Keeping Private Practices Private
As private capital increasingly reaches physicians through management services organizations, the language of partnership has outrun the substance. The management agreement, not the pitch, reveals who governs the practice.
“Independence” has become the most overused word in physician practice transactions. Private equity platforms invoke it, as do health systems and the growing number of management services organizations (MSOs) through which much of today’s practice consolidation is structured. For an independent specialty group weighing its options, the word has come to mean everything and, consequently, very little.
Some of these arrangements preserve physician autonomy in substance. Many preserve it only in form. The distinction is seldom visible in the initial proposal. It resides in the management services agreement, and it tends to surface two or three years after signing, when decisions about staffing, contracting and capital are no longer the physicians’ to make.
Having spent my career running the business side of medical practices, I hold a simple view: a well-structured MSO can be the most valuable partner an independent group ever takes on, while a poorly structured one amounts to a sale conducted in slow motion. Physicians deserve a reliable way to tell the difference.
The economics behind the offers
The pressures on independent practice are structural rather than cyclical. According to the American Medical Association, only 42% of U.S. physicians worked in private practice in 2024, down from roughly 60% in 2012. Reimbursement has failed to keep pace with the cost of labor, technology and compliance, while the administrative burden of prior authorization and documentation continues to grow.
California presents the problem in sharper relief. The state undertook the largest Medicaid expansion in the country while reimbursing providers at some of the lowest rates. For groups with a substantial Medi-Cal population, revenue has become difficult to forecast from one budget cycle to the next.
The specialties that have remained most independent, among them orthopedics, cardiology, gastroenterology, dermatology, urology, ophthalmology and otolaryngology, are also among the most highly compensated in medicine. That combination of autonomy and margin is precisely what makes them attractive to investors.
For a physician carrying a full clinical schedule, covering call and running an enterprise at the same time, the proposition that someone else will manage the business is understandably compelling. The more consequential question is what must be surrendered in exchange.
The case for private capital, fairly stated
It would be neither accurate nor fair to characterize private equity as uniformly harmful. Outside capital can fund technology, recruitment and expansion that a smaller group could not finance on its own. For physicians approaching retirement, a transaction may represent a rational exit, and some groups do operate more effectively under professional management.
Physicians should, however, understand the architecture of these transactions. In California and most other states, corporate practice of medicine laws prevent investors from owning a medical practice outright. The typical structure therefore divides the enterprise in two: investors own the MSO, while physicians retain nominal ownership of the professional corporation. The management services agreement between the two entities determines where control over billing, contracting, hiring and profit actually resides.
The structure is also designed with a subsequent sale in mind. Private equity funds generally anticipate exiting an investment within several years, which means the counterparty a practice signs with may not be the one it ultimately answers to.
The evidence on post-acquisition behavior warrants attention. A 2022 study in JAMA Health Forum found that, following private equity acquisition of dermatology, gastroenterology and ophthalmology practices, charges per claim rose 20% and allowed amounts rose 11%. A 2025 Health Affairs analysis found that private equity–affiliated cardiologists and gastroenterologists negotiated prices 6% to 10% higher than their independent counterparts. Higher prices are not inherently problematic. The relevant questions are who captures the difference, and who determines how it is earned.
California has since codified its own answer. SB 351, effective January 1, 2026, prohibits private equity groups and hedge funds from controlling core decisions in the physician practices in which they invest, including medical records, clinician hiring, payer contracting, and billing and coding. It also restricts noncompete and non-disparagement provisions in management agreements. Legislation of this kind rarely precedes the problem it addresses.
Five questions for any prospective MSO
Whether a proposal originates with a private equity platform, a health system or an independent firm, the following questions reveal most of what a practice needs to know.
Who owns what, and is a second sale built in?
Establish who holds equity in the MSO, whether the practice is expected to roll equity into it, and what becomes of the relationship if the MSO itself is sold.
Where does final authority rest?
An MSO may legitimately negotiate payer contracts, administer billing and recruit providers on a practice’s behalf. The physicians, however, should approve and execute payer agreements, own the medical record and decide who joins the practice. Where final authority over these matters sits with the MSO, the practice is not independent. It is managed.
How is the MSO compensated?
A transparent fee for defined services, a percentage of collections and a share of profits create markedly different incentives. Practices should understand precisely which model they are accepting, and why.
What does it take to leave?
Examine the term, the termination provisions and the disposition of staff, systems and data upon exit. A partner confident in the value it delivers has little need to make departure prohibitive.
Does the engagement begin with milestones or with control?
A credible partner does not assume every function on the first day. It takes on the capabilities the practice needs most, demonstrates results, and expands its role against milestones the physicians have agreed to.
It is a question of governance: whether decisions rest with those who care for patients or with those who own the platform.
What real partnership requires
The model I advocate is not complicated. The practice retains ownership. Physicians retain every clinical decision and every decision that shapes clinical care. The MSO contributes infrastructure, expertise and relationships, and absorbs the cost and burden of building those capabilities.
In practical terms, this means delivering operational capacity faster than a practice could assemble it alone. Too many groups depend on a single individual, often an office manager who is also responsible for human resources, payroll, information technology and vendor contracts. A capable partner should be able to assume those functions, model the next stage of growth alongside the physicians, and execute against milestones they have endorsed.
It also means the MSO accepts real risk. If a practice is free to leave, the MSO must continually earn the relationship. From the physician’s perspective, that is not a flaw in the model. It is the model’s central safeguard.
Keeping private practices private is not an exercise in nostalgia. It is a question of governance: whether decisions rest with those who care for patients or with those who own the platform. Physicians can secure the resources of a larger organization without ceding that authority, provided they ask the right questions before the agreement is signed rather than after.
This article is general information, not legal advice. Practices considering any management or investment agreement should review it with health care counsel.
Laurie Gallagher
Laurie Gallagher is Executive Director of Coordinated Health Solutions LLC, a physician-aligned management services organization in Newport Beach, California, and Executive Director of Newport Orthopedic Institute. She previously built and led a 41-clinician multi-specialty group as Director of Ambulatory Operations at Martin Luther King, Jr. Community Hospital, and held operations roles at Torrance Memorial Physician Network and St. Jude Medical Center. Colleagues know her for revenue cycle and performance improvement work, and for opening clinics from the ground up. chsmso.org