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TRANSCRIPT

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Good morning.  In the next half hour or so, you’ll learn how we structure a medical spa for licensed healthcare providers, such as Physicians, Nurses, Physician Assistants, and others.  We’ll talk about compliance hot spots and some strategies to mitigate legal risk. And by the way, we’ll have a recording of this Webinar available, so you’re welcome notes, but you’ll also have a recording.

We’re going to cover these three main topics:

First, what is an MSO and why do you need one?

Second, who owns and who is in charge of the medical spa? If you have various providers working together, such as MD, NP, RN, and PA, who can own what, who has to supervise what and how, and who is responsible for what?

Third, how do you grow the medical spa brand and structure? How do you pay people and for what roles?

So, buckle your seat belt, turn off distractions and get ready to take notes. Our team has helped hundreds of healthcare professionals—from first-time entrepreneurs to experienced clinicians. By being proactive about their legal strategy, these clients have avoided regulatory trouble and have built local medical spas and national brands that have flourished in the marketplace.

First: what is an MSO and why do you need one?

MSO stands for Medical Services Organization.

The reason medical spas typically use an MSO structure is in order to separate the clinical side of the medical spa from the business, operational side.

The clinical side is run by clinicians. Typically, if you’re going to have multiple clinicians, it makes sense to house them within a company, and we call that a professional corporation (or PC).  For example, you might have a professional medical corporation or a professional nursing corporation. We’ll come back to this structure in a bit to explain why it’s important.

The management and marketing side is run by the MSO. This way the clinical decision-making rests within the clinical entity, the professional corporation, while the business and operational decision-making rests within the MSO.

MSO services include things such as providing staffing (like a receptionist or front desk person), billing and coding, leasing space, IT infrastructure, and marketing.

This leads to our second question.  Who owns and who is in charge of the medical spa?

As we just said, the structure is that you have two legal entities: a professional corporation, and an MSO.

Let’s talk about the professional corporation first.  The PC can only be owned by a designated clinician. For example, let’s say an MD, or an NP.  A layperson can’t own a professional medical corporation or a professional nursing corporation.

Now let’s talk about just the professional medical corporation, or PMC.  In California, a professional medical corporation must be at least 51% owned by a licensed MD.  The relevant statute is called the Moscone-Knox Professional Corporations Act.  It allows you to mix-and-match practitioners.  So for example, if the MDs own 51%, then a nurse practitioner or registered nurse, a chiropractor, a physician assistant, and other named clinicians can own up to 49%.

If this seems a bit complicated and like we’re throwing a lot of law at you, again, we’ll have this Webinar available as a recording.  And you can also supplement the Webinar by looking at our website for more resources.  The url is: www.cohenhealthcarelaw.com.  We have both a blog and video library with lots of resources. You can also contact us for a Legal Strategy Session.

Okay, we talked about who can own the professional medical corporation or professional nursing corporation.  Now let’s talk about the MSO.

Anyone can own an MSO. So, for example, if you’re a licensed clinician and your spouse is not, your spouse can still have an ownership interest in the MSO. Even if your spouse is not a clinician, they can still be an owner on the MSO side.  This is another reason why the MSO structure works, when you’re building a med spa.  We have several clients who are clinicians, but their Significant Other owns part of all of the MSO.

In terms of legal strategy, this means that if you’re starting a medical spa and you’re the clinician, you might be able to have several different revenue streams. Let’s spin these out.

First, you might be an owner or co-owner of the professional corporation.  Second, you might be an employee of or contractor to the professional corporation – for example, the nurse who administers the Botox injection.  Third, you might own or co-own the MSO.  And then fourth, you might be an administrative employee of the MSO, such as its manager. This gives you four different streams of income.

For example, if the PC was highly profitable and distributed to its owners a million dollars, and you were a 49% owner, then you would be entitled to 49% of the distributions.  On the other hand, in your second role as the nursing clinician within the PC, you would also get your salary.  In your third role, let’s say you owned half of the MSO (and your spouse owned the other half), then together you would be entitled to 100% of the MSO’s distributions to its owners.  And fourth, if you worked for the MSO in some kind of administrative role, you would be entitled to some kind of salaried or hourly compensation for that role.  So, this gives you an idea of how these different streams of revenue might come together.  And you can see that owning all or part of either the PC or the MSO, or both, can be highly advantageous.  These are the kinds of scenarios we can work through with you during a legal consult.

The MSO has to be paid fair market value for its services and cannot be paid more than that.  So if for example the MSO gets 90% of the profits from the medical spa, this could be seen as more than fair market value, and the excess would be considered a “kickback” in exchange for referring patients between the MSO and the clinical practice. If you’ve heard the term, “fee-splitting,” this is another way to describe the concept of a kickback, in essence – the professional fee of the clinician cannot be “split” with a non-clinician.

We’ll mention one another legal rule here, and that’s in California, under Business & Professions Code Section 650(b), the MSO can take a percentage of the medical spa’s revenues for its fee, so long as this is a percentage of gross and not net revenues, and represents fair market value for the services the MSO provides.

This leads us to the third question, how do you grow the medical spa?

Well, it depends on whether you’re looking to grow one medical spa in one location or to brand nationally.

Some of our clients are physicians. They have one medical spa. They will own and run the professional medical corporation and look for nurses on the clinical side, and for business colleagues who can grow their medical spa via the MSO.

Many of our clients are nurses. In many states NPs have a fair amount of autonomy; they may be required to have a supervision agreement, or in some States a collaboration agreement, with an MD, and that leaves a grey area as to how closely the medical doctor must be tied in to clinical operations.  In some states there is less autonomy and more enforcement and in other states the reverse.  That’s why it’s important to have a lawyer involved who has an eye on your situation in your State, and a business advisor who can help you put the whole structure in place.

We also have many clients who are entrepreneurs looking to brand a national medical spa.

No matter where you’re starting from, there are lots of other legal nuances.

In some States, there must be a “good-faith exam” before a patient can receive a procedure, and in California, this exam must be performed by either an MD, an NP, or a PA; an RN cannot fulfil this role.  If the MD is supervising, they must be sufficiently close by that they can arrive on-site if an emergency occurs.

Another legal nuance is how much control the MSO can have over the medspa.  In California, the prohibition against corporate practice of medicine is very strong, which means the MSO can’t have any control over clinical decision-making.  The MSO can’t have control over which diagnostic tests the patient receives.  Even the space where clinical procedures are conducted, must be under the clear control of the clinical entity, not the MSO.

One thing to remember.  There are always legal issues in the mix, and legal strategies we can deploy to either mitigate risk, or, to make the business model more efficient, so long as you’re informed about what the law says and what your level of risk is.  Enforcement is a moving target and even if the rules are clear, no one has a crystal ball as what’s in the mind of enforcement officials and regulators.

If you’re a clinician, your license is on the line. If a medical board or nursing board can say you violated the standard of care, you’re on the hook. So, it pays to know the rules and not look for easy outs, but you can be strategic about your model and your level of risk.  Here’s where it pays to get legal advice tailored to your situation. Here’s where the rubber meets the road.

If you’re interested in diving deeper, please call us and book a Legal Strategy Session.  This is the first step in your journey toward getting the legal advice you need. Our contact form is up on the screen. We look forward to talking to you and looking at your situation.

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FAQ

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What is the main benefit of using an MSO/PC structure for my aesthetic practice?

The main benefit of utilizing an (MSO) and (PC) structure for your aesthetic practice lies in the strategic separation of clinical and administrative operations, providing both operational and legal advantages. This separation ensures that clinical decisions are made within the PC, where only licensed professionals maintain control over patient care. Simultaneously, the MSO manages the business aspects, such as staffing, billing, marketing, and leasing operations, allowing for a streamlined focus on enhancing the operational efficiency and growth of the practice.

How do I know if my state requires this type of structure for compliance?
States differ in many of the details.  For example, how closely must the physician be tied into the medical spa clinical operations, what is the level of supervision, who has to do a good faith exam.  States can differ on fee-splitting. SO for instance we said that in California, the MSO can get a percentage of gross revenues of the medspa if this represents FMV for its services; while in New York, it must be a flat fee.

What are the biggest mistakes practices make when setting up an MSO/PC structure?

One of the biggest mistakes practices make when setting up an MSO/PC  structure is not clearly defining the roles and responsibilities between the MSO and the PC. This lack of clarity can lead to operational inefficiencies, legal ambiguities, and potential breaches of compliance with state laws governing the corporate practice of medicine.

Can the MSO/PC structure protect me from liability issues? If so, how?

This separation ensures that clinical decisions are made within the professional corporation (PC), where licensed professionals are in charge, aligning with state regulations that prohibit non-clinicians from influencing clinical judgment.

How do I transition my practice to an MSO/PC structure if I already operate as a sole proprietor? What legal documentation is required to establish an MSO/PC structure?

Transitioning your practice from a sole proprietorship to an MSO/PC structure involves several steps and key legal documents. Firstly, you’ll need to establish two separate entities: a Professional Corporation (PC) for the clinical aspects of your practice and a Management Services Organization (MSO) for the business and administrative functions. This dual-entity approach is crucial for compliance and offers a clear delineation between clinical decision-making and business operations.

The cornerstone of this transition is drafting a comprehensive Management Services Agreement (MSA) between your PC and MSO. The MSA outlines the services provided by the MSO, payment terms, and ensures that the arrangements comply with healthcare laws, including anti-kickback statutes and regulations against fee-splitting.

Engaging with healthcare lawyers during this process is essential. We can assist with drafting the MSA, ensuring your structure complies with state laws, and advising on other necessary legal documents, such as employment contracts, lease agreements, and vendor contracts.

Starting with a Legal Strategy Session can set the right foundation for this transition, ensuring that your move to an MSO/PC structure is seamless, compliant, and strategically sound.