Is Buying a Medical Spa a Smart Move for a Medical Doctor?

Medical SpaHappy MD, Happy Spa

You’re a licensed medical doctor, happy in your aesthetic medicine or plastic surgery practice, and you’re working part-time with a medical spa in a way that is increasing your income without upping your stress.

You’re rarely at the medi-spa and you’re able to oversee nurses who do all the heavy clinical lifting.  Now the medical spa offers you a chance to buy the spa, invest in it, or formalize the business terms of your professional relationship.

What should you do?

The medical spa advertises “happy feet”—but will your feet be happier if they walk more quickly into the medical spa, or begin a sprint away from the “opportunity?”

Many physicians wonder who can actually own a medical spa.

Becoming “Medical Director”

This part reminds me of the film, Being John Malkovich, where we step into someone’s mind and every character is John Malkovich in various forms and roles and costumes.

The issue with the “Medical Director” role is that a medical director has to direct something—and what would that be, other than the professional medical corporation for which the Medical Director is President?  And if this is the case, then what’s the point of the term, medical director?

The medical director typically doesn’t direct the administrative staff of a medical spa, or the licensed estheticians.  The Medical Director of a medical spa doesn’t run the overall operation.  No; the MD or DO is clinically responsible for the practice of medicine within the overall operation.  That isn’t really “medical direction” either; it’s simply the practice of medicine, and supervising those physician extenders (nurses, physician assistants, medical assistants) who are employed by the professional medical corporation.

See our previous posts:

“Medical director” creates enforcement red flags

“Medical director” creates enforcement red flags particularly when medical spas or health care ventures award the title willy-nilly.  In this post, we discuss legal pitfalls and offer [...]

If someone asks you to be Medical Director, run….

There’s an old quote that says: “If you meet the Buddha on the road, kill him!” And what if your friendly neighborhood chiropractor asks you to be Medical Director, especially [...]

Medical Spa Legal Compliance Issues Get You Down? Try These Legal Remedies

If you have a medi-spa where the physician is never there but serves as “Medical Director,” think again. A lot of people misunderstand the concept of “medical director.” A medical director is [...]

A key problem with the designation, Medical Director, is that it implies some relationship—an unholy alliance (from the eyes of the prohibitions against fee-splitting and corporate practice of medicine) between the MD or DO and the rest of the medical spa operation.

Who Owns the Medical Spa?  Legal Structure

The medical spa is an odd creature.  Typically, the medspa isn’t really “owned” by one person.  It’s a blend of several different things:

  • A physician housed within a professional medical corporation, and the physician’s clinical staff, who provide clinical (medical) services to patients (such as, for example, Botox and fillers).
  • A non-physician who is the business brains behind the operation and may own the “day spa” that also houses the physician’s clinical component.
  • Licensed estheticians, massage therapists, and others who provide the aesthetic and cosmetic, non-medical services within the overall operation.

While there are many ways to slice and dice the flow of revenues into different entities and corporate coffers, the bottom line is that the medical services organization (MSO model or medical management model) is an ideal legal vehicle for the medical spa environment.

See our prior post:

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.

California leads the way in expressing distaste for any kind of arrangement that makes it seem as though the physician is “lending” his or her medical license to the medical spa.  The California Medical Board makes this clear in, The Bottom Line: The Business of Medicine - Medical Spas.

Branding the Medical Spa

“Co-branding” is one idea that captures the notion that the physician is physically housed within the medical spa, but legally separate and, autonomous in terms of clinical decision-making.  Among other compliance tips:

  • The medical spa should make it clear that there is a physician running the medical portion of the whole operation.
  • The space for the medical procedures should be segmented, and under the MD or DO’s control.
  • The physician should ensure that only properly licensed, credentialed, and trained clinicians under medical supervision operate the laser and other equipment that is part of a medical procedure.
  • The physician should ensure compliance with OSHA and any other safety rules.

See what we’ve written on branding the medical spa:

Case Study: Branding Your Medical Spa or Anti-Aging Clinic—Legal Considerations—Part 1 (Board Investigations; Structure)

Our healthcare attorneys recently advised a business venture that wanted to brand a medical spa or anti-aging clinic in California, as the first of a nationwide series of medical clinics.

Case Study: Branding Your Medical Spa or Anti-Aging Clinic—Legal Considerations—Part 2 (Branding & Marketing)

Branding your medical spa, longevity center, or anti-aging clinic raises legal and regulatory challenges that a skilled healthcare attorney can help you navigate.

Case Study: Branding Your Medical Spa or Anti-Aging Clinic—Legal Considerations—Part 3 (Physicians & Estheticians)

Medical doctors as well as non-physician clients frequently ask our healthcare legal team about including non-medical personnel, such as licensed estheticians, in a practice that combines [...]

While co-branding is important, so is the MSO model, as mentioned above, as a legal structure for the medical spa business.

The MSO model works because it assigns the clinical medical responsibility to the MD, and the administrative, management, and marketing role to the MSO.  This is well-established and well-understood structure in the law.

And, nothing so well documents that this is exactly the arrangement, as a well-drafted management services agreement.

Case Study: Equity for the MD in the Medical Spa

Recently, Dr. Smith requested a legal strategy session, to discuss the opportunity she had received to buy a medical spa.

Dr. Smith was already providing Botox, IPL, fillers, and other therapies, at the medical spa, part-time, while she worked full-time at a local hospital.  The physician who had started the local medical spa was retiring and wanted to sell his shares.

Dr. Smith had many questions for the healthcare lawyer on our time assigned to her matter.  First of all, the current arrangement was that when Dr. Smith injected Botox or performed another procedure, all the monies went to the Green Medical Spa, which then remitted 5% back to Dr. Smith.

Dr. Smith asked: Is this fee-splitting?

That was a great place to start.

Dr. Smith explained that she was “all outside Medicare, all cash, no insurance.” She wondered whether this was relevant or not to anti-kickback and fee-splitting concerns

The next question was whether Dr. Smith had to be on-site for operation of the lasers.  This gets to the question of who has to do a good-faith exam (or appropriate prior examination) and what is meant by supervision.

It turned out that the departing physician had not been seen in the office for months and that the registered nurse had been working fairly autonomously.

The next question was whether Dr. Smith would be wise to buy the medical spa.  This raised conflict of interest issues, as well as the need to distinguish between purchasing a medical practice, and buying an MSO.

If designated health services would be involved, then there might be Stark issues or questions under a mini-Stark statute (the state law equivalent, which could come into play even if no Medicare was involved).

There is an antikickback safe harbor for passive investments, but this situation was more complicating given that the physician would be essentially be referring patients to an entity in which she would have a financial self-interest.

Some Options

Without getting into deeper legal waters in this post, suffice it to say that the most creative part of guiding Dr. Smith was helping Dr. Smith figure out what she really wanted to do with the opportunity before her.

Because Dr. Smith was torn between building up the medical spa side of her practice, and building up the MSO, and trying to do both at once.

We had to talk through not only the legal and regulatory issues, but also the business issues—to help the physician figure out what she wanted from all of this, and whether the economics supported one path or another.

We came up with some very different options, including:

Option 1:  Simply buy into the day spa side of the medical spa business, as a passive investor, assuming legal requirements could be met.

Option 2: Purchase 100% of the day spa side and run the MSO as well as the clinical practice.

Option 3: Build up the aesthetic medicine component of the medical spa, adding physician extenders and solidifying medical supervision so as to better meet compliance requirements.

Option 4: Build up the surgical plastic surgery component of her practice, outside the medical spa, and complement this with referrals to the medi-spa and the reverse, again assuming anti-kickback rules applicable to the cross-referrals could be satisfactorily handled.

In addition to mapping out the options, we had some compliance suggestions for the medical spa as well, including:

  • Recommendations for co-branding so as to enhance legal compliance.
  • Clarifying the physician’s role in the delivery of medical services within the medical spa.
  • Getting a robust management agreement drafted and signed.
  • Redoing the compensation structure so it does not look like a naked splitting of the physician fee between the MD and the day spa owner.

By understanding some of the legal fundamentals, Dr. Smith was able to make a better decision about how to proceed with this important part of her medical (and business) career.

If you’re a medical doctor who has been offered the opportunity to join a medical spa, buy shares in a medical spa, invest in a medical, become medical director of a medical spa, or otherwise increase your role and affiliation with a medical spa, consult with a healthcare attorney regarding your options.  The answers aren’t always “yes” or “no.”  A healthcare attorney who focuses on legal strategy can guide you so you make a smart decision for your medical practice and/or your overall healthcare business.

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Michael H Cohen Healthcare & FDA Lawyers

Contact our healthcare law and FDA attorneys for legal advice relevant to your healthcare venture.

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