Despite uncertainty with the new administration and Congressional attempts to replace or reform the Affordable Care Act, the American healthcare system continues its massive paradigm shift from volume to value-based reimbursement. As healthcare dollars shrink, physicians and other providers struggle to develop and implement new clinical and business practices to standardize the practice of medicine to improve efficiency and decrease costs.

The complex requirements for the business of practicing medicine and providing care have created new liabilities for providers. New mandates for improved and standardized business practices continually expand and evolve. For physicians continuing in a private practice or even in a system-owned practice, transferring the responsibility for the business of practicing medicine has proven to be a successful model, particularly when relying upon a Management Services Organization (MSO) to assume administrative functions.

With required collection of clinical quality data and the standardization of treatment, MSOs often provide services that can include choosing and collecting clinical metrics, negotiating shared savings contracts based upon clinical factors and evaluating provider performance. Transferring these duties to MSOs may allow providers to shift some of the liabilities of the practice of medicine. As MSOs absorb more clinically-related administrative functions, MSOs also increase their potential for liability.

MSOs are not new, but are becoming increasingly important as the practice of medicine becomes more complex due to an expanding regulatory environment. Historically, MSOs have evolved from physician and hospital-owned organizations to entities owned by physicians and other service vendors that serve multiple private practices or health systems. MSOs are sophisticated businesses, because MSOs offer physicians access to important managerial and contracting services that relieve administrative burdens, lower costs and improve care. Relying upon an MSO can also provide tangible risk management benefits.

For instance, as MSOs adopt programs aimed at resolving claims earlier, they can more easily manage medical malpractice risk. MSOs can assume direct liability for providers within their folds, absorbing the consequences of adverse patient experiences.

Additionally, MSOs have greater bargaining power in purchasing group medical malpractice liability insurance policies, keeping premiums down and limits high. At the same time, the very characteristics that make these organizations more efficient also may expose them (and their stakeholders) to increased liability.

As physicians engage MSOs, they should pay attention to the duties and responsibilities assumed by each party and ensure that contractual provisions address not only new liabilities, but also the possible shift of liability.

Managed Care Liability

By assuming some of the functions of a medical practice, MSOs may court additional liability, especially in managed care activities that do not involve direct patient care. Part of the reason for this added risk is that these activities do not fall within the definitions of professional services in medical malpractice insurance policies, opening exposure for the entity.

Credentialing, for instance, is a growing area of liability as MSOs often assume credentialing responsibilities and the attendant risk of negligent credentialing. MSOs may not be able to exclude this liability through indemnification clauses with physicians the way that other managed care organizations can.

Utilization review, or reviewing provider performance for adherence to clinical standards, is a growing facet of the standardization of medicine. These standards allow for a more efficient practice of medicine, which, in turn, may reap dividends under shared-savings contracts. MSOs may perform utilization review using sophisticated software tools as well as employing professionals to review medical records.

As shared savings contracts become more prevalent, the likelihood increases that plaintiff attorneys will be looking at such utilization review and the criteria applied to make the case that necessary treatments may have been withheld by the MSO for cost-saving purposes under those agreements.

Regulatory Liability

Recent developments in False Claims Act liability for healthcare providers serve as warnings about the inherent liability for careless billing practices. One of the more useful functions of MSOs is the centralization of billing and compliance activities and the possible shift of liability for billing errors from the individual physician to the MSO. Strict compliance programs are necessary to ensure that all providers are adhering to billing and coding best practices, but the utilization of MSOs to handle this work and to implement rigorous review and audit of provider billing practices may prevent billing errors and improper practices that create overpayments and potential false claims.

Furthermore, centralized billing systems must be robust, sophisticated and adequately designed to meet compliance standards. MSOs can provide the resources and expertise necessary to provide high quality and professional services.

Likewise, MSOs can and should access adequate insurance to defend against potential government and payor investigations and audits for the responsibilities that they undertake. When a provider describes the services performed and the MSO prepares the claims, it is likely that the MSO may have responsibilities independent of the provider for billing activities. Hence, the potential for shared liability if not outright transfer of liability.

Prescribing Pain Medication

As focus increases on prescribing pain medications, MSOs should implement rigorous administrative processes to assist individual providers to comply with Kentucky’s statutory and regulatory requirements. With even more new statutory requirements for prescribing opioids set to become effective in July 2017, MSOs can implement compliance protocols that monitor practitioner prescribing and assist with documentation of compliance.

Investigation of practitioner prescribing and violations of complex statutory and regulatory authorities create a new type of liability for physicians that is generally not covered by professional liability policies. MSOs can provide the tools to respond to government investigations and assure compliance.

Privacy and Security of Medical Records

MSOs may also absorb the regulatory burden created by HIPAA and HITECH concerning the use, care and safekeeping of patient health information. The administrative cost of compliance with laws and regulations is both expensive and difficult for small provider groups. MSOs can provide the resources and expertise to deliver the robust technical and administrative safeguards required when responsibilities are assumed.

Finally, as more and more providers become hostage to data breach and ransomware, it is incumbent on MSOs with centralized IT and electronic health record systems to both mitigate the risk of cyberattack and maintain compliance with HIPAA and other patient confidentiality laws.

As these attacks grow more brazen and common, MSOs can assume the financial and administrative burdens necessary for effective security, but also provide the systems and tools necessary to address a security breach. When MSOs undertake this function, their risk of liability also increases.

-Lisa English Hinkle is with McBrayer McGinnis Leslie & Kirkland in Lexington, Kentucky.