Corporate practice of medicine & fee-splitting lead medical spa compliance enforcement

California, New York, Massachusetts, and other states that emphasize corporate practice of medicine & fee-splitting lead medical spa compliance enforcement. The Force may be strong in the Skywalker family, but in states such as New York, Texas, Massachusetts, and California, the strong prohibition against the corporate practice of medicine, means that enforcement authorities are also looking at the business structure of medical spas, for compliance violations.

This means that business entrepreneurs who “happen to know a medical doctor” and want to position that person as “medical director” of a health care venture that is dominated by the business side, can run into corporate practice of medicine and fee-splitting / kickback violations.

See our post, If Someone Asks You to Be a Medical Director, Run.

California takes its corporate practice of medicine (and corporate practice of medicine) rules seriously. In fact, California has increased enforcement and penalties for unlicensed medical practice by medical spa owners and operators.

California law now includes increased penalties for medical spa owners who violate the corporate practice of medicine and engage in unlicensed medical practice.

Assembly Bill 1548, amends Section 2417.5 to the Business and Professions Code, relating to the practice of medicine. The legislation increases the penalties for violating the corporate practice of medicine and engaging in (or aiding and abetting) unlicensed medical practice:

AB 1548 raises the fine to a maximum of $50,000 or double the amount of fraud, whichever is greater, and institutes a maximum sentence of two- to five-years in state prison.

Popular medi-spas that provide a variety of non-surgical cosmetic procedures such as laser skin resurfacing, cellulite treatments and dermal fillers in surgery centers and doctors’ offices are the primary target of the bill. The employees who provide the services are medical doctors who may — or may not — have been formally trained in cosmetic procedures, and other health professionals who have been trained by a supervising medical doctor.

The legislative counsel’s digest states:

Practice of medicine: cosmetic surgery: employment of physicians and surgeons.

Existing law, the Medical Practice Act, establishes the Medical Board of California within the Department of Consumer Affairs, which licenses physicians and surgeons and regulates their practice. The Medical Practice Act restricts the employment of licensed physicians and surgeons and podiatrists by a corporation or other artificial legal entity, subject to specified exemptions. Existing law makes it unlawful to knowingly make, or cause to be made, any false or fraudulent claim for payment of a health care benefit, or to aid, abet, solicit, or conspire with any person to do so, and makes a violation of this prohibition a public offense.

This bill, with respect to a business organization that provides outpatient elective cosmetic medical procedures or treatments, that is owned and operated in violation of the prohibition against employment of licensed physicians and surgeons and podiatrists, and that contracts with or employs these licensees to facilitate the offer or provision of procedures or treatments that may only be provided by these licensees, would make that business organization guilty of a violation of the prohibition against knowingly making or causing to be made any false or fraudulent claim for payment of a health care benefit. The bill would prohibit construing its provisions to alter or apply to any arrangements currently authorized by law. Because the bill would expand a public offense, it would impose a state-mandated local program.

This bill would state that its provisions are declaratory of existing law. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Here is the relatively new law:

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. The Legislature finds and declares that the Medical Practice Act prohibits corporations and other artificial legal entities from exercising professional rights, privileges, or powers, as described in Article 18 (commencing with Section 2400) of Chapter 5 of Division 2 of the Business and Professions Code, and that the prohibited conduct described in Section 2417.5 of the Business and Professions Code, as added by this act, is declaratory of existing law.

SEC. 2. Section 2417.5 is added to the Business and Professions Code, to read:

2417.5. (a) A business organization that offers to provide, or provides, outpatient elective cosmetic medical procedures or treatments, that is owned or operated in violation of Section 2400, and that contracts with, or otherwise employs, a physician and surgeon to facilitate its offers to provide, or the provision of, outpatient elective cosmetic medical procedures or treatments that may be provided only by the holder of a valid physician’s and surgeon’s certificate is guilty of violating paragraph (6) of subdivision (a) of Section 550 of the Penal Code.

(b) For purposes of this section, “outpatient elective cosmetic medical procedures or treatments” means medical procedures or treatments that are performed to alter or reshape normal structures of the body solely in order to improve appearance.

(c) Nothing in this section shall be construed to alter or apply to arrangements currently authorized by law, including, but not limited to, any entity operating a medical facility or other business authorized to provide medical services under Section 1206 of the Health and Safety Code.

SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

The legal issues involved in creating a medical spa are similar to those that arise in any multidisciplinary clinical setting, such as an integrative medicine center. There are questions of:

• licensure
• scope of practice
• standard of care
• informed consent practices
• HIPAA
• other areas of regulatory compliance.

However, there are specialized boundary areas in medi-spas, and businesses can easily blur the lines between the medical domain on one side, and the esthetic domain on the other; or between clinical and management or administration.

There are questions, for example, about whether the management fee reflects fair market value for the management company services; whether the marketing fee is flat or on a per-patient basis; and a host of issues surrounding the medical component, including physician supervision of nurses, physician assistants, and medical assistants.

See our post, Managing Fee-Splitting Issues in the Integrative Care Center or Medical Spa from our earlier, Complementary & Alternative Medicine Law Blog.

These medi-spa compliance issues can lay dormant until due diligence during an acquisition of the medical spa through an M&A transaction brings them to the surface. At that point, the business owners’ failures to address basic compliance essentials–such as separating out the administrative side through a well-crafted management (MSO) agreement — can block an otherwise attractive exit strategy.

That is why it is important to seek out a medical spa lawyer who understands the nuances, and who can dive into the laws of various states, including tough corporate practice of medicine states such as New York, California, and Massachusetts.