5 Considerations for Investing in a Laboratory MSO

February 14, 2018

Approached by a company offering an opportunity to invest in a laboratory or laboratory MSO? Consider the following.

Over the years, I have seen many physicians enter into laboratory arrangements, structured in a multitude of ways.  Recently, there seems to be a proliferation in the number of companies offering various laboratory investment opportunities to my clients, particularly out of Texas.  If you are approached by a company offering an opportunity to invest in a laboratory or laboratory management service organization (“MSO”), please consider the following:

1. Many arrangements carve out “federal patient” referrals.  However, depending on the relationship between the laboratory, the MSO, and other parties to the arrangement, this does not necessarily mean the physicians or the practice are shielded from federal laws.  The government continues to indict and investigate physicians for violations of federal law even for arrangements that exclude federal patient referrals.   Unless you know every relationship between the parties involved, you simply cannot assess the risk of the deal.

2. Even where no federal patients are involved, most states have statutes that mimic federal law. I recommend legal review to be sure no state laws are violated by the arrangement.

3. There should be no requirement to refer to any laboratory.  I do not like arrangements where a physician is required to send patients to a designated laboratory for a period of months so that the physician’s volume can be tracked.  The physician is then offered the investment only if referrals are sufficient.  To me this could be a red flag for a questionable arrangement.

4. Physicians are sometimes asked to invest in an MSO which manages a lab, rather than the lab itself.  Some lawyers feel this arrangement adds additional protection.  However, I have seen multiple deals where the MSO is managing a lab that is being managed under one or more other laboratory arrangements. I have the advantage of having many similar deals come across my desk, or I would not otherwise be aware.  Multiple managers for the same lab can be a red flag that the “management services” are not legitimate and the manager is simply being paid to market to physicians for referrals.  You should always ask to see a legitimate management agreement between the MSO and the lab and inquire why the lab requires the MSO’s services and if it is receiving services from multiple MSOs.

5. I strongly recommend that if a physician enters into a laboratory arrangement that carves out federal referrals, the physician should refer the federal samples to a separate lab.  Do not accept assistance of the MSO or any other party affiliated with the laboratory arrangement for purposes of “convenience” or otherwise.  This will greatly assist the physician in minimizing regulatory risk by assuring that federal specimens are truly segregated from the laboratory arrangement.

This topic is complicated.  Physicians should hire a health care lawyer to review the documents outlining the transaction.  A legitimate proposal will also likely include a legal opinion on state/federal laws related to the proposed arrangement and access to the organizer’s legal counsel for questions. The risk of entering into a laboratory or MSO arrangement that violates state and/or federal law is significant.  Because the statutes involved may be both civil and criminal in nature, the repercussions of an improperly structured arrangement can have severe financial and career consequences.

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