin Marti and Nick Liguori, CPA discuss management fees, flow of funds, and more accounting strategies for MSOs.
Need to start with the basics? Here’s an article on MSOs.
Why Management Fees Matter
At its core, the management fee is how the business that runs the non‑clinical side of a practice gets paid. In a compliant MSO arrangement, the clinical entity collects revenues from patient care, pays clinicians first, and then pays the MSO for the administrative services it provides under a written Management Services Agreement (MSA). This structure is essential to maintain compliance with corporate practice of medicine doctrines and avoid improper fee‑splitting concerns.
But the fee you set also needs to be fair market value, reasonable, and defensible—not just a number plucked out of the sky. Overshooting it can create compliance risk, while underpricing it can starve the management side of your business.
How to Approach the Math in an MSO
Let’s walk through a straightforward example that mirrors how many financial experts and MSO operators think about management fees. This is something you may find yourself modeling with your CPA.
Step 1: Tally Your Core Costs
What are the costs your MSO incurs just to manage the practice? Think about recurring, real expenses you would incur even if the practice had zero growth this year:
Marketing: What are you spending on advertising, outreach, patient acquisition, SEO, social media, and branding efforts?
Example: $10,000 per month
HR & Payroll Administration: Staff you employ at the MSO level; payroll service costs for the practice if administered through the MSO
Example: $10,000 per month
Financial Management: Bookkeeping, fractional CFO time, accounting oversight
Example: $5,000 per month
Legal & Compliance Support: Time spent maintaining forms, reviewing contracts, ensuring regulatory compliance
Example: $2,000 per month
Miscellaneous Overhead: Office costs, software, utilities, professional liability insurance, etc...
Example: $3,000 per month
In this scenario, all of those add up to $30,000 per month in actual costs.
Step 2: Add Profit (The “Plus”)
A management fee isn’t just reimbursement for costs. You also compensate the MSO for its contribution to growth, stability, and scalability. Most practices we work with use what is called a cost‑plus model: take your actual costs and add a profit margin.
Let’s assume a 30% markup—again, for example only.30% of $30,000 is $9,000.
So,
Total Management Fee = $30,000 + $9,000 = $39,000 per month
That $39,000 becomes the flat monthly fee the clinical practice pays the MSO for agreed services.
Different Management Fee Structures
There are a few management fee structures you’ll hear about:
Flat Fee: A fixed monthly amount with no direct tie to collections. This is simple and low risk from a compliance perspective.
Percentage of Revenue: Fees tied to a percentage of billings or collections; in some states this method is heavily restricted due to fee‑splitting rules.
Cost‑Plus: Reimburse actual expenses, plus a set profit margin. This model is commonly viewed as the most defensible under fair market value and compliance standards when properly supported with documentation.
Advantages of the Cost-Plus Model
It’s grounded in actual expenses and therefore easier to justify if someone questions the fee’s reasonableness.
It separates administration costs from the clinical economics, supporting compliance with corporate practice rules.
It provides predictability on both sides. Clinical practices know what they’ll pay each month, and MSOs can plan around a known revenue stream.
Fair Market Value and Compliance Considerations
You’ll see references in regulations and compliance guidance that management fees must reflect fair market value (FMV) and not be based on patient referrals or tied to practice revenue in a way that suggests fee‑splitting. What does that mean practically?
First, your fee shouldn’t look like you’re taking 80%–90% of the practice’s revenue just because it makes the numbers bigger. Most lawyers and valuation experts will tell you that such arrangements raise red flags under anti‑kickback or corporate practice of medicine doctrines.
And second, your fee structure should align with the services actually rendered: marketing, HR, payroll, compliance, IT, facilities, etc. Independent financial documentation and collaboration with your CPA go a long way here.
In our article Funds Flow in Your MSO, we explain that revenue coming into the clinical entity should be allocated to clinical compensation first, then to operational costs, then to the management fee as defined in the MSA. This priority shows regulators and auditors that the practice retains its clinical independence.
Putting It in Your Management Services Agreement (MSA)
Once you and your CPA or financial advisor land on a fee that reflects your costs and desired margin, that number needs to be documented in the Management Services Agreement (MSA). The MSA is the legal contract between the MSO and the clinical entity that:
Defines scope of services provided by the MSO
States the management fee and payment cadence (e.g., monthly)
Establishes terms for fee adjustments over time
Ensures compliance with CPOM and fee‑splitting laws in your jurisdiction
In practice, many agreements build in review periods (quarterly or annually) so that the fee can be revisited if circumstances or service needs change.
When it Comes to Management Fees, Expert Guidance Matters
Determining what fee to charge isn’t a solo decision. Legal counsel, tax professionals, financial advisors, and management leaders all have to weigh in. Arriving at a number that both reflects the value of support services and holds up under regulatory scrutiny is as much about teamwork as it is about arithmetic.
If you’re setting up an MSO or revisiting your existing arrangement, think holistically about how the management fee ties into your funds flow, compliance risk, and long‑term strategy.
And, if you need help getting it right, we’re here to help. Marti Law Group helps practice owners and MSO leaders structure compliant MSAs, model sustainable management fees, and protect their businesses through thoughtful legal planning–from start up to sale.