7 min read
2024-06-24
How automated sweep rules implement MSA terms across an MSO-PC group, the patterns most groups use, and how to keep them audit-defensible.
Automated sweep rules turn an MSO-PC group's daily cash management from a multi-hour reconciliation task into a background process. They also enforce the discipline of a Management Services Agreement (MSA) without requiring a CFO to manually push transfers each month.
This guide covers what sweep rules are, the patterns most multi-PC groups end up using, what to watch out for, and how to set them up without breaking the audit trail.
What a Sweep Rule Actually Is
A sweep rule is a banking-side automation that moves money between accounts when defined conditions are met. The rule has three parts:
A trigger: a balance threshold, a date, an event (like a deposit landing).
An action: how much to move, from which account, to which account.
A reference: a memo identifying which agreement or policy the transfer is tied to.
The bank executes the rule on schedule or when the trigger fires. The CFO reviews exceptions; everything else runs in the background.
Common Sweep Patterns for MSO-PC
Three patterns cover most groups:
Management Fee Sweep
Each month on day 1 (or another fixed date), sweep the agreed management fee percentage from each PC's operating account to the MSO's operating account. The rule references the MSA clause and the calculation basis (e.g., 12 percent of prior-month collections).
Excess-Cash Reserve Sweep
When a PC's operating balance exceeds the target floor (typically 30 to 60 days of operating expenses), sweep the excess into that PC's reserve or yield-earning account. Keeps idle cash earning APY without leaving operations under-funded.
FDIC Coverage Sweep
The IntraFi-style sweep that distributes balances above $250,000 across multiple FDIC-member banks behind the scenes. This runs continuously, not as a scheduled rule, but is configured at account opening.
Threshold-Based, Schedule-Based, or Hybrid
Each pattern uses a different trigger style:
Threshold-based: "if PC-3 holds more than $X, move $Y to reserve." Best for excess-cash sweeps where balances vary.
Schedule-based: "on day 1 of each month, sweep the management fee." Best for MSA-defined transfers where timing matters.
Hybrid: "on day 1, sweep management fee, then if balance still exceeds threshold, move excess to reserve." Best for groups that want both predictable timing and dynamic amounts.
Most multi-PC groups end up running a hybrid setup. The schedule-based rule covers MSA obligations; the threshold-based rule covers cash optimization.
How Sweep Rules Interact With Your MSA
The sweep rule is the operational implementation of MSA terms. They have to match exactly:
If the MSA says 12 percent of collections, the sweep rule cannot move 14 percent.
If the MSA says management fees flow monthly, the sweep cannot run weekly.
If the MSA defines a base fee plus variable, the sweep needs both rules in sequence.
If the MSA terms change, update the sweep rules at the bank the same day. Drift between MSA terms and actual transfers is one of the most common audit findings, and it is entirely preventable.
What Generic Business Banks Get Wrong
Most generalist banks support some form of sweep, but the implementation falls short for MSO-PC:
No cross-entity sweeps. Generic sweep rules typically operate within a single legal entity, not across MSO and PC accounts.
No memo or reference fields per transfer. Audit defense requires per-transfer references; generic banks don't expose this.
Manual amount entry per cycle. Threshold-based rules are easier to misconfigure when amounts have to be entered manually.
Limited or no API access. Practices with custom finance tooling cannot sync sweep records into their accounting platform.
Healthcare-native banks like Lemma support cross-entity sweeps with per-transfer references and direct API access. The rules execute exactly as the MSA specifies, with audit-defensible logs.
Configuring Your First Set of Rules
Confirm the MSA is signed and management fee terms are settled.
List every entity in the structure: MSO and each PC.
Define each rule by entity pair (source, destination), trigger (schedule or threshold), amount or percentage, reference text.
Configure rules in the bank dashboard or via API.
Run a test cycle (often a small pilot transfer) to confirm rules execute correctly.
Document each rule in a treasury policy doc, version-controlled.
Review rules quarterly or after any MSA change.
Audit-Defense Hooks Sweep Rules Should Carry
Each automated transfer should include:
A memo identifying the rule that triggered the transfer.
A reference to the MSA clause or treasury policy section that authorizes it.
A timestamp (date and time of execution).
The calculation basis, where applicable (e.g., the prior-month collections amount used to compute 12 percent).
An immutable log entry exportable for accounting and audit defense.
If your bank cannot provide these, the sweep rules are not audit-defensible. That is a meaningful gap for any practice approaching a sale, restructure, or external audit.
When to Override or Pause a Rule
Sweep rules are good defaults, not absolute mandates. Override or pause a rule when:
The MSA is being renegotiated. Pause management-fee sweeps until the new terms are signed.
A PC is below operating cash floor and the management-fee sweep would create a shortfall. Pause and reconcile manually that month, with documented reason.
An audit or investigation requires preserving exact balances at a point in time. Pause sweeps until the snapshot period passes.
In each case, document the override with a reason, an approver, and a duration. Resuming the rule on schedule matters as much as pausing it.
What Lemma Handles, and What It Does Not
Lemma's sweep rule engine supports cross-entity rules, schedule-based and threshold-based triggers, and per-transfer references for audit defense. The dashboard shows every rule, its execution history, and its impact on balances across the structure.
Lemma does not write your MSA, set your management fee percentage, or replace your CFO's review of monthly transfers. The rules execute the policy you and your advisors have defined.
Open a free Lemma account in 5 minutes per entity. Multi-entity onboarding in 5 to 10 days, MSA-aligned automated sweep rules, immutable transfer logs, and FDIC coverage up to $10M per entity via IntraFi sweep.A Worked Example for a 5-PC Group
Concrete numbers help. A 5-PC group with $20M in annual collections and a 14 percent MSA management fee. Each PC has an operating account, a reserve account, and the MSO has its own master account.
Sweep rule set:
Daily threshold sweep: if any PC's operating balance exceeds 45 days of expenses, sweep excess to that PC's reserve account.
Day-1-of-month sweep: from each PC's operating account, transfer 14 percent of prior-month collections to the MSO master account, with memo "MSA section 4.2, management fee, [month]."
Quarterly distribution sweep: on the first business day of each quarter, sweep retained earnings above target from each PC to clinician owner distribution account, per the PC's distribution policy.
FDIC coverage sweep: continuous, distributing balances above $250K across IntraFi network.
For a CFO, that's 4 rules to monitor across 6 entities. Daily review takes 10 minutes. Monthly review of management fee execution takes 30 minutes. Without these rules, the same workload runs to 8 to 12 hours per month of manual ACH entry and reconciliation.
Common Mistakes Configuring Sweep Rules
Setting thresholds too low. A rule that sweeps when operating balance exceeds 5 days of expenses leaves the PC chronically under-funded after a sweep. Set thresholds at 30 to 45 days minimum.
Forgetting to update rules when MSA changes. Renegotiate the management fee from 12 to 14 percent and the sweep still runs at 12 percent. Drift compounds over months.
Cross-PC sweeps without explicit MSA authorization. PC-to-PC sweeps need a separate cost-sharing agreement; do not configure them as automatic without legal sign-off.
No exception alert. Without an alert when a rule fails to execute (insufficient funds, account on hold, etc.), the failure is invisible until month-end close.
Missing audit memos. Transfers without per-transfer references are harder to defend at audit. Make memos a required field on every rule.
How Sweep Rules Affect FDIC Coverage
Sweep rules at the entity level interact with FDIC sweep coverage at the deposit-protection level. They are different things, but they coordinate:
Entity-level sweeps move funds between accounts owned by the same or related entities, per MSA terms.
FDIC sweeps distribute funds within a single entity account across multiple FDIC-member banks for deposit protection.
The two stack: a PC operating account is FDIC-swept up to $10M while also subject to monthly management-fee sweeps to the MSO.
Each entity in the structure gets its own $10M FDIC sweep ceiling, so a 5-PC group has $50M of insured capacity at the entity level alone. Most groups do not approach this ceiling, but knowing it exists is helpful for treasury planning.How to Sequence Setup Across the First 60 Days
For a group rolling out sweep rules for the first time, a sequenced setup avoids surprises:
Days 1 to 7: confirm all accounts are open, MSA is signed, treasury policy is drafted.
Days 8 to 14: configure rules in test mode (no transfers actually execute) to verify thresholds and amounts.
Days 15 to 21: run a single live cycle (one management-fee sweep, manual review of result).
Days 22 to 30: enable threshold-based excess-cash sweeps with conservative thresholds.
Days 31 to 60: monitor daily. Adjust thresholds if any PC is hitting the sweep too aggressively or not aggressively enough.
By day 60, the rules are stable and the CFO is reviewing exceptions only. From there, the time spent on intercompany cash management drops by 80 to 90 percent.
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