Percentage vs flat vs cost-plus: MSO fee structures state by state

Every management services agreement picks one of three fee structures: a percentage of revenue, a flat fee, or cost plus a markup. The pick used to be a business decision. In 2026 it is a regulatory one, because the states that police the corporate practice of medicine all ask the same question about the fee: is the MSO buying services at market, or sharing professional revenue?

Percentage of revenue

The industry default, because it is easy and it scales. Also the structure regulators target, because a fee that rises whenever collections rise looks exactly like splitting professional fees, and fee splitting is illegal in most states that license physicians.

How illegal depends on the state. Illinois is the cleanest cautionary tale: in Vine Street Clinic v. HealthLink (2006), the Illinois Supreme Court held a percentage-based fee for administrative services violated the Medical Practice Act and was void. Not fined. Void, as in the contract stopped existing. New York treats percentage management fees as fee splitting under its professional misconduct rules, a line it has enforced for decades. California nominally permits percentage compensation for services under Business and Professions Code 650(b), if the fee is commensurate with the value of the services, but SB 351 and AB 1415 now let regulators see the fee, which converts "commensurate" from a drafting flourish into a number somebody has to support.

A percentage fee is not automatically an overpriced fee. Its problem is the shape: it moves with revenue instead of with services, so it carries a fee-splitting argument inside it wherever it goes.

Flat fee

The conservative pick, and the structure fee-splitting review likes best, since a fixed number by definition does not share revenue. Two caveats. A flat fee with no cost build-up behind it is just a guess that does not fluctuate, and it fails the fair market value question the moment anyone asks it. And a flat fee that gets recalculated every quarter to track collections is a percentage fee wearing a disguise, a pattern regulators specifically look for. Set it from costs, refresh it on a schedule tied to the calendar or the MSA, never to revenue.

Cost plus markup

The structure healthcare counsel has been converging on, and the one regulators describe when they say a fee should bear a reasonable relationship to the cost of the services. It shares nothing, since profit rides on cost rather than collections. It prices scope directly, so it adjusts cleanly when a state forces services like payer contracting back to the practice. And it is the only structure that comes with its own evidence: a cost base benchmarked by specialty and a markup implied by comparable-manager margins, median 22.7% on cost. The fee benchmark guide walks the numbers and the two-check method is the workflow.

The state table

General information, not legal advice, and the map is moving fast enough that anything here deserves a counsel check before it drives a contract.

State Percentage fee The safer shape What changed lately New York Treated as fee splitting; professional misconduct Flat or cost-based, FMV-supported Long-standing rule, active enforcement Illinois Void under the Medical Practice Act (Vine Street, 2006) Flat or cost-based Settled law California Permitted under B&P 650(b) if commensurate with services Cost plus, documented SB 351 and AB 1415 effective January 1, 2026; OHCA can demand fee disclosures Oregon Fee shape secondary; MSO control is the target Cost plus, narrow scope SB 951: new arrangements comply by January 1, 2026, existing by January 1, 2029 New Jersey High risk under CPOM and anti-kickback rules Flat or cost-based CPOM enforcement remains active Texas Not per se banned; strong CPOM state FMV-supported, any shape MSO model common but scrutinized Florida Risky under fee-splitting and patient-brokering laws FMV-supported, documented Enforcement is fact-specific Most states Allowed but exposed Cost plus travels best The 2026 wave is adding states every session

Converting a structure

Plenty of platforms are sitting on percentage MSAs signed when nobody was reading them. The conversion is not complicated: build the cost base for the services actually delivered, apply a market markup, and amend the MSA to the new number as a cost-plus or flat fee. Do it before it becomes someone else's finding, whether that someone is a state agency with disclosure authority or a buyer's quality of earnings team repricing your EBITDA for you. A multi-state platform should convert to the strictest state it operates in, since running three fee structures across one platform is how amendments get missed.

Common questions

Is a percentage management fee legal? Depends on the state. Void in Illinois, professional misconduct in New York, conditionally permitted in California, and legal but increasingly exposed elsewhere.

What management fee structure does New York allow? Flat or cost-based fees set at fair market value. Percentage-of-revenue fees are treated as fee splitting.

What is a cost plus management fee? The cost of the services the MSO provides plus a market markup, median 22.7% on cost per healthcare outsourced-services M&A comparables. It is the structure regulators describe when they ask for a reasonable relationship between fee and cost.

Do existing MSAs have to change? In Oregon, existing arrangements have until January 1, 2029 under SB 951. California's rules apply to existing arrangements now. Elsewhere it is a risk decision, best made before a regulator or buyer makes it for you.

Sources and method

State law summaries reflect statutes, case law, and agency guidance as of September 2026, including 225 ILCS 60/22(A)(14) and Vine Street Clinic v. HealthLink (Ill. 2006), New York's professional misconduct rules on fee splitting, California B&P 650(b), SB 351 and AB 1415, and Oregon SB 951 as amended. Benchmark figures are free-tier medians from the MSOs module: cost benchmarks from public CMS data covering roughly 1.1 million clinicians, markups implied by 73 outsourced-services M&A comparables in the Scope Research Healthcare M&A Valuation Database.

This article is general market and regulatory information, not legal advice, and not a fair market value determination or valuation opinion. Laws in this area change quickly; consult healthcare counsel and a qualified appraiser for any specific arrangement.