Aesthetic and wellness treatments are the specialties of medical spas. However, they’re often provided in a regulatory grey area. The reason? Many of the services offered in a medical spa setting can be considered medical procedures, and state laws vary widely on what can be done by whom in a medical setting. This guide serves two key purposes. First, it’s a primer on the legal dos and don’ts for medical spa operators. Second, it’s a resource for would-be operators to understand the legal landscape before they leap into this high-risk, high-reward business.
Compliance Considerations in Medical Spa Ownership
A compliant med spa requires ownership, management, and medical oversight that fully understand and follow the rules and regulations.
Navigating CPOM Restrictions for Medical Spas
Numerous states have taken it upon themselves to enforce the CPOM laws. These ensure that only licensed medical professionals own or control medical practices. These laws hit medical spas hard, though, ensuring they can’t be structured around non-physician investors. What do these laws mean in practice? They mean that if you’re a non-physician, you can invest in a medical spa (or any sort of medical practice, for that matter), but you can’t run it. The laws vary quite a bit from state to state. For specifics, it would be best to check out the 50-state guide at the link above.
In CPOM states, owning a med spa requires licensed physicians or some form of medical corporation to do so. Remember, in CPOM states, non-medical business partners can participate only through an MSO that does not interfere with medical decisions. The med spa at issue had allowed too much non-physician influence into the “medical services” part of the business. As a result, it had found itself facing some legal problems, which it resolved by putting its operations back into compliance with CPOM laws. For more on how to comply with CPOM laws, check out the guide at PermitHealth.
Utilizing MSO Structures for Non-Physician Ownership
Medical spa management service organizations (MSOs) allow non-physician participation through the provision of fundamental administrative services like staffing, billing, and marketing. They permit non-physicians to reap the monetary benefits of medical spa ownership without running afoul of laws prohibiting the corporate practice of medicine. MSOs don’t just casually let you in, though; they require precise contracts, walled-off functions, and a clearly delineated medical and administrative chain of command to keep things aboveboard.
Contracts for a Management Services Organization (MSO) must comply with fair market value standards. This is necessary to avoid running afoul of various regulations, such as the Anti-Kickback Statute (AKS) and Stark Law. These laws exist to ensure that medical professionals do not get paid for referring patients in a way that is not tied to the quality or quantity of the services rendered. To take a specific example, a med spa had to go to great lengths to ensure that its business services were kept completely and totally separate from any medical decisions made by its “medical director.”
Structuring Physician Partnerships
Following CPOM laws generally requires establishing physician partnerships with the following characteristics:
- Shifting the focus of the partnerships to where it is supposed to belong: majority ownership by licensed physicians (at least 51%).
- Ensuring that these physician partnerships/formations accomplish what they’re supposed to—serving the medically necessary under the supervision of qualified providers.
Compensation for partners must always reflect the fair market value—not only because it is the right thing to do but also to prevent regulatory violations and the penalties that can arise from referrals. One med spa that I know of achieved compliance with this principle in a somewhat unique way—structuring its ownership with majority physician control. For more information on physician ownership models, visit https://www.permithealth.com/post/the-corporate-practice-of-medicine-50-state-guide.
Implementing Compliance Audits and Staff Training
It is essential to maintain legal compliance, and it is necessary to do the two vital components: regular audits and thorough staff training. Periodic compliance audits assess the six facets of the med spa that we have been discussing (MSO, physician structures, compensation arrangement issues) and ensure they are compliant with CPOM and part of the necessary fair market value assessment. The next layer of security is to educate and train all employees. The audits shine the light of day into the corners where issues might be hiding. If the corners are clear, the staff has been well trained and the issues corrected as necessary, the med spa is likely in legal compliance.
One med spa, for example, routinely reviewed its ownership and MSO agreements, which allowed the med spa to identify and correct compliance problems before they became serious issues. To learn about what makes a compliance audit effective, go here: americanmedspa.org/news/understanding-msos.
Legal Risks and Penalties for Non-Compliance
Not adhering to CPOM regulations, having improper MSO agreements, or committing fair market value violations can lead to serious outcomes, like being fined, losing your license, or suffering damage to your reputation. Typical penalties give a good idea of what can happen and to whom: Disciplinary actions and the resulting headaches for CPOM violations; sharpened criticism and the resulting harm to your reputation for having improper MSO agreements; potential lawsuits and the harm to your financing that can result from having inadequate physician ownership; and the very real risk of being audited and losing your Medicare reimbursements for fair market value violations.
To conclude, it is paramount for medical spas to comply with CPOM laws, MSO structures, and fair market value standards to operate legally and avoid coming under the regulatory microscope. Ensuring that ownership is properly structured, that there is a clear separation of medical and business operations (via MSOs), and that there is a regimen of regular “check-ups” (audits, that is) to ensure ongoing compliance with the aforementioned laws helps keep medical spas on the straight and narrow. For assistance with straightening this all out, consult with Cohen Healthcare Law Group.
Contact our healthcare law and FDA attorneys for legal advice relevant to your healthcare venture.
Contact Us
