For a California hearing center looking to add audiology services, the central issue is how to separate professional audiology services from administrative support. A PC + MSA structure may provide one way to organize these functions, with professional services delivered through the appropriate audiology entity and defined non-clinical support provided by a separate business. 

The key questions are who owns and controls the professional entity, who makes clinical decisions, what administrative services the MSA actually covers, how compensation is calculated, and whether the arrangement creates referral or federal healthcare-program concerns.  The structure should be reviewed under the California rules applicable to the specific entities, licenses, services, and ownership involved. 

Audiology Management Services Agreement California: The Basic Structure 

An audiology management services agreement, or MSA, is a contract under which a separate business provides defined non-clinical administrative services to an audiology professional practice. 

Your California hearing-aid practice may already have office space, equipment, scheduling systems, billing infrastructure, and front-office staff, but the existing corporation may not be the appropriate entity to provide professional audiology services.  

A PC + MSA structure can separate those functions: the professional entity provides audiology services, while the existing hearing-aid business may provide defined non-clinical administrative support, subject to applicable legal and professional requirements. The MSA does not, however, allow the hearing-aid business to exercise ownership or control that those requirements prohibit. 

The MSA should not become a substitute for professional ownership or control over the audiology practice. The substance of the relationship matters, not simply the labels used in the contract. 

The Basic Professional Corporation + Management Services Agreement Structure 

Here’s a summary of the respective roles of the audiology professional corporation and the existing hearing-aid business. 

In general, the distinction is that the management business can provide the audiology practice with administrative support, which must never overreach into any control over professional decisions. 

Risks of an Improperly Structured Management Services Agreement 

MSAs are theoretically permissible but with substantial legal and compliance risks. Similar arrangements have been legally scrutinized when a management company exercises control or discretion over a professional practice rather than limiting its role to defined administrative support. 

In People ex rel. Allstate Insurance Co. v. Discovery Radiology Physicians, P.C. (2023), the California Court of Appeal found violations in management arrangements where nonphysician entities exercised control over medical practices, including through authority over operations, referrals, billing, and collections, alongside claims to substantial portions of professional revenue. 

The ruling doesn’t mean every MSA structure is unlawful, but even with defined limits, the parties’ actual operations must reflect them. Both the agreement and the way the parties carry it out must be reviewed for provisions or practices that could give the management company control over professional decisions. 

Why Start With the Professional Corporation? 

A hearing aid business alone cannot offer professional audiology services. Even with an MSA arrangement, these services can only be offered through the legally approved business entity: a California professional audiology corporation. 

California Business and Professions Code § 2536 specifically identifies audiology corporations as the approved business entity for providing professional audiology services. It must operate in compliance with the Moscone-Knox Professional Corporation Act, the applicable audiology-corporation statutes, Speech-Language Pathology and Audiology and Hearing Aid Dispensers Board rules, and other relevant laws and regulation, and other relevant laws and regulations. 

Professional Corporation Ownership and Governing Rules: The Basics 

California law generally requires an audiology corporation to be owned and controlled by licensed audiologists. And California Corporations Code § 13401 establishes the licensing requirements for professional corporation shareholders, directors, and officers. 

While audiology corporations must be owned by licensed audiologists, Cal. Corp. Code § 13401.5 (e) allows licensed speech-language pathologists to hold minority shares. But their combined shares cannot exceed 49% of the corporation’s total shares. 

These ownership and governance rules are among the reasons to make sure you have a properly formed audiology professional corporation before arranging an MSA setup for management support.

Read our guide to starting an audiology private practice in California and learn why establishing the professional business entity comes first before setting up a management services agreement. 

To understand why the existing business entity matters before hiring an audiologist, read our guide to whether a general corporation can hire audiologists in California.

What Can an Audiology MSA Cover? 

With the professional corporation’s role established, the management services agreement (MSA) can define the non-clinical support the existing hearing-aid business provides. This arrangement may allow the audiology corporation to use existing business resources without duplicating them. The agreement should clearly identify each service and its limits rather than give the management company broad, open-ended authority.

Office Space and Equipment 

Depending on the agreement and applicable law, the management business may provide office space, equipment, or supplies for the professional practice’s use. 

The agreement should identify what is being provided and how the terms are determined. Where a lease, rental arrangement, or equipment-sharing agreement is involved, the parties should document the arrangement and review the applicable compensation and other legal requirements. 

Scheduling and Administrative Support 

The management company may provide appointment scheduling, front-desk support, and other non-clinical functions. Scheduling support should remain administrative rather than extend into professional decision-making. For example, the management company may offer available appointment times, send reminders, and handle rescheduling according to the audiology practice’s procedures. 

It should not independently decide which patients need evaluations, determine clinical priorities, or pressure staff to schedule or redirect patients to meet business or referral targets. The agreement and actual procedures should preserve the professional practice’s authority over these decisions. 

Billing, Bookkeeping, and Procurement 

Other potential administrative services include bookkeeping, billing administration, and procurement. 

Billing administration needs clear boundaries. The parties should document who performs each function and who is responsible for professional decisions, records, claims, and compliance obligations. If billing or scheduling involves protected health information, the parties should assess applicable HIPAA requirements and whether a business associate agreement or other documentation is needed.

What Should Stay Under Professional Control? 

The central question is whether the management company’s involvement remains administrative or extends into control over professional audiology services. 

Clinical Judgment

The professional audiology practice should retain authority over decisions requiring clinical judgment, including: 

• Selecting appropriate diagnostic tests and evaluation procedures for each patient. 
• Interpreting test results and determining clinical findings. 
• Recommending appropriate follow-up care or referrals based on clinical findings. 
• Establishing and applying clinical protocols and professional standards. 
• Determining whether a proposed service falls within the audiologist’s professional scope and expertise. 

A management company may provide administrative support, but it should not direct these clinical decisions or override the audiologist’s professional judgment. 

Patient Acceptance and Professional Scope 

The audiology corporation should retain the authority over which audiology services it provides and decisions involving professional judgment about patient care. 

Business systems may support intake, scheduling, and administrative processing. Those services should not be confused with power to determine which patients receive professional services or what care they receive. 

Professional Staffing and Protocols 

The audiology professional corporation should retain authority over hiring, supervising, and evaluating audiology personnel, as well as establishing clinical protocols. The management company may assist with administrative tasks, such as payroll processing and schedule coordination, but it should not direct how audiologists perform evaluations or require them to follow protocols that conflict with their professional judgment. 

For example, the management company may coordinate staff schedules and maintain administrative records, while the professional corporation determines which qualified audiologist provides a service and which clinical procedures are appropriate. The management services agreement should reflect this division of responsibilities in its written terms and day-to-day operations. 

How Should an Audiology MSA Be Compensated? 

Compensation should be structured around legitimate administrative services and reviewed against the California rules governing referrals, fee splitting, and the specific professional services involved. 

California Business and Professions Code § 650 addresses consideration offered or received as an inducement for patient referrals. It also contains a provision concerning compensation for services other than referrals. Whether a proposed management fee is appropriate depends on the specific parties, services, compensation methodology, and other applicable legal requirements. 

The agreement should document the administrative services being provided by the management company, the compensation methodology, and the basis for the proposed payment. Do not assume that a fixed fee, percentage-based fee, or revenue-based formula is permissible for a particular audiology PC + MSA arrangement without attorney-reviewed authority. 

Fixed Fees and Cost-Based Approaches 

A written MSA should identify: 

• What services the management company provides. 
• What compensation it receives. 
• How the compensation methodology was established. 
• What records support the fee or cost allocation. 
• Whether the compensation is connected to patient referrals. 

A fixed administrative fee, hourly charge, defined cost allocation, or payment for space or equipment may be considered depending on the circumstances. The parties still need to assess the actual terms, the value of the services, and the legal rules that apply. 

The agreement should reflect the relationship that actually exists rather than assign a label to a payment whose basis is unclear. 

Percentage-Based Compensation 

A percentage-based fee requires careful review. Section 650(b) of the California Business and Professions Code addresses certain percentage-based compensation for services other than referrals when the consideration is commensurate with the value of the services furnished or the fair rental value of premises or equipment provided. 

That statutory language is not blanket approval of every percentage-based MSA fee. The parties need to evaluate the precise compensation formula, services, professional rules, and any additional state or federal requirements before relying on it. 

California Corporations Code § 13408.5 addresses fee-splitting and kickback concerns in specified professional-corporation contexts, but its text specifically references physicians and surgeons and psychologists. Its wording refers to physicians and surgeons or psychologists and specified provisions of the Business and Professions Code, so its application to a particular audiology arrangement should not be assumed without reviewing the current law and facts. 

Referral-Linked Compensation 

A separate issue arises when payments or other financial benefits are connected to patient referrals. 

For example, concerns may arise if the hearing aid business earns more because the audiology corporation sends patients to it, or if the audiology corporation receives better administrative terms because it refers patients back to the hearing aid business. 

The parties should not design the MSA as a mechanism to reward referrals. They should separately evaluate the administrative services being provided and the professional referral decisions made by each practice. 

This is the central fee-splitting and referral arrangements issue: the parties must assess what the payment is actually for, how it is calculated, and whether the arrangement creates an improper financial incentive. 

The legality of a specific fee formula should be confirmed with counsel before the parties rely on it. 

What Can Go Wrong With an MSA? 

The main concern in this structure is not the existence of an MSA itself. It is whether the agreement or actual operations allow the management company to function as the practical controller of the professional practice. 

Several warning signs deserve attention: 

• The management company dictates clinical decisions or protocols. 
• The professional corporation exists only on paper while another business makes substantive professional decisions. 
• Professional staffing is controlled in a way that overrides required professional authority. 
• Compensation is tied to referrals or structured without a clear relationship to the administrative services provided. 
• One business requires the other to send patients to it. 
• The agreement gives the management company broad authority over professional operations. 
• The written agreement does not match the way the businesses actually operate. 

The same People v. Discovery Radiology (2023) California case law illustrates why actual control and operations can matter in litigation. For a hearing aid business working with an audiology corporation, this highlights the risk of an MSA that gives the business practical control over professional audiology services rather than limiting it to specific administrative and management functions. The goal is to maintain a genuine division between professional services and administrative support, not merely to create separate entities or label one party a management company.

Example: Existing Hearing Aid Business + Audiology PC 

A California hearing-aid business already has office space, equipment, and front-desk staff. Under an MSA, it provides the audiology professional corporation with defined support, such as room and equipment use, appointment scheduling, and billing administration.  

The agreement documents these services and how fees are determined. The audiology corporation retains control over clinical testing, interpretation of results, treatment recommendations, and professional referrals. If the hearing-aid business starts directing these decisions or ties its compensation to patient referrals, the arrangement raises additional legal concerns and should be reviewed by California counsel. 

What Changes When Medicare Is Involved? 

Medicare adds federal fraud-and-abuse and billing considerations that need to be reviewed alongside California’s professional corporation and referral rules. 

These Medicare billing rules address when particular audiology services may be covered and billed. They do not determine whether the underlying PC + MSA relationship complies with California professional-practice, referral, compensation, or corporate-practice rules. 

Medicare Billing and Eligibility Requirements 

Generally, Medicare requires a physician’s order, subject to a limited direct-access exception for certain diagnostic tests personally furnished by an audiologist for non-acute hearing conditions once every 12 months. The exception does not cover tests for disequilibrium or imbalance and claims for eligible services to use the AB modifier. The current requirements and applicable service codes should be confirmed before billing. 

An MSA does not, by itself, establish Medicare billing eligibility. The parties should separately confirm the professional’s qualifications, entity and enrollment requirements, covered services, documentation, coding, and any applicable order or referral requirements. 

The Centers for Medicare & Medicaid Services’ audiology guidance explains Medicare’s approach to covered audiology services and physician-order requirements. 

The Medicare Anti-Kickback Statute 

The federal Medicare Anti-Kickback Statute in 42 U.S.C. § 1320a-7b(b) prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward certain referrals or arrangements involving items or services payable by a federal health care program. 

Federal regulations include a safe harbor for personal-services and management contracts under 42 C.F.R. § 1001.952(d). Among other conditions, the arrangement must be in writing and signed, specify the services, generally have a term of at least one year, and use a compensation methodology established in advance that is consistent with fair market value in arm’s-length transactions.  

The methodology must not take into account the volume or value of certain referrals or federally reimbursable business generated between the parties. The safe harbor also includes requirements concerning the services and their commercial reasonableness. 

A safe harbor is not automatic approval of every MSA. An arrangement that does not satisfy a safe harbor is not necessarily automatically unlawful, but it does not receive that safe harbor’s protection. The actual facts, compensation, and applicable state and federal rules need to be evaluated. 

For that reason, a Medicare-facing MSA should receive appropriate legal review before the parties begin billing federal healthcare programs or making payments under the arrangement. 

Does the Stark Law Apply? 

The federal Stark Law (42 U.S.C. § 1395nn) generally prohibits certain referrals by physicians with a financial relationship with an entity furnishing “designated health services” payable by Medicare, subject to applicable exceptions.  

Audiologists are not included in the statutory definition of “physicians” under the Stark Law, and audiology services are not in its list of “designated health services.” Therefore, Stark likely does not directly apply to an audiology PC + MSA arrangement. 

However, if the audiology corporation employs or contracts with a physician, such as providing orders for certain audiology services, Stark compliance may become relevant. The arrangement would need to satisfy the requirements of an applicable exception, such as the personal services arrangement exception. 

Whether Star Law applies could change if physicians, physician referrals, or other Stark-covered services become part of the arrangement. 

What Documentation Should the PC + MSA Include? 

The written documents should make the division between the two businesses clear and should reflect how they actually operate. 

Before implementing the arrangement, the parties should address: 

• Entity details: The parties to the agreement and their respective roles. 
• Administrative services: The services being provided and the limits of the management company’s authority. 
• Office space and equipment: Any lease, rental, or shared-use arrangements. 
• Compensation: The payment methodology and records supporting how it was determined. 
• Professional responsibility: Who provides professional services and retains the required professional authority. 
• Staffing and clinical decisions: The respective responsibilities for professional staffing, patient acceptance, and clinical protocols. 
• Referrals: How the parties will avoid structuring compensation as a reward for patient referrals. 
• Medicare responsibilities: Where relevant, responsibility for billing, documentation, coding, enrollment, and other applicable requirements. 
• Privacy and data handling: The obligations that apply when patient information is accessed, stored, or processed. 

If the management company handles billing, scheduling, or other activities involving protected health information, the parties should evaluate their HIPAA obligations and whether a business associate agreement or other documentation is required. 

The documentation should be consistent with the actual arrangement. A contract saying that the audiologist retains professional authority will not solve a problem if the management company is making those decisions in practice. 

Questions to Resolve Before Signing an MSA 

Before implementing a PC + MSA structure, work through the following questions with qualified counsel.

This checklist can help identify issues before they become embedded in the operating relationship. 

If you’re also evaluating the broader entity question, you can read our related guide to starting a hearing-aid business with an audiology professional corporation. 

FAQs About a California Audiology MSA 

What is an audiology management services agreement? 

An audiology management services agreement is a contract under which a separate business provides defined administrative or other non-clinical support to an audiology professional practice. It should distinguish those services from professional decisions retained by the audiology practice. 

Can an audiology practice use an MSA in California? 

Potentially. California recognizes audiology corporations subject to the applicable professional-corporation statutes and regulations. The legality of a particular MSA depends on the entities, ownership, services, compensation, control, and other facts involved. 

What Can the Management Company Provide?

Depending on the arrangement, the management company may provide defined non-clinical support, such as scheduling, bookkeeping, billing administration, office space, equipment, supplies, and other administrative services.

Who controls clinical decisions under an audiology MSA? 

The professional audiology practice should retain the authority required by applicable law over professional matters. California case law illustrates why the actual degree of management-company control can matter, but each proposed audiology arrangement must be assessed under the rules applicable to its facts. 

Can a management company pay a percentage of revenue?

California Business and Professions Code § 650(b) permits certain percentage-based compensation for services other than patient referrals when it is commensurate with the value of the services provided or the fair rental value of premises or equipment. The specific arrangement requires review under applicable California and, where relevant, federal rules.

Does Medicare involvement change the MSA analysis? 

Yes. When services or items are payable by a federal healthcare program, the Anti-Kickback Statute and its applicable exceptions and safe harbors become important considerations. The personal-services and management-contract safe harbor contains specific requirements for the agreement, services, compensation, and referral-related terms. 

Is There Another Option Besides a PC + MSA Structure?

Another option is for the licensed hearing-aid dispenser to fulfill the education, training, and licensing requirements to become a licensed audiologist. This route may require substantial additional time and education, so it may not be practical for every hearing-aid practice owner. 

However, that option may require additional education, licensing, and time that would delay your plans for business restructuring. It may not be practical for every hearing-aid practice owner.

Planning an Audiology MSA in California? Start With the Right Legal Structure 

If you’re exploring audiology management services agreement with California options, a PC + MSA structure can be an option as long as it clearly separates professional audiology services from administrative support.  

California courts have scrutinized these arrangements, especially when boundaries between professional and management functions get unclear in practice. Getting the structure right from the outset — and maintaining appropriate boundaries in day-to-day operations — is essential to reducing legal risk. Before you form the entities or sign an MSA, work with California business lawyers who understand professional corporation requirements and corporate practice restrictions.  

Contact Incorporation Attorney today and schedule a Kick-Off Call to make sure you are restructuring your business in compliance with California law. 

Disclaimer: This article provides general information about California business and professional-entity issues and is not legal advice. The application of these rules depends on the specific facts and current law. Consult qualified legal counsel before implementing an audiology PC + MSA structure.