Can a Nurse Own a Medical Spa? Legal Issues

Can a Nurse Own a Medical Spa? Legal Issues

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    [Dana Porcalla]:

    Hello everyone. Welcome. If this is your first time tuning in to our webinar, thank you so much for your interest and for giving us your time today.

    I’m also seeing a lot of familiar names. We’d like to welcome you guys again to another Cohen Healthcare Law Group webinar and we truly appreciate you watching out for webinar mailings and for giving us your time each time and we hope that we are able to give value to you and to your venture.

    So before anything else, my name is Dana and I’m the Marketing Director of Cohen Healthcare Law Group. Helping me is our IT Director, Oki, and our Senior Care Team member, Christian. Today’s webinar is part of a three-part webinar series that focuses on nursing businesses, IV hydration clinics, med spas, and healthcare ventures for non-physicians. And the title for today is Can a Nurse Own a Medical Spa?: Legal Issues.

    Today we will eliminate some of the risks involved for nurses who are setting up or growing their own medical spa or IV hydration business and how to mitigate these risks. We’ve asked the help of Tru Savvy Wellness Solutions to send in some of the common legal questions they would encounter from their clients, and we have included those in our questions in our presentation today.

    And last, but not the least, we will also answer the biggest question of the year for NPs in California regarding the recent laws surrounding Assembly Bill 890, or AB 890, towards the last part of our presentation. So please make sure that you stick with us until the end.

    Okay. Without further ado, let me introduce our keynote speakers for today. Joining me here is our Senior Associate Attorney, Matthew Stokke and our Off-Council Attorney, Chris Esseltine. Would you care to introduce yourselves briefly to our audience today, starting with you, Matt?

    [Matthew Stokke]:

    Thank you and welcome everyone. My name is Matt Stokke. I am an attorney here at Cohen Healthcare Law Group for a little over two years now and I’ve been practicing for almost 10 years with eight years focused in healthcare law specifically, helping a wide range of clients within healthcare for their transactional needs, for helping to structure compliant arrangements, and that sort of thing. So, I look forward to speaking about these topics today with you, and thanks for coming.

    [Dana Porcalla]:

    Thank you, Matt. Attorney Chris?

    [Chris Esseltine]:

    Thanks Matt and thank you, Dana.

    My name’s Chris Esseltine. I’m currently a healthcare and FDA attorney with Cohen. In the past, I’ve worked for two other national law firms. I’ve represented the 36 largest pharmaceutical companies in the world, and if there’s a healthcare provider out there or type of healthcare provider, I think I’ve pretty much represented it. So not that I know everything, but I have deep experience in healthcare and FDA law compliance and especially with MSOs and putting together those kinds of arrangements with medical practices and other healthcare entities.

    [Dana Porcalla]:

    Okay, thank you so much Matt and Chris for being gracious with your time, despite your very hectic schedule. Thank you for being here.

    Okay, we will begin with our presentation. After this presentation is our Q and A session where everybody’s welcome to participate by using the Q and A icon that you’ll find on your Zoom below. Let me just remind you to type in your questions using the Q and A feature and not the chat box. Thank you.

    So for our presentation, our first question is what is a management services organization or management services agreement, and how does it benefit my medical spa? Would you like to answer this, Matt?

    [Matthew Stokke]:

    Sure. And this is a common question that we get. It can be almost any type of professional healthcare provider out there may have use for a management services organization. You may have heard of the MSO term before, it’s just shorthand for this. And really at the end of the day, what it is just a management company that helps manage a principal company. In this case, it would be the medical spa. So how can it benefit the medical spa?

    Well, it’s going to depend on the specific facts and circumstances of your situation, but one particular scenario that we tend to see when it comes to medical spas is we’ll often have people come to our firm who are either non-licensed, so they’re just business entrepreneurs who want to get involved somehow in a medical spa, and the general rule is for non-licensed people like me is we’re not allowed to have ownership in a professional practice, and that includes a medical spa.

    And so for entrepreneurs who’d like to have some involvement in the medical spa, this is a good avenue to do that. All of the nonclinical services would be provided through that management company and all of the clinical services, the professional services, are solely in the domain of the licensed folks over at the medical practice. So you have two companies at the end of the day.

    The other scenario that we see is when a nurse comes to our firm and may be limited in ownership over on the medical practice side, depending on the state, some states don’t allow a nurse ownership at all. California does and a handful of others do. In a situation where a nurse comes to us, the MSO is also a good viable pathway for them to pursue having more involvement in the form of the MSO in the medical spa.

    The primary uses for today’s discussion that we tend to see, and if structured properly, both the medical spa and the MSO is able to profit and each stay in their own lanes and let the other do what they’re good at doing that. That’s the main general benefit that we see when we’re helping our clients.

    Anything to add, Chris, on that?

    [Chris Esseltine]:

    Yeah, a great synopsis about what an MSO is and essentially what the relationship is.

    [Dana Porcalla]:

    All right. With that being said, let’s move on to the next question.

    Do I have to split my earnings? This one is for you, Chris.

    [Chris Esseltine]:

    Yeah. So honestly, we have to look at any legal question from a standpoint of which state are you in. There are 50 states and the District of Columbia and all of them have different laws. Some of them have similar laws, a few of them here and there, but it depends what state you’re in as to what you’re allowed to do, what you’re not allowed to do. So in a situation where a nurse can be a part-owner of the medical practice, generally there’s no need for an MSO. But for example, in California, a nurse can only own 49% maximum. So you can only take 49% of the earnings of that med spa.

    In states like Texas where a nurse cannot own even part of a medical practice, you’re going to need to do an MSO and it’s not an issue of splitting earnings. And here’s where it gets a little nuanced, but it’s pretty simple.

    By law, in every state, the patients themselves, and I hate to use the word belong, but just bear with me, for lack of a better word, those patients belong to the medical practice and not to the MSO. That’s what the state recognizes. And so therefore, all the money brought in by the medical practice for doing procedures, even if it’s collected by the MSO, that money has to go to the bank account of the medical practice. And from there, the medical practice then pays the MSO its fee for doing all the management services.

    So do you have to split earnings? Well, if you’re just an MSO, then you’re not really splitting anything because they’re not your earnings. If you are part-owner in a med spa, then you have to split the earnings because there’s another partner or owner, member or whatever. It just depends on the state law. It depends on who you have involved in the business.

    I mean, sometimes I’ve had clients where there are two or three nurses, and a doctor, sometimes just the doctor and another nurse practitioner, nurse physician’s assistant, whatever it is. So you have to look at what the state requires and how you set it up, what the legal requirements are, and then you have to decide how those earnings are going to flow into the medical practice and then back to you, whether you’re just the MSO owner. You can be the MSO owner and also be the nurse performing procedures where you would work under some kind of employment contract with the medical spa, so you can make money two different ways if you’re just a partner or a co-owner of the med spa. Some states you can be whatever percentage you want. Some states, like California I was mentioning, you can only take 49% of those earnings.

    So reach out to us to find out which state you’re in and what those laws are regarding how those earnings have to be split or otherwise distributed.

    [Dana Porcalla]:

    Would you like to add anything, Matthew?

    [Matthew Stokke]:

    Just one common question that I see, and Chris, you did great job explaining that.

    One common question I get in a state like California is where a nurse is limited. And when I say nurse, I mean registered nurse or a NP, is limited to having 49% ownership in the medical practice. And so a question I usually get, is me giving 51% ownership to the physician, does that mean that the physician takes 51% of the revenues and vice versa? Does it mean that I take 49% of the revenues?

    No, it doesn’t. As owners of a corporation, you as shareholders, you’ll have decisions to make and one of those decisions is how the owners will be compensated. And what we normally see is the owners compensated as employees pursuant to an employment agreement for the professional services. There’s no requirement that the shareholders issue distributions or dividends to owners on a particular schedule of remaining revenues there. You could do that if you wanted to, but there’s no requirements of that.

    So does 49-51 mean each person takes home that part of the pie every month? No, it doesn’t. You have some flexibility there.

    [Dana Porcalla]:

    So let’s move on to the third question. Do I really need a Good Faith Exam? This one is for you, Matt.

    [Matthew Stokke]:

    So yes, the Good Faith Exam is a vital part of performing any professional medical services. And of course, there’s going to be different types of medical services and different procedures that are done that will require different rules, controlled substances being one of those services that if you’re prescribing controlled substances, there’s very specific state and big federal rules about that. But for purposes of today’s discussion, within medical spas, yes, it would need to be performed.

    And a common question we get about this is, well, who can perform the Good Faith Exam? And in a state like California and many others, it’s the physician would need to perform that themselves, or in a state like California, I can offer specific guidance here, an NP, nurse practitioner or a physician assistant can provide this Good Faith Exam. And there are some rules about what constitutes a Good Faith Exam, but at the end of the day, as a practitioner, there’s some level of discretion that’s given to practitioners to uphold the standard of care.

    So what kinds of questions would you as a practitioner be expected to ask a patient prior to providing Botox administration, for example? I’m sure you can find differing opinions there, but there’s some standards across the board that you’ll want to follow. And we always recommend these exams are done in a way that mimics real life as much as possible, an in-person exam. Telehealth is accepted in many states to provide the exam. I never recommend doing a questionnaire-based only exam, though it may be permitted technically in some states. To uphold standard of care, the best practice recommendation is to do something like a video chat or in-person if you can.

    And there’s just some states out there, keep in mind we can’t get into all the details today, but some states do not allow telehealth in these situations.

    [Dana Porcalla]:

    So thank you so much, Matt.

    The next question is, I’m scared I’ll get sued. Is there any way to minimize the chances of that happening? This one is for you, Chris.

    [Chris Esseltine]:

    Great question. And I mean, isn’t that why you come to a lawyer in the first place? How do I stay out of legal trouble?

    So the very first way to minimize or maybe even completely eliminate the chance of getting sued is make sure that your business is structured the right way. There are 22 states in this country where you can own a medical practice and every state in the country looks to a medical spa as an actual medical practice. So you can own a medical practice without having any license whatsoever. I could go open a medical practice in any one of these 22 states. The rest of the states, you have to be some kind of medical professional.

    And again, states like New York, for example, you have to be a doctor and there is no other ownership of medical practice that’s permissible. In other states, the rules are different. So find out what your state’s laws are and make sure you set up your business according to the corporate practice of medicine laws so it’s on the right foot from the beginning.

    Another issue is, well, Matt just talked about it, the Good Faith Exam. I’ve had clients come to me and they’ve been up and running for a year and they didn’t know anything about a Good Faith Exam and they’ve just been performing services without one. And so you want to make sure that whatever the laws in your state require as far as Good Faith Exam, you find them out, you adhere to them, and they’re really not burdensome. It’s just such an easy thing to do, to do it the right way first.

    You want to have the right documents in place as well. Some med spas are a little bit more involved. They’re going to be doing Botox, they’re going to be doing laser treatments, and those can be more risky than, say, just an IV, right? IV hydration therapy. So whatever the particular procedure is, you’ll want to make sure that the patient is informed about what you’re getting into.

    Unfortunately, we do live in a world where there are a lot of entitled people, people who get easily offended or people who are overly litigious, and they come back after the fact because they’re disgruntled about something and they want to make it your fault. And even if you haven’t done anything, you’ve got to defend your position. So you want to make sure that the patient understands what he or she’s getting into in the first place. So talk about, “Hey, this is going to happen.” If it’s IV therapy, “A needle is going to be put into your arm and solution is going to flow into your veins.”

    You want to talk about the risks, you want to talk about some other things. You want to have some language in there about not suing and indemnifying, things like that. So basic legal protections like that, you want to make sure they’re all neatly packaged in a form for your patients to understand and sign, and that will provide you far, far more protection than a lot of the forms that may be out there that you can get on the internet or just simply say, “Hey, sign here saying that you agreed to get IV therapy.” You want to make sure the right language is in those forms and that you’re protected.

    Another thing you want to do is if you have to do an MSO, because in your particular state you’re not allowed to have any ownership in the medical practice, or for example, in some situations you can be a part-owner of the medical practice and you can also run the MSO and be essentially the management company for your own shared medical practice. By adhering to the laws of the state, you’re going to be safe, But some people like to find loopholes or ways around. On paper, yes, it looks like the doctor’s, the owner, but you’re getting far too much money for your services. The MSO’s maybe being paid 90% of what the medical practice is making, and the state will come in and look at that and say, “This is not a legal arrangement. This is basically just a way for you to own the medical practice and get all the profits.”

    So you want to make sure that what you’re getting paid is fair market value, that you’re not acting in any way as a defacto owner. Even if on paper, you’re not the owner, you don’t want to even look like you’re acting like the owner of a medical practice. You want to stay right away from that.

    You want to have two separate, completely separate entities. And the entities need to have their own bank accounts, they need to be operating completely separate from one another, even though the MSO will have access to the bank account of the medical practice, so the MSO can make payments and things like that. You want to, in every way, act and look as though you’re two separate companies if you’re not allowed to have any ownership in that medical practice.

    And those are the major things that I found are the legal risks to either getting sued or getting shut down, getting fined by the state, whatever it is, whatever legal trouble you can get into.

    Matt, you’ve probably got some additional ideas.

    [Matthew Stokke]:

    No, I think that was a great layout and I would just add to something you already said, which is you said even if you, as the practitioner didn’t do anything wrong, you know still have to defend yourself. And it’s true. And perception matters in the industry.

    If a patient, if an enforcement agency thinks that or based on what they see, thinks you’re doing something wrong, if a patient never sees the doctor at the clinic for example, or there’s no doctor listed on the website, it opens the door potentially to investigations. And even if you didn’t do anything wrong or there’s nothing running afoul of the rules, you still have that perception issue. It’s the optics that matter too at the end of the day, and that can save you a whole lot of trouble.

    And as some of you might know, this is a competitive industry, the medical spa industry, and competitors can get petty sometimes and call each other out and make anonymous complaints to the Board. So these kinds of risks come from all different angles, even if you’re doing everything right.

    [Chris Esseltine]:

    Yeah. And I’ll even further say that I’ve had clients who call me, they say, “We want to do an MSO,” and I spend half-hour, hour on the phone with them sort of detailing everything out. I give them things to read. We’ll have another follow-up call with the partner, we’ll have a third call, and sometimes on the fourth call, as we’re just hammering out the very last details of that management services agreement, they’ll say, “Well, wait a second, I don’t get this.” And then I explain it. “Oh, okay. I got everything else but this last part now, okay, I’m finally getting it.”

    And it’s not because they’re dumb or I’m a bad explainer, it’s just that some of these things can be very complicated and understanding them, it’s not necessarily really second nature. It’s how these states have put together the laws and requirements that make them so strange, and the average person just doesn’t intuitively understand how everything works.

    So even if I weren’t a practicing lawyer, I would say get a lawyer, get all of these things explained and explained again. And that’s one thing we’re here to do is just take you by the hand, and lead you step by step, and any questions along the way, even if you have to ask the question three, four times, that’s what we’re here to answer and help with.

    And one thing, Matt, I was going to talk about from your very first question, what is an MSO? Sometimes it is hard to wrap our heads around it. It took me a while. But you can actually own a clinic and let’s say your clinic is Fantastic Med Spa Inc. Okay, that’s your brand name. You’ve got this beautiful logo, you own that name and identity and branding, and you put it on the outside of the building and you put it on the door into your clinic and you only own the MSO. You don’t own the actual med spa. In other words, the medical practice inside that med spa.

    You can still own that spa. You can still own that clinic. You can still own the place that people come to get their treatments and they’ll think, “Okay, if I need this procedure, I’m going to go to this med spa.” What you can’t own then is simply the medical practice that operates inside of that med spa.

    So in my mind, for a long time I thought, okay, clinic medical practice, same thing. But in this particular situation, an MSO can own the clinic, it can own or rent the space, it can own the equipment, it can certainly own the intellectual property and the branding and all that. You just have to have that other medical practice that’s performing the procedures, doing everything medically, and you handle everything else from the business side.

    So again, we can explain that in greater detail, but realize that you can still own your clinic, even as an MSO, just you can’t own the medical practice necessarily if it doesn’t comply with your state’s corporate practice and medicine laws.

    [Dana Porcalla]:

    Okay, well thank you so much, Chris and Matt.

    For the next question, I’d just like to give a brief summary. In September 2020, Assembly Bill 890 was signed into law, which expanded the scope of practice for nurse practitioners in California. I know a lot of you have been looking forward to this question, and the last question is, what are the new laws around AB 890? How long do NPs have to practice under a physician before gaining independence? How do these laws affect med spas?

    Would you like to answer this, Matt?

    [Matthew Stokke]:

    Sure. Yes, and it is probably our most popular question right now in California. This is a California-specific law. And many states already recognize nurses and provide nurses with the authority to practice autonomously. California was one of those holdout states that didn’t for years until now. And I’ll say that with caveats because I’ll explain kind of what the deal is here in California going forward.

    As Dana said, that there’s this new law that passed and it became enacted in this year, January 1, 2023, and it creates two new categories of nurse practitioners. And I say nurse practitioners specifically. It does not apply to registered nurses. And the first category, it’s called a 103 nurse practitioner. 103 refers to the code section. It allows a nurse practitioner to work in a group setting with at least one other physician and surgeon within the population focus of their national certification without procedures and protocols with that physician.

    So you no longer need that collaboration agreement between you as the NP and the physician if you apply with the Board and they authorize you to do so. So there’s still some hoops that you need to jump through. It doesn’t just apply automatically to every NP.

    To quickly just clarify, the group setting that I’m referring to in this first category, the practice still needs to be owned by a physician and it could be partially owned by you as the NP since you do have that right already to own up to 49%, but it does require a physician to own at least 51% of that medical corporation.

    So now to the second category, which is really the one that a lot of nurse practitioners have been waiting for years for, understandably, is the 104 nurse practitioner category. And this category would allow a nurse practitioner to work completely independently in their own practice without being part of a practice that’s partially owned by a physician.

    So when can you become eligible for this 104 category that everyone’s been waiting for? And it wasn’t clear at first when the Board was… Before they came out with regulations to clarify this new law. And unfortunately, what you’re going to have to do as an NP in California is you’ll have to be a 103 category nurse for three years before you become the 104 category where you can practice in your own practice. So we weren’t sure how the Board was going to deal with that. They are now saying specifically that this 104 category nurse, practicing in their own practice, isn’t available until 2026. So they don’t even have an application ready for that, and they don’t plan to release one until 2026.

    So that’s the general kind of guidelines are here. What I’m going to do is there’s so much information about all of the conditions about practicing autonomously, what I’m going to do with my eye on the time, I’m going to send an FAQ link to everyone here, an FAQ. The Board of Registered Nursing in California just recently released a very helpful FAQ that goes through everything and I’ve read it a number of times now. They break it down very clearly, but of course, we’re here for any questions that arise.

    Often the case when new laws are implemented like this, even lawyers don’t really know how the Board is going to deal with these changes. But the Board has released regulations and they do have helpful FAQs now, so I can provide that to you all here and it should answer a bunch of your questions.

    [Dana Porcalla]:

    Well, thank you so much, Matt, for answering that last question.

    Before we move on to our Q and A, we’d like to introduce to you our newest brand and website called MSO Attorneys. For those of you who have MSO-related concerns, you may visit www.MSO-attorney.com. We can have Christian send listen link through chat. Okay, thank you so much, Christian.

    Let’s begin with the Q and A section. Would you like to start, Chris, answering one of the questions on the Q and A section?

    [Chris Esseltine]:

    As a nurse practitioner, can I do 49% ownership with an MD for the professional corporation and then also own 100% of the MSO?

    And the answer is 100% true. Yes, absolutely you can. It’s a way to get revenue two different ways. You want to make sure that your MD is okay with that, but as a professional corporation, as a medical practice, you’re going to have to hire somebody to run the office anyway. So if you’re willing to wear those two hats, then you should get paid for those two hats.

    And then a third way that you can get revenue is to be the actual nurse practitioner or anybody else out there, the provider performing the procedures. So you could do a 1099 or a W2 relationship where you get paid for actually doing the procedures. Again, you want to check with your partner because you’re triple-dipping there and maybe the partner isn’t as keen on that. But yes, the answer is absolutely you can have those different roles.

    [Dana Porcalla]:

    Matthew, have you seen a question you’d like to answer?

    [Matthew Stokke]:

    Someone who’s a registered nurse in California was told that a medical practice needs an MD, thus 51% for the physician and 49% for the RN. That is true. But they were also told that they can form a nursing corporation and that they can own up to 100%.

    So it’s a good question. And again, this is a California-specific question really, but there is such a thing as a nursing corporation recognized in the law. There’s been a confusion over the years over why it even exists because we do have this rule for medical practices that they need to be owned in the 51-49 breakdown with the physician as the majority owner.

    There are some specific situations where a nursing corporation can be used, and it mainly is in the context of licensed healthcare facilities, which are these kind of specialty facilities that exist, skilled nursing facilities, et cetera. Not really in the context of a medical spa. So is it true that an RN, you can own 100% of a nursing corporation? Yes, but we don’t recommend that you use a nursing corporation in the context of medical spas.

    So I hope that’s helpful. The 49% nurse in the medical spa context, again, the MSO being involved as the management company, there would be the most viable option for a nurse to have more involvement in the nonclinical operations of the medical spa. I hope that was helpful.

    [Chris Esseltine]:

    I have one here that is very quick, so I’ll do two questions.

    One, can the dentist be a medical director? No, absolutely not. The medical director, and again, just because a doctor has to own 51% of the medical practice doesn’t mean that doctor has to act as the medical director. The vast majority of times, yes, they do because they don’t have to do a whole lot and it beats finding someone and paying them separately, but you don’t have to be the medical director if you’re the owner, but you do have to be an MD to own a medical practice.

    And that brings up another issue, which is if you get a doctor who’s a 51% owner or a doctor who is the full-owner, say in the state of New York, or if it’s a corporate practice at medicine state, that allows anybody to own it, and you just go and hire a medical director, the medical director has to be trained in the procedures that are being performed.

    So for example, if I went to medical school, became a doctor, I’m trained in how to put an IV in. I’m trained in different things, but I may not be trained on how to do Botox properly or how to work a particular laser properly. So just let’s say a general practitioner who doesn’t have that specific training, they can’t act as the medical director and oversee a nurse’s activities, for example, if he or she’s the one performing the procedures. There has to be some kind of expertise there, and it may be just going and taking a quick online course and getting certified, it may be taking an eight-hour course in-person on how to do Botox. Whatever it is, you just have to make sure that the medical director has at least enough training in the particular procedures that the nurse will be performing in the clinic.

    [Matthew Stokke]:

    I’ll answer one question here about corporate structure for an MSO and the medical practice. It’s really more of a tax question at the end of the day, but we get this question a lot and just a good opportunity, I think, to respond here.

    The question is, does it make more sense to have the MSO as an S-Corp and the medical practice as a C-Corp or vice versa? The S-Corp C-Corp distinction is a tax distinction. Under the IRS, you have the ability to do an S election or remain a C-Corp, and C-Corp is double taxation on the corporate level, and the individual S-Corp is on the individual only. It’s a pass-through.

    We always recommend getting a CPA involved to help determine what tax election you should make and so that would be the answer to that one. It really depends on revenue projections and things like that.

    And while I’m at it, I see a number of questions here regarding the nursing corporation in California, and there’s been some confusing messages out there, maybe online, from other firms about what it can be used for. And I just want to make extra clear that in California, the Medical Board has issued a number of different opinions that the medical spa must be a medical corporation, not a nursing corporation. I can’t tell you how many times people have formed a nursing corporation, and then we have to unwind everything and fix it, and it gets expensive to do that.

    So to the extent any of you are on the verge of forming an entity, it would be a medical corporation in California, not a nursing.

    [Dana Porcalla]:

    Chris, would you like to answer another question?

    [Chris Esseltine]:

    Sure. I’ve got one. Should the MSO be a LLC? And there’s no should there necessarily, but in my experience, it’s the easiest way to do it. There’s no particular state requirement. It’s just a regular business, and that’s what a management company is. Even though it’s in the healthcare space, it’s just a regular business, and so there’s no requirement that business be a certain structure.

    So a LLC is the easiest way to do it. It’s the cheapest kind of entity to file, and I think it affords you the greatest protection personally and professionally. That’s why LLCs were created. So that’s what I would suggest. But again, a good idea is to check with the CPA with your particular needs and concerns and make sure you’re getting the right advice and you file the right entity.

    There is another question here about if the doctor is a 51% owner and the nurse is a 49% owner, does that change the liability? So in other words, the doctor has greater liability.

    And in terms of liability, no. The liability is on the individual. So for example, if the doctor didn’t pay attention, didn’t review charts, didn’t do whatever the doctor’s supposed to do as a medical director, that will be on the doctor. If the nurse negligently puts in an IV and harms the patient, that will be on the nurse, it will also fall on the corporation as a whole. So the ownership of the corporation isn’t as important as just the fact that the corporation as an entity could be under fire if something goes wrong.

    [Dana Porcalla]:

    Would you want to answer one last question, Matt?

    [Matthew Stokke]:

    Sure. I’m seeing a question here. Can the management fee be more than 90% of the revenue of the medical practice? This is the million-dollar question that we didn’t really address today, which is what fee can the management company charge? What is fair market value is really the legal question at the end of the day.

    The anti-kickback laws require these fees to be fair market value and not take into consideration the referral of any patients that might come from the MSO to the medical practice. And this is a larger topic for another time maybe, but it so happens these days that a lot of MSOs will provide marketing services for the medical practice. And depending on your state law, it could open the door to interpretations that there are patient referrals and that part of that fee may be in consideration for the volume or value of the patient referrals.

    So the anti-kickback law is what’s hanging in the background to this question. There’s no one answer, what is fair market value? 90%, just kind of my gut reaction to it, is that’s way too high for a management company to be charging. And I always tell clients, at the end of the day, put yourself in the position where you’re defending this fee, and if you’re in court and you see the person up there in the black robes and you’re trying to justify this fee, it might look a little strange that the lion’s share of the practice is going to a lay business, the management company. And so that would raise a number of alarm bells to most judges, to most enforcement agencies out there.

    There’s some rules of thumb to keep in mind that, again, this would probably be for another time or in a private discussion with people who want to know more about it. But yeah, it’s an important question and something to keep in mind. There are valuators out there and appraisers in the industry that can crunch the numbers and come up with these valuations for you. So hope that helps in the meantime.

    [Dana Porcalla]:

    Okay, thank you so much, Attorney Matthew and Attorney Chris. We do have a very limited time here, but for those questions that we weren’t able to answer, and for those who have any further questions, you’re always welcome to call us at (310) 844-3173 or contact us through our website contact form that Christian will send us through chat.

    I guess that wraps up today’s webinar. Thank you so much for joining us. Please watch out for the webinar mailing for the second part of this three-part webinar series. For the fresh names and the first-timers, thank you so much for joining us, and we hope to see you again on our next Cohen Healthcare Law Group webinar. Bye for now.

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