Legal Structures for Your PA Business: LLC, PC, and MSO Explained

Introduction: Choosing the Right Foundation for Your PA Practice

For Physician Associates (PAs) venturing into entrepreneurship, the excitement of building a new practice often comes with a significant legal hurdle: choosing the correct business entity. This decision is not merely an administrative formality; it forms the legal and financial foundation of your entire venture, impacting everything from personal liability and taxation to operational flexibility and compliance with state-specific healthcare regulations. A misstep in selecting the appropriate legal structure can lead to unforeseen liabilities, tax inefficiencies, or even legal challenges that jeopardize the viability of your business.

Unlike many other professions, healthcare businesses, particularly those involving licensed medical professionals like PAs, are subject to unique regulatory frameworks, most notably the Corporate Practice of Medicine (CPOM) doctrine in many states. This doctrine often dictates who can own and operate a medical practice, adding layers of complexity to the decision-making process. Therefore, understanding the nuances of various business structures—such as Limited Liability Companies (LLCs), Professional Corporations (PCs), and

Management Services Organizations (MSOs)—is paramount for any aspiring PA entrepreneur.

This blog post will provide an in-depth, educational guide to these critical legal structures, explaining their characteristics, advantages, disadvantages, and suitability for different PA business models. Our aim is to demystify these complex concepts, empowering you to make an informed decision that aligns with your business goals and ensures legal compliance. While this guide offers valuable information, it is crucial to remember that legal advice should always be sought from a qualified attorney specializing in healthcare law in your specific state. The Independent PA Collective (IPAC) emphasizes the importance of a strong legal foundation and provides resources to help PAs navigate these essential decisions.

Understanding the Corporate Practice of Medicine (CPOM) Doctrine

Before diving into specific entity types, it's essential to grasp the concept of the Corporate Practice of Medicine (CPOM) doctrine, as it significantly influences the permissible legal structures for healthcare businesses. The CPOM doctrine is a legal principle, varying by state, that generally prohibits corporations or other non-physician entities from employing physicians or practicing medicine. The underlying rationale is to prevent commercial interests from interfering with a physician's independent medical judgment and to protect the patient-physician relationship.

For PAs, CPOM can be particularly impactful because, in many states, PAs are considered to be practicing medicine under the supervision or delegation of a physician. Therefore, if a state has a strict CPOM doctrine, a PA may not be able to directly own a medical practice that provides physician services, even if they are licensed to perform those services. Instead, they might need to establish an indirect ownership model, such as an MSO, which we will discuss in detail.

It is critical to research your specific state's CPOM laws and how they apply to PAs. Some states have relaxed CPOM laws or provide specific exemptions for certain healthcare professionals, while others maintain strict prohibitions. This legal landscape is dynamic, with some states moving towards more PA-friendly legislation, but it remains a primary consideration for business formation.

Common Legal Structures for PA Businesses

Here's a breakdown of the most common legal structures PAs might consider, along with their pros and cons:

1. Sole Proprietorship

•Description: The simplest and least expensive business structure. The business is owned and run by one individual, and there is no legal distinction between the owner and the business.

•Pros: Easy and inexpensive to set up, minimal ongoing legal formalities.

•Cons: Unlimited personal liability (your personal assets are at risk for business debts and lawsuits), difficult to raise capital, business dissolves upon owner's death.

•Suitability for PAs: Generally not recommended for medical practices due to the high personal liability risk associated with healthcare services. It might be suitable for very low-risk, non-clinical consulting or educational ventures, but even then, liability protection is usually preferred.

2. Partnership

•Description: A business owned by two or more individuals. Like sole proprietorships, general partnerships offer no personal liability protection for the partners.

•Pros: Relatively easy to set up, shared workload and resources.

•Cons: Unlimited personal liability for all partners (each partner is personally liable for the business debts and actions of other partners), potential for disputes, business dissolves upon a partner's death or withdrawal.

•Suitability for PAs: Similar to sole proprietorships, general partnerships are generally not recommended for medical practices due to unlimited personal liability. Limited Partnerships (LPs) or Limited Liability Partnerships (LLPs) offer some liability protection but are more complex and still may not fully address CPOM concerns.

3. Limited Liability Company (LLC)

•Description: A hybrid business entity that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. Owners are called

members.

•Pros: Limited personal liability (protects personal assets from business debts and lawsuits), flexible taxation (can be taxed as a sole proprietorship, partnership, S-Corp, or C-Corp), less formal than a corporation.

•Cons: State laws vary on whether PAs can form an LLC to practice medicine, especially in states with strict CPOM. Some states require healthcare professionals to form Professional LLCs (PLLCs) which may have specific rules.

•Suitability for PAs: Often a good choice for non-clinical PA businesses (e.g., consulting, medical writing). For clinical practices, its suitability depends heavily on state CPOM laws. In some states, a PA might form an LLC to operate the administrative side of a practice (as an MSO) while clinical services are provided by a separate, physician-owned entity.

4. Professional Corporation (PC) or Professional Association (PA)

•Description: A type of corporation specifically designed for licensed professionals (e.g., doctors, lawyers, PAs). It offers limited liability protection to the owners (shareholders) for business debts, but typically does not protect against malpractice claims.

•Pros: Limited personal liability for business debts (personal assets are generally protected), potential tax advantages, easier to raise capital than sole proprietorships or partnerships.

•Cons: More complex to set up and maintain than an LLC (requires more formal corporate governance, annual meetings, minutes), strict adherence to state professional corporation laws, may still be subject to CPOM restrictions regarding non-professional ownership.

•Suitability for PAs: In states where PAs are permitted to own a medical practice, a PC is often the preferred structure. It provides the necessary liability protection while complying with professional licensing requirements. However, PAs must ensure their state allows PAs to form PCs for medical practice and understand any specific rules regarding physician supervision within the PC structure.

5. Management Services Organization (MSO) Model

Description: The MSO model is a common strategy used in states with strict CPOM doctrines. In this structure, a non-clinical entity (the MSO), which can be owned by a PA or other non-physician, provides all the administrative, non-medical services to a separate, physician-owned professional entity (the

Professional Corporation or PC). The MSO handles everything from billing, scheduling, marketing, human resources, and even leasing equipment and office space. The PC, owned by a physician, focuses solely on providing clinical medical services.

Pros: Allows PAs to have significant financial and operational control over a medical practice in states with strict CPOM, provides a legal framework for non-physician investment in healthcare, separates clinical and administrative risks.

Cons: More complex to set up and manage due to the need for two separate entities and a comprehensive management services agreement, requires careful legal structuring to avoid violating CPOM or fee-splitting prohibitions.

Suitability for PAs: This is often the most viable option for PAs who wish to own or have a significant stake in a clinical medical practice in states with strong CPOM laws. It allows the PA to manage the business side while a physician handles the medical services, ensuring compliance.

Key Factors in Choosing Your Business Structure

Selecting the right legal structure for your PA business requires careful consideration of several factors:

1.State Laws and CPOM: This is arguably the most critical factor. Your state's specific regulations regarding PA practice ownership and the Corporate Practice of Medicine doctrine will heavily influence your options. Some states are more PA-friendly, allowing direct ownership, while others necessitate an MSO model.

2.Personal Liability: How much personal risk are you willing to take? Structures like LLCs and PCs offer personal asset protection, which is highly recommended for healthcare providers due to the inherent risks of medical practice.

3.Tax Implications: Different structures have different tax treatments. Consult with a tax professional to understand the federal and state tax implications of each entity type and choose one that optimizes your tax burden.

4.Management and Control: How much control do you want over daily operations and strategic decisions? Some structures offer more flexibility than others.

5.Future Growth and Funding: Consider your long-term goals. If you plan to seek outside investment or expand significantly, some structures are more appealing to investors than others.

6.Cost and Complexity: While sole proprietorships are cheap and easy, they offer no protection. LLCs are a good balance, while PCs and MSOs are more complex and costly to set up and maintain.

The Indispensable Role of Legal and Financial Advisors

Given the complexities and the significant implications of choosing a business structure, it is imperative to consult with qualified legal and financial professionals. An attorney specializing in healthcare law can provide accurate guidance on state-specific regulations, draft necessary agreements, and ensure compliance. A tax advisor or accountant can help you understand the tax implications and set up your financial systems correctly.

Attempting to navigate these decisions without expert advice can lead to costly mistakes, legal challenges, and even the premature failure of your business. Investing in professional guidance upfront is a wise decision that provides a solid foundation for your entrepreneurial journey.

Conclusion: Building a Solid Legal Foundation for Your PA Venture

Choosing the right legal structure is a foundational step for any Physician Associate embarking on an entrepreneurial path. It's a decision that impacts your liability, taxes, and operational capabilities, and it must be made with a thorough understanding of state-specific healthcare regulations, particularly the Corporate Practice of Medicine doctrine. While LLCs offer general liability protection and flexibility, PAs in clinical practice often need to consider Professional Corporations (PCs) or the more complex Management Services Organization (MSO) model, depending on their state's laws.

By carefully assessing your business goals, understanding the nuances of each entity type, and, most importantly, seeking expert legal and financial counsel, you can establish a robust and compliant legal framework for your PA business. This solid foundation will not only protect your personal assets but also provide the stability and clarity needed to focus on what you do best: delivering exceptional healthcare and growing your entrepreneurial vision. The Independent PA Collective (IPAC) is dedicated to empowering PAs with the knowledge and resources to make these critical decisions, ensuring your journey from clinician to CEO is built on a secure and successful legal footing.

References:

[1] American Academy of Physician Associates. (n.d.). State Laws and Regulations. Retrieved fromhttps://www.aapa.org/advocacy-central/state-advocacy/state-laws-and-regulations/ [2] HealthCare Appraisers, Inc. (2023). The Corporate Practice of Medicine Doctrine: A State-by-State Survey. Retrieved fromhttps://www.healthcareappraisers.com/wp-content/uploads/2023/02/Corporate-Practice-of-Medicine-Survey-2023.pdf [3] U.S. Small Business Administration. (n.d.). Choose your business structure. Retrieved from