Over the past two years, more than a dozen states have introduced or passed legislation targeting the relationship between management services organizations and physician practices. Oregon, California, Massachusetts, Indiana, Colorado, and others have introduced bills that restrict PE involvement in healthcare, increase transparency requirements, or impose limitations on the fees that MSOs can charge.
The narrative forming around these developments is that the MSO model is being regulated out of existence.
The Narrative Is Wrong
That narrative is wrong, and it's wrong in a way that matters for anyone evaluating the ophthalmology market.
Industry estimates place the U.S. healthcare MSO market at roughly $21 billion in 2024, with projections approaching $49 billion by 2034. The number that matters more for ophthalmology is simpler. PE penetration in the specialty sits at approximately 8%, according to the 2022 president of the American Academy of Ophthalmology, as reported by KFF Health News. That means 92% of the ophthalmology practice market remains independently operated and unconsolidated. There are more than 13,000 practices in the country, and the majority are solo or small group with no succession plan.
That isn't a market that's contracting. It's a market that's barely been touched.
What the Legislation Actually Targets
The regulatory pressure is real, but its target is specific. The legislation is aimed at specific behaviors within the model that have produced documented harm: management fees that consume a disproportionate share of practice revenue, non compete provisions that restrict physician mobility, staffing decisions made by non-clinical personnel that affect patient care, sale leaseback arrangements where MSOs extract real estate value from practices, and ownership structures so opaque that the actual decision makers are invisible to the physicians and patients affected by their decisions.
Every one of those provisions describes a specific behavior, and none of them describe the MSO model itself.
An MSO that charges a reasonable management fee for clearly defined services, preserves physician clinical autonomy, avoids non-competes designed to trap physicians, doesn't use sale leasebacks to extract real estate value, and operates on a permanent hold basis without a fund timeline isn't the target of any legislation currently passed or proposed in the United States.
Written Into the Statutes
The distinction is written into the statutes themselves. California's SB 351 defines "private equity group" using criteria that include pooled investment vehicles, fund structures with defined investment periods, and entities that acquire healthcare facilities for the purpose of generating returns for outside investors. A permanent hold MSO without fund investors, without leverage based acquisitions, and without plans to sell its management contracts doesn't meet that definition.
Massachusetts captures PE firms broadly but applies enhanced oversight based on ownership thresholds and control mechanisms. An MSO that holds no equity in the physician practice, exercises no control over clinical decisions, and operates solely through a management services agreement governing non-clinical functions falls outside those restrictions. Indiana's practitioner owned carve out explicitly exempts management arrangements where the physician retains ownership of the clinical entity.
A Competitive Filter
For investors evaluating the MSO space, the regulatory environment is functioning as a competitive filter. The operators who overcharged, used management agreements as instruments of control, and loaded practices with debt while extracting value through financial engineering are being removed from the market by legislation designed to address exactly the harm they caused. Every practice that a poorly structured MSO loses becomes available to a compliant operator.
For physicians evaluating management relationships, the regulatory wave is separating the MSOs that operate from the MSOs that extract. Three questions matter before signing: Who owns the MSO? Can it be sold without your consent? Is there an exit timeline? The answers will tell you everything about whether the relationship is built around operational support or financial extraction. The legislation didn't create that distinction. It just made it harder to hide.
Which Ones Survive
The MSO model is a $21 billion market projected to more than double over the next decade. The version that's dying is the one that treated management agreements as instruments of financial extraction rather than vehicles for operational support. The operators who built compliant structures, charged fair fees, preserved physician autonomy, and committed to long term relationships with the practices they manage are being left with a larger market, fewer competitors, and a regulatory framework that validates their approach.
The question for the next decade is which MSOs survive, and the answer is already being written into law.
This article is for general educational purposes and is not legal or financial advice.
Verdira is a healthcare acquisition platform focused on ophthalmology practices. Physician ownership. Transparent structure. No volume quotas. If you are evaluating the ophthalmology market and want to understand how different practice models affect transition planning, we are open to thoughtful conversations.
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