Legally, medical services must be provided by physicians or within a physician-owned entity. Does this mean that other entrepreneurial-minded healthcare professionals can’t open a medical spa business? Not exactly. Read on to learn more.
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Not surprisingly, many entrepreneurs and non-physician healthcare professionals see an opportunity in medical spa ownership but are uncertain how to proceed. The crux of the issue is that in most U.S. states, the services that medical spas provide are considered medical. Under a legal doctrine known as the “corporate practice of medicine,” only a physician or a physician-owned corporation can own a medical facility. Furthermore, only physicians or physician-owned corporations can collect patient fees for providing medical services.
Learn more about the corporate practice of medicine in this video.
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“But wait!” you argue. “I’ve seen medspas in my community operate without physician ownership or oversight. So what’s their secret?”
Unless you happen to live in one of the rare U.S. states with much less restrictive laws governing medspa ownership (such as Florida), their secret is this: they may be operating outside the confines of the law. Whether unaware of the rules or unwilling to follow them, some entrepreneurs open medspas that violate the corporate practice of medicine doctrine. If someone reports them, or if another issue brings on government scrutiny, they may be risking fines and even imprisonment.
Management services organizations can provide a solution.
What can you do if you’re a non-physician who wants to have an ownership interest in a medical spa without breaking the law? Entrepreneurs can set up management services organizations (MSO), allowing them to partner with physicians or physician-owned corporations to provide “management services” to the medical practice.
An MSO basically acts as a landlord to the medical practice — it charges the physician or physician-owned corporation a fee to operate in its space and maintains the facilities to its liking. Other aspects of the medical spa that the MSO can manage include:
- Branding;
- Marketing;
- Advertising;
- Real estate ownership and management;
- Payroll;
- Accounting;
- Equipment rental;
- Design;
- Administrative support;
- H/R (excluding medical personnel hiring); and
- Vendor relationships.
The MSO can perform any business-related function other than providing medical services.
Notably, the MSO and the physician or the physician-owned corporation need to enter into a management services agreement (MSA). This agreement should delineate the functions each entity will perform and the compensation that the physician or physician-owned corporation will pay the MSO for the use of its facilities, as well as the management fee the MSO will charge to the physician.
The management fee cannot be a percentage of the medical practice’s billables, and a flat-fee structure is ideal. However, it can be tricky to assess the value of the management services when the practice’s success is hard to predict. Just remember that if your management fee will fluctuate based on the volume of business at the practice, the variability of your management fees might attract some unwanted attention from regulators. For more detail, see our related blog, “How Does Money Flow Through a Management Services Organization?”
We also discuss MSO basics in this video.
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An MSO can shield both parties from liability.
Healthcare professionals and entrepreneurs often overlook one important benefit of MSOs: they compartmentalize liability for all parties involved. For example, physicians or physician-owned corporations take on minimal business risk when operating in an MSO-managed facility.
Likewise, the MSO is shielded from any claims that may arise from medical malpractice or other liability on the part of the physician or the physician-owned corporation. To reap the benefits of these liability protections, it is crucial that the MSO and medical practice are properly formed and that the MSA is carefully drafted.
While MSOs allow physicians and non-physicians to collaborate in a medical spa business with distinct ownership interests, it’s essential to avoid certain pitfalls.
- The physician must be responsible for all medical decisions, including hiring medical personnel.
- The physician or the physician-owned entity must be the beneficiaries of payments for medical services.
- The physician or the physician-owned corporation must actually be involved in medical decisions and cannot operate as an absentee medical director.
Failing to operate according to the law could result in significant liabilities for all parties involved, including substantial fines, the loss of a medical license, and sanctions related to practicing medicine without a license.
How much to budget for medspa legal costs.
As we outlined above, healthcare — including the medspa business — is highly regulated. Therefore, if you’re considering opening a medical spa, it’s critical that you ensure that you’re in compliance with all of the relevant requirements and that your management services agreement accurately reflects your arrangement. This is true both for non-physician entrepreneurs and the healthcare professionals with whom they work.
Brace yourself for much higher start-up legal fees than you would expect for other service businesses. If you’re planning to create an MSO, we recommend budgeting $12,000 to $15,000 for legal fees.
When you consider that any errors in the way you set up an MSO, operate the medical spa, or form agreements between the MSO and the physician or physician-owned entity could be career-ending for everyone involved, it’s easy to understand why it’s worth the investment to do everything “by-the-book.”
Call Jackson LLP today to schedule a consultation with a healthcare attorney.
At Jackson LLP, we help licensed healthcare professionals in the states where we practice meet their legal needs, allowing them to focus on patient care and growing their business. If you’re a physician, or you already have a relationship with the physician who will serve as your medical director, schedule a complimentary consultation to determine if we’re a good fit for you.
This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.
