Do you need an MSO for your ABA practice in Tennessee?

Why Tennessee strongly enforces corporate practice

For medicine, Tennessee is a strict state: a non-physician-owned entity cannot own a medical practice that employs physicians, and the Board of Medical Examiners enforces that through licensure screening and discipline (T.C.A. § 63-6-204, the Medical Practice Act). That doctrine is tied to the practice of medicine, and behavior analysis is licensed separately, so it does not carry over to ABA. For an ABA practice the ownership question is open, and the MSO is a planning tool rather than a compliance requirement.

ABA is a licensed profession in Tennessee

Tennessee licenses behavior analysts. The Applied Behavior Analyst Licensing Committee, which operates under the Board of Examiners in Psychology within the Department of Health, issues the Licensed Behavior Analyst and Licensed Assistant Behavior Analyst credentials (T.C.A. Title 63, Chapter 11, Part 3; licensure under T.C.A. §§ 63-11-304 and 63-11-307), built on BACB certification. Because ABA is a licensed profession, the clinical entity is a professional entity, and Tennessee ties professional-entity ownership to licensure.

Who is allowed to own the clinical entity

Tennessee offers the professional corporation and the professional limited liability company, and if either is used its ownership is restricted to licensees (T.C.A. § 48-101-610; § 48-249-1109). But professional-LLC status is an optional election, not a mandate, so an ordinary LLC may render ABA with no licensed-ownership rule, and a non-licensee may own that entity directly. Outside capital can therefore hold equity in the practice itself; a separate management company is one option, not a legal necessity.

What a management services organization actually is

An MSO is a separate company that provides the non-clinical side of a practice to a clinical entity it does not own. The clinical entity employs the licensed clinicians and holds the license. The MSO employs everyone else and runs the business. A management services agreement ties them together, and the clinical entity pays the MSO a fee. The two are deliberately separate companies contracting at arm's length, not parent and subsidiary.

When an MSO makes sense here

Because a non-licensee may own the clinical entity directly, a founder, operating partner, or private-equity sponsor can hold equity in the practice itself. Some operators still place administrative functions and enterprise value in a management company because it is easier to finance and sell, and a multi-state group often consolidates that way, but in Tennessee this is a business decision, not a requirement. See the practice expansion and sale page for the transaction view.

How Tennessee would evaluate your MSO arrangement

Tennessee looks at substance, and it looks closely. These are the factors that decide whether a structure reads as legitimate or as disguised non-licensee ownership of the practice.

Fee-splitting and how to pay an MSO

Tennessee restricts fee-splitting under its Medical Practice Act, and a violation of that act can carry a criminal penalty, so fee design matters here more than in a permissive state. Fixed and cost-plus management fees are the safest and cleanest to defend because they trace to documented services. A percentage-of-revenue fee is riskier and should, if used at all, be set to the fair market value of real services rather than function as a split of professional fees. For TennCare and other Medicaid clients, the federal anti-kickback statute applies on top (42 U.S.C. § 1320a-7b(b)).

Keeping clinical control on the right side of the line

The structure holds only while the MSO stays on the business side and the licensed behavior analysts keep genuine authority over clinical decisions, clinical supervision, and professional judgment. In an actively enforcing state, an arrangement where the management company effectively controls the clinical entity is the exact target of the doctrine. Write the management agreement so clinical control, hiring, and termination of clinicians stay with the clinical entity.

How this connects to the rest of your compliance stack

Ownership is one layer. Three others interact with it directly, and getting the MSO right does not resolve them:

• Payor and Medicaid disclosure. Your real ownership stack, including any MSO, is disclosed at enrollment and revalidation regardless of how it looks on paper (42 C.F.R. Part 455). See Medicaid and insurance mandates.
• Facility licensure. A change in the ownership or service model can affect facility and records obligations. See facility licensure and HIPAA.
• Entity structure. The PLLC-versus-PC choice and the single-profession and ownership rules are their own analysis. See entity structures for ABA practices.

Setting it up in Tennessee: the sequence

1. License the practitioners. LBAs and supervised LABAs through the Applied Behavior Analyst Licensing Committee (T.C.A. Title 63, Chapter 11, Part 3).
2. Form the clinical entity. A PLLC or PC owned by licensees, or a permitted combination, rendering a single profession (T.C.A. §§ 48-101-610, 48-249-1109).
3. Form the MSO. A standard LLC or corporation, owned by the founders or investors, providing only non-clinical services. This is where any non-licensee equity lives.
4. Paper the management services agreement carefully. Set the fee to fair market value, avoid fee-splitting, and keep clinical control with the clinical entity.
5. Screen for fee-splitting and kickback exposure. Confirm the fee structure under the Medical Practice Act and, for TennCare clients, the federal anti-kickback statute.
6. Confirm with Tennessee healthcare counsel. In an actively enforced state, the entity rules and the management agreement should be reviewed together before any investment.

Tennessee MSO variables at a glance

Frequently asked questions