Reviewing a management services agreement

A management services agreement can give an OB-GYN practice access to staffing, technology, billing support, facilities, and purchasing scale while leaving clinical practice with its owners. The contract also determines who controls daily operations, how much cash leaves the practice, what happens when service falls short, and whether the group can leave without losing essential systems. Owners should review the agreement as an operating blueprint: trace each service from promise to measurable delivery, connect every fee to a defined cost or calculation, and test the arrangement against ordinary disruptions such as a delayed claim cycle, a staff vacancy, or an ownership transition. This guide focuses on business and contract mechanics for practice owners and partners, not clinical or patient advice.

Map the parties, scope, and decision rights

Start with the legal structure. Identify the practice entity that bills for professional services, each physician owner, any real estate or equipment company, and the management company or its affiliates. The agreement should state which entity receives each service and which entity owes each payment. A parent organization may sign for several affiliates, but a signature alone does not establish that every affiliate is bound to provide support. List the covered locations, tax identification numbers, and included service lines in an exhibit. If a new office, satellite, or imaging operation is added, specify whether it joins automatically, requires written consent, or receives a separate fee schedule.

Describe services in operational terms instead of broad labels. "Billing support" might mean charge entry, claim submission, remittance posting, denial work, statements, and monthly reconciliation. Those are distinct tasks with different staffing and access requirements. "Human resources" could include recruiting, payroll processing, benefits administration, employee relations, or merely templates and consultation. For each function, name the provider, deliverable, frequency, and practice dependency. An exhibit can assign the manager payroll preparation while the practice retains approval of compensation changes and payroll funding.

Separate administrative authority from ownership and professional judgment. The manager may administer vendor accounts or prepare budgets, while the practice's governing body approves budgets, debt, major capital purchases, distributions, senior administrator hiring, and business model changes. State who may bind the practice and set a threshold for routine commitments. An authority matrix might allow ordinary supply orders within budget but reserve a multi-year lease, line of credit, or material software conversion for owner approval. Include an urgent decision path and require prompt reporting afterward.

Test the fee formula and supporting records

The payment clause deserves a reconciliation exercise. A management fee may be fixed, a percentage of collections, a pass-through of actual costs, a combination, or an allocation across practices. Define each component, included costs, allocation method, billing cadence, due date, and correction process. If the fee is a percentage, specify the denominator: cash received, posted collections, net collections after refunds, or another defined amount. Address refunds, recoupments, unapplied cash, credit balances, and receipts after termination. "Reasonable management fee" does not give owners a reproducible calculation.

For pass-through expenses, separate direct costs from shared overhead. Direct costs may include the practice's dedicated billing specialist or office software license. Shared overhead may include a regional manager, recruiting platform, cybersecurity program, or call center. The contract should identify allocation drivers such as full-time-equivalent employees, transaction volume, square footage, or actual time records. It should also say whether a markup is permitted and how often allocation assumptions are revisited. A broad right to allocate "corporate expenses" can shift costs unrelated to the practice, including acquisition expenses, financing costs, or support for other portfolio companies.

Require a monthly statement that supports the invoice. A useful statement identifies fee base, percentage, direct costs, shared allocations, credits, prior-period adjustments, and amounts due. Set a review window long enough to compare the statement with bank deposits and accounting records, and let the practice dispute a line item without withholding an undisputed amount. A short objection window should not convert an inaccurate calculation into an unquestionable debt. Preserve the ability to correct errors discovered later through an annual true-up or audit. If the practice must pay an estimate before final data is ready, define how and when the estimate is reconciled.

Audit rights should be practical. The practice should inspect supporting records, including allocation workpapers, invoices, time records, and collection reports, with confidentiality safeguards for other clients. Specify notice, frequency, retention period, and who pays the auditor. If an audit finds an overcharge above an agreed threshold, the manager can pay the audit cost and refund the amount with a defined carrying charge. State that an audit does not waive claims for fraud, concealment, or errors that ordinary monthly reporting could not reveal.

Define service levels and protect continuity

A service list says what the manager promises; service levels explain how owners will know whether it performed. For material functions, set measurable standards and reporting intervals. Billing operations could report the number of days from receipt of a complete encounter record to claim submission, the percentage of rejected claims corrected within a defined period, and unresolved denial dollars by age. Payroll support might specify delivery of draft payroll files by an agreed day and escalation of missing time data. Information technology service levels could distinguish urgent access outages from routine requests and state response and restoration targets. Set targets that reflect the practice's workflow and establish how exceptions are classified.

Tie performance reporting to escalation. The practice administrator and manager can review a monthly dashboard; repeated misses can trigger a corrective plan with owners, milestones, and progress reports. If performance remains below the floor, the practice may receive a fee credit, use a third party for that function, or terminate that service alone. Link credits to controllable failures and do not make them the exclusive remedy for severe or persistent failure. A credit cannot replace access to records or transition rights.

Business continuity provisions should address staff turnover, outages, vendor failures, and disasters. Identify who maintains backups, tests restoration, communicates incidents, and funds recovery. The manager should keep an inventory of systems, administrators, vendors, and renewal dates. Require notice of planned migrations that could disrupt scheduling, billing, payroll, or accounting. For an outage, set a manual process, contact tree, and way to reconcile transactions entered during recovery. State whether the manager can substitute a vendor and what approval applies when substitution materially changes cost, data location, functionality, or workflow.

Set boundaries around subcontracts. The manager may rely on a claims clearinghouse, payroll processor, hosted software provider, or call center. Require disclosure of material subcontractors and keep the manager accountable for their performance. Flow down confidentiality, security, record access, continuity, and transition obligations. Permit routine vendor changes but require consent if a change materially increases cost or limits access to essential records.

Keep money, data, and assets under clear control

Write down where collections are deposited and who can move funds. Practice receipts should flow to an account owned by the practice, with signers controlled by its governing documents and bank resolutions. If the manager performs lockbox, posting, or reconciliation work, limit its access to stated administrative tasks. The practice should receive timely ledger reporting and direct bank statement access. Avoid fee sweeps without reconciliation and a dispute mechanism. Set rules for reserves, refunds, payroll funding, and emergency disbursements so timing mismatches do not shift control informally.

Address ownership, access, and permitted uses for operational data. The practice should retrieve accounting files, billing records, employee records, vendor contracts, schedules, and reports in usable formats. The agreement can distinguish practice data from the manager's tools and methods without impeding operations after termination. Define access, permitted uses, security safeguards, incident notice, retention, and return or deletion. Require cooperation with lawful record requests and transition to a successor. For shared platforms, specify export fields, timing, and format instead of promising an undefined "copy."

List practice-owned property and licensed assets. Equipment purchased with practice funds, domain names, phone numbers, office records, and practice-specific workflows should not become ambiguous because the manager administered them. If the manager supplies a proprietary platform, specify transition access and any export charge. Confirm ownership of practice-specific improvements and whether a license survives long enough for conversion. For shared equipment or software, describe cost allocation and what happens if a party stops participating. Assign renewal notices and credentials so essential accounts do not lapse when a contact leaves.

Allocate risk, compliance, and insurance responsibilities

Use a responsibility schedule to assign administrative tasks that touch regulated or sensitive information without transferring professional responsibility by implication. The manager may handle vendor onboarding, billing workflows, payroll records, or technology configuration. The practice may retain responsibility for its own professional operations, owner decisions, and obligations that cannot be delegated under applicable law. The language should be tailored to the actual service and entity structure. Avoid a blanket statement that one party is responsible for "all compliance," because it obscures who controls the process, records, and corrective action.

Indemnity clauses should follow control and causation. A party can cover third-party losses arising from its breach, negligence, misconduct, or violation of law, subject to negotiated limits and exclusions. The practice should not indemnify the manager for the manager's own conduct merely because the service relates to practice operations. The manager should not take responsibility for decisions it does not control. Set notice and defense procedures: who selects counsel, whether consent is needed for settlement, and whether a settlement can impose admissions, payment, or operational duties on the other party. Preserve separate treatment for claims involving confidentiality, data security, fraud, or willful misconduct if a general liability cap would make the allocation illusory.

Review insurance with the same risk map. Identify policies each party must carry, limits, proof of coverage, notice of cancellation, and deductible responsibility. Distinguish practice professional liability coverage from the manager's general liability, cyber, workers' compensation, and errors-and-omissions coverage. Insurance does not replace indemnity, and a contract promise does not create coverage. Coordinate notice requirements with policy administration so a claim or incident reaches the right people promptly.

Negotiate term, change, and exit mechanics

A contract's term and termination rights should match the relationship's operating importance. A fixed initial term may give both parties time to implement systems, while renewal periods should allow owners to reassess performance and cost. State how either party can decline renewal and the notice method. Add termination rights for material breach after a defined cure period, repeated service failures, insolvency, loss of a necessary license or authorization, and a change of control if that change presents a specified concern. For breaches that cannot reasonably be cured, such as misuse of funds or unauthorized disclosure, a short or immediate remedy may be appropriate. Distinguish an ordinary dispute from a condition that threatens continuity.

Do not let termination become a hostage point. The manager should provide transition assistance for a defined period at stated rates, transfer credentials and records, cooperate with a successor, reconcile outstanding invoices, and return practice property. Identify the deliverables: current ledgers, open claims lists, unapplied cash, vendor contacts, employee payroll data, system configuration, and a schedule of pending renewals. The practice should pay undisputed transition charges while retaining the right to dispute unsupported amounts. If the manager controls a platform, provide export access before access is disabled. Consider a limited transition license and a schedule for handing over administrator credentials.

Plan for staff and vendor transitions without assuming every relationship can move automatically. State whether manager employees may be offered roles by the practice, how accrued pay or benefits are handled, and which party communicates with vendors. Third-party contracts should identify the contracting entity, renewal date, assignment rights, termination costs, and any personal guarantee. The management agreement should not promise transfer of a vendor contract that the vendor has not agreed to assign. Require reasonable assistance to obtain consent or establish replacement service. Include a procedure for post-termination collections, refunds, chargebacks, and adjustments so that revenue received after the end date is posted and allocated consistently.

Work an illustrative fee and exit scenario

Assume, for illustration, that a practice collects $600,000 in a month and the management fee is 5% of defined net collections. Assume the manager separately invoices $18,000 in direct payroll and technology costs plus a $7,000 shared-services allocation. The percentage fee equals $30,000, so the monthly invoice is $55,000 before any credits or taxes. These figures are illustrative and do not represent a market rate. The owners should be able to reproduce the $30,000 from the collection ledger, see the $18,000 supported by practice-specific invoices or payroll records, and see how the $7,000 allocation was calculated.

Now assume $20,000 of collections posted in the month is later refunded, and a $4,000 claim payment was incorrectly attributed to the practice. The contract's definitions determine whether those items reduce the next fee calculation, create a credit, or require a separate correction. If net collections means cash actually retained after refunds, the reconciliation may reduce the next month's fee base by $24,000, producing a $1,200 percentage adjustment at 5%. If the fee instead uses cash received before later corrections, the agreement needs an explicit true-up rule. The example illustrates why the definition, timing, and source report matter as much as the percentage.

Suppose the practice gives notice of termination while $90,000 in receivables remains unresolved and the manager controls the billing platform. A workable exit clause would identify a transition window, export the open claims and supporting posting history, keep the practice's credentials active, and assign responsibility for remittance posting during the handoff. It would also state how fees are charged for collections received during transition and when the final statement is due. If the agreement merely says "reasonable assistance," both parties may disagree about scope, staffing, data format, or cost precisely when continuity matters most. Use a written schedule and fee method before signing.

Avoid recurring review mistakes

One common mistake is negotiating only the headline percentage. An attractive rate can be outweighed by broad pass-through expenses, a minimum fee, duplicate charges for services the practice already buys, or a fee base that includes receipts unrelated to the manager's work. Model an ordinary month and a stressed month, then reconcile each number to a definition and data source. Owners should also examine whether the fee changes automatically with collections while staffing and service capacity remain fixed, or whether a price increase can occur without notice or a comparable service change.

Another mistake is treating schedules as secondary paperwork. The core agreement may sound balanced while a service matrix lets the manager discontinue support, an allocation exhibit permits unbounded overhead, or a data addendum limits export rights. Incorporate every exhibit by name, set an order of precedence for conflicts, and review referenced policies. Avoid signing with service descriptions to be completed later; incomplete attachments are hard to administer.

Owners also miss the gap between formal rights and practical control. The contract might say the practice owns its data, yet the manager holds the only administrator credentials, the only copy of accounting history, or the vendor relationship. Similarly, the practice may nominally approve budgets but lack timely reports to do so intelligently. Ask who can perform each task on a Tuesday morning if the manager's key contact is unavailable, and what the practice can access without that contact. Convert the answer into access, reporting, backup, and transition provisions.

Finally, groups sometimes accept a one-sided remedy structure to finish negotiations. A manager may receive immediate rights for late payment while service failures require lengthy escalation, or the practice may be bound by a long renewal while the manager can change fees unilaterally. Match notice and cure periods to the consequence, preserve payment of undisputed sums, and give both parties a clear route to resolve accounting disputes. Document negotiated side understandings in the agreement or an amendment. Reliance on a relationship manager's email leaves future owners and successors with a weaker record.

Owner action checklist

Map every entity, location, service, payment, account, and decision right covered by the agreement.
Recalculate a sample monthly invoice from source records, including an adjustment and shared-cost allocation.
Review the service levels, escalation steps, audit access, security duties, and continuity plan together.
Confirm practice access to funds, records, credentials, vendor terms, and usable data exports.
Match indemnity, insurance, liability limits, and cure periods to each party's control of the relevant work.
Read all schedules and referenced policies, then put transition services, costs, and final reconciliation in writing.

Questions about your own practice? Contact richard@doctorsinvestorclub.com.