Healthcare Management Services Organizations (MSOs) play a crucial role in the healthcare industry, delivering a wide array of services such as revenue cycle management, billing, IT support, human resources, and financial oversight. Exact numbers are hard to come by, but the presence of Private Equity has been a contributing factor to the rapid growth within the MSO space.
The appeal for healthcare providers across disciplines as varied as ophthalmology, orthopedics, dermatology, or medical spas has been straightforward: By outsourcing non-clinical functions to MSOs, they can streamline administrative processes, reduce costs, and improve revenue streams. And as more and more providers enter agreements with MSOs, they become increasingly essential – and consequential – partners in the healthcare ecosystem, aiding in the effective delivery of services and helping providers navigate the increasingly complex healthcare landscape.
However, as the demand for MSO services grows, and the number of clinics supported increases, common challenges emerge, namely staffing, scaling, capital access, and cybersecurity.
Below are the three areas in which MSOs can effectively navigate these challenges and achieve their organizational goals.
Managing Staffing Challenges
Staffing is one of the most critical issues in the healthcare sectors, particularly when it comes to retaining high-quality employees. As MSOs grow, particularly when scaling from 5 to 40 locations, the challenge of building a sustainable back office becomes apparent. During this growth phase, organizations must establish essential departments like accounting, IT, and HR, which, although not directly generating revenue, are vital for supporting the organization’s overall operations and continued growth.
These departments are critical for attracting and retaining top quality personnel. A good HR department will create attractive benefit plans and compelling continuing education programs, keeping employees engaged while providing professional development opportunities. By investing in their staff, MSOs will see an increase in productivity and patient care quality, which in turn will lead to a strong organizational culture.
A robust IT department will build out an IT infrastructure that streamlines operations and reduces staff workload. This can include leveraging data analytics and AI applications to enhance efficiency in areas like time entry, client billing, patient scheduling, and reporting.
Once an organization has built out these core departments, it can often manage further growth without significantly increasing staff, thanks to automation and a well-established infrastructure. It’s critical for MSOs to build out their operational playbooks during this phase of growth so that staff can focus more on patient care and less on administrative responsibilities. This scalability allows for greater efficiency and supports continued expansion without overwhelming the existing team, keeping the staff happy.
Larger organizations, typically those with more than 60 locations, can then shift their focus from managing costs to adding additional services, driving revenue growth.
For smaller organizations, however, the struggle lies in efficiently managing back-office functions without overextending resources, which can hinder their ability to grow and compete effectively. The larger the organization, the better it can control expenses and focus on top-line growth, making it less vulnerable to the pressures faced by smaller entities.
Managing Growth and Capital Resources
Scaling and capital challenges are significant concerns for MSOs aiming for growth. As these organizations expand, they face the dual challenge of scaling their operations while managing a large and complex back office. Economies of scale and operational efficiencies are achieved through growth, but staying small can hinder long-term success. In today's market, with capital becoming harder to access, many groups find themselves stuck in the 10 to 30 location range, struggling to achieve profitability. This scarcity of capital forces organizations to focus on making the most out of their existing resources, emphasizing same-store growth and operational efficiency.
One way to control costs during this growth phase is by forming strategic partnerships and outsourcing non-core functions. Hiring, training, and developing a large back-office staff is time consuming and costly. Using partners to build and scale their IT or accounting environments can allow MSOs to reduce operational costs and focus their capital on acquisition activity or core medical services.
The operational frictions experienced by private equity-backed healthcare groups in particular are often a result of rapid growth. These organizations frequently add multiple new locations each year, which brings challenges in maintaining consistent policies and compliance across all sites. With each new acquisition, aligning practices with HIPAA regulations, ensuring uniform handling of protected health information (PHI), and managing credentialing and licensing requirements become increasingly complex. The need to streamline operations while maintaining regulatory compliance and integrating new locations creates substantial friction, making it difficult to sustain a cohesive and efficient organization.
Developing an Integrations playbook is critical for MSOs during this early phase of growth, as it creates a standard and allows the group to consolidate key functions. With economies of scale, these companies can then negotiate better deals with vendors and streamline their operations, allowing them to concentrate on expanding their business through de novo growth or acquisitions or introduction of new products and services.
Cybersecurity: Best Practices for Protecting Patient Data
Another concern is cybersecurity, especially for smaller clinics transitioning to cloud-based systems. Many of these facilities still use on-premise servers, which are secure locally but complicate data management and compliance when MSOs need to consolidate information or look for macro insights. Transitioning to the cloud offers easier data access and consolidation, vital for managing multiple locations, but requires careful handling to ensure network security and compliance.
As organizations grow, especially those backed by private equity, managing cybersecurity becomes more complex. Expanding locations increases the challenge of synchronizing and securing data across sites. Local servers may be less vulnerable to external breaches but create delays in data extraction and integration, impacting decision-making and performance monitoring. Therefore, a strategic approach is needed to align systems, ensure security, and support real-time data access and analysis.
To scale effectively, healthcare providers must transition to cloud-based systems to address these cybersecurity and data management challenges. The cloud provides better visibility, control, and security than on-premise servers. While cloud environments generally offer higher security standards, transitioning requires meticulous planning to maintain compliance and protect sensitive information. Proper cloud implementation can enhance efficiency but must be supported by strong cybersecurity measures to safeguard against potential threats.
Preparing for Continued Growth
Management Services Organizations have become a transformative solution for healthcare professionals and licensed healthcare facilities seeking to offload non-clinical operations and administrative tasks so they can concentrate on delivering high-quality patient care while enhancing efficiency and compliance.
The demand for MSO services is set to rise significantly in coming years, driven by the rise in investments by private equity firms and the increasing consolidation of smaller practices. If healthcare providers and facilities that collaborate with MSOs can plan to effectively navigate their most common challenges, they will be better equipped to maintain a competitive edge in the future.
Duff Bourassa is managing director for healthcare at E78 Partners. The Oak Brook, Ill.-based E78 Partners is a consulting and advisory services firm active in a number of industries. In healthcare, it is focused on enabling healthcare organizations to navigate regulatory uncertainty, technology integration and evolving consumer preferences.
