The harrowing tale of veterinary management service agreements

The harrowing tale of veterinary management service agreements

Once upon a time, veterinary practices were owned by veterinarians. Then other interested parties came along ...
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Jul 10, 2018

Time to look at the fine print critically. (Photo: Shutterstock.com)Is anyone out there policing management service agreements? Based on a number of associate contract reviews I have conducted recently, it doesn’t look like it.

What is a management service agreement, you ask? Why do they need oversight? Well, as the snowman says in the Christmas TV special “Rudolph the Red-nosed Reindeer,” just pull up an ice block and I’ll tell you the story!

Our story begins with the best of intentions …

Decades ago, veterinarians owned veterinary clinics. And the law in most states was that only veterinarians were allowed to own them. But then along came sly attorneys who, in response to demands by venture capital and Wall Street, figured out a clever way that non-DVMs could sidestep the laws prohibiting lay ownership of professional practices. The strategy works this way: Lawyers designed a “veterinary practice operation structure” in which a veterinary hospital would function through the interaction of two separate legal entities. One would be a “professional corporation” (owned by one or more DVMs). The second would be a “management corporation” (owned by folks who have money but no veterinary degree).

To make it work, a really long document known as a management service agreement, or MSA, is entered into by the professional corporation and the management corporation. This agreement, signed by both corporations, provides that all activities and duties (except those requiring professional training, credentials, or both) will be carried out by the management corporation.

And that same paperwork provides one essential kicker: The management services are priced in such a way that most of the clinic’s profits go for—yes, you guessed itmanagement services.

What makes this legal? The essential element that has allowed the MSA (often called an MSO, or management service organization) to circumvent the nation’s veterinary practice acts is this: The MSA document must be designed with scrupulous care to designate the responsibilities of the management services company. MSAs must provide that all medical, therapeutic, diagnostic and other purely veterinary tasks are carried out by the professional corporation. Everything except veterinary medical activities (plus drug ownership) shall be handled by the management company.

For a long time, this structure has managed to avoid much legal challenge to its true objective, which is, of course, allowing the substantive ownership (and flow of profits) to a clinic owner who is not professionally licensed.

A number of sticky situations arise …

But here’s the big problem I see when I put on my veterinarian hat: The MSA/MSO structure has been widely adopted as acceptable and legal in myriad American jurisdictions. But is anybody checking to see whether the required separation of powers is genuinely being maintained? Or does the viability of the legal theory upon which these agreements are based tend to dissipate shortly after a clinic is purchased or a hospital empire is constructed?

Consider these issues that (when I put on my lawyer hat) are regularly being raised by many of my DVM clients who are employed doctors at veterinary facilities owned by non-DVMs:

Drug purchases: MSA documents usually state that the staff DVMs will select the drugs to be purchased and stocked for the treatment of animals with consultation of the management corporation. Do the worker-bee docs who are seeing the patients actually have a say in which medications will be purchased or from which supplier? Do DVMs genuinely choose whether generics will be ordered? What if an antibiotic is considered “too costly to stock” by the management company even though clinic vets want that product available to treat cases?

Capital expenditures: Sounds like a purely management decision as to when and how profits should be reinvested in the practice, right? Well, I’ve spoken to my share of employed DVMs who tell me that at some lay-owned practices, doctors' requests for updated equipment are routinely ignored, or at least unjustifiably delayed. Obviously, profit is an important goal, but gee … doesn’t the MSA say that medical decisions (like using non-obsolete equipment) are supposed to be made by veterinarians?

Vaccine policy: Who wins when the management hierarchy wants, for example, to offer vaccinations without requiring a physical exam while staff docs don’t? Theoretically, the DVMs should decide. Theoretically …

Staff hiring decisions: Again, at first blush this might seem like a fundamentally managerial decision as to which assistants and other non-DVM personnel should be hired and what they should be paid. But I’ve seen associate DVMs shocked and awed by the staffing choices made by some consolidator-operated veterinary hospitals. The main issue? Cost. Good profits may be at cross purposes with good, well-trained staff. I think the vets should have a bona fide say in who gets hired, though this may not end up being the case.

Office call duration: Is this a managerial decision? Or should a change from 15-minute sick appointments to 10-minute sick visits be a decision ultimately determined by staff veterinarians? Better check that MSA, then check how the actual decision making is done.

Extension of credit: I’ve actually run across corporate employment contracts that allow uncollected client balances to be deducted from the paycheck of the staff veterinarian on the case. So much for the MSA providing that the veterinarian will select the level of care to provide. God bless any doctor under one of these “corporate practice” employment agreements who expects that he or she will have discretion in the level of service to be provided. That vet will pay part of the tab if a costly treatment is provided and the owner can’t pay.

Clientele demographics vs. care level: The staff doctors at a given MSA clinic may want to provide full-service care and develop long-lasting client-veterinarian relationships. But if the management company selects a “doing business name” for the practice like, say, “Super-discount Vet Hospital,” the veterinary staff may be big-time unhappy with the clients such a name attracts. And when the employed DVMs register their discontent with the management company? The MSA probably says name selection is the prerogative of … yes, the management company. But can’t the name of the practice sometimes impact the level of medicine that the facility will routinely have to practice?

A cautionary tale?

It doesn’t look like very many state attorneys general or most secretaries of state throughout the United States are exceptionally concerned with how these veterinary MSAs are being implemented. But they should be. Since a rapidly increasing number of veterinary practice jobs are to be controlled by these documents, it’s extremely appropriate that regulators monitor the degree of professional autonomy (or lack thereof) that employed doctors have.

In the final analysis, though, it doesn’t appear that the government has a great deal of interest in making sure that non-licensed individuals refrain from directly impacting animal care. So my advice is this: Before accepting an associate position with a veterinary hospital owned by a corporation or other non-DVM owner, seek out the docs who are already there. Ask them if they feel that management is overreaching. Based on that guidance, it’s far easier to select a clinic employer that features DVM-respectful management.

Dr. Christopher J. Allen is president of the Associates in Veterinary Law PC, which provides legal and consulting services exclusively to veterinarians. He can be reached via email at [email protected].