California Management Services Agreement Guide: Fees, Control Terms and the Provisions the Attorney General Has Targeted

How to Price the Management Fee

Section 650(b) says a percentage-of-gross-revenue payment for services that are not referrals is not unlawful if commensurate with the value of the services furnished, and Epic Medical Management v. Paquette (2015) declined to treat a comprehensive percentage-fee agreement as illegal as a matter of law while noting a strict line between medical and non-medical elements. The 2026 dental settlement with Aspen reportedly addressed revenue-based fees, so we use a fixed or fair-market fee set in advance for defined services, and we do not tie any fee to patient volume, collections or referrals.

What the Practice Must Keep

The Medical Board's page reserves clinical decisions and business decisions to physicians: diagnostic tests, referrals, overall patient care, patient volume and hours, medical records ownership, clinical-competency hiring and firing, payer contracting parameters, coding and billing and equipment and supply approval. A physician may consult unlicensed persons but keeps ultimate responsibility or approval. The agreement should say the practice, through its physician, makes and owns each of those decisions, and that the MSO's role is administrative support.

Terms to Avoid

The terms to keep out are an MSO right to replace the physician-owner, an assignable stock option, buy-sell terms requiring MSO consent, exclusive MSO financing, MSO control of advertising, payer contracts, equipment selection or clinician hiring, firing and pay, and break fees. The Carbon Health injunctive terms, as reported by law firms, bar full MSO control of advertising, payer negotiation, equipment selection and clinician hiring, firing and pay, bar MSO ownership in the practices including an assignable option and bar coercive exclusive financing, while carving out ordinary secured lending. In the Art Center appeal the Attorney General argued an MSO's right to replace the physician-owner means it effectively owns the practice even if never exercised. The Attorney General did not declare friendly-practice models unlawful in themselves.

Term, Records and Departing Clinicians

Records stay with the practice, because records ownership is a reserved physician decision. Employment non-competes are void in California, including those signed elsewhere, with civil liability and fee shifting for employees, so the practice does not ask clinicians to sign them. For contracts with private equity groups or hedge funds, SB 351 voids violating terms and bars certain post-termination non-competes and non-disparagement clauses, while preserving sale-of-business non-competes and valid non-disclosure agreements.

Filings, Notices and Watch Items

SB 351 and AB 1415 took effect January 1, 2026. AB 1415 adds MSOs and private equity and hedge fund owners as noticing entities for transactions reviewed by the Office of Health Care Affordability, with reported thresholds of $25 million of annual revenue or California assets, $10 million for transactions with noticing entities and 10% acquisitions, and an MSO triggers a filing only if it serves a health care entity meeting $25 million or serves two or more providers with $10 million or more in combined California revenue, according to a secondary source. The agency's regulations were reported as proposed final in September 2026. A single small cash-pay practice and MSO is probably below the thresholds but is not exempt by statute. Carbon Health's settlement is subject to court approval and Art Center is pending, so watch both.

Drafting Checklist

• Fee: fixed or fair-market monthly amount for defined services, no share of collections or volume.
• Decisions: records, hiring and firing for clinical competence, payer parameters, coding and billing and equipment stay with the physician.
• No replacement right: the MSO cannot replace or approve the physician-owner.
• No options: no stock options, assignable or otherwise, and no buy-sell terms requiring MSO consent.
• No exclusive financing: financing is not conditioned on exclusivity.
• No MSO control: advertising, payer negotiation and equipment selection are not controlled by the MSO.
• No break fee: termination does not carry a penalty that locks the physician in.
• Non-competes: none for employed clinicians.
• Notice: check the OHCA thresholds before any transaction.

How We Draft It

Patients pay the physician-owned practice, the practice pays the management company a fixed monthly fee under the agreement, and the management company pays MedGrid a fixed monthly retainer for consulting. The management company never practices medicine, and the agreement never moves a clinical decision to it. Our template follows the same flat-fee design in every state, with the state-specific limits below layered on top.

Disclaimer

This article is general educational information, not legal advice. Management agreement rules change and differ by state, and this summary draws on our published state guide, parts of which rest on secondary sources, so have health care counsel in the state review any agreement before you sign.