Building a Compliant Med Spa: Entity Structures, MSOs, and Profit-Sharing That Don’t Violate CPOM
The explosive growth in the medical spa means that there is a significant outside interest in providing services to these businesses. Innova Health Law provides crucial legal advice when it comes to management services organization agreements that can benefit medical spas.
Doctors who own medical spa practices often want to focus on what they do best, which is providing care to patients. At the same time, they need entities with management experience to provide certain services that could help them with their practice. It is possible for a physician to obtain outside help with their medical spa practice, and perhaps even capital, but any agreement with another entity must factor in and comply with strict state rules that prohibit corporate practice of medicine.
Whether you are a physician or an outside entity that is looking to perform services for a medical spa, speak to a management services organization attorney at Innova Health Law by calling us at 281-936-9904 to learn more about how to comply with legal requirements. We offer free case discovery sessions for prospective clients.
Medical Spas Must Be Mindful of Corporate Practice of Medicine (CPOM) Rules
Each individual state has its own version of CPOM rules, and you must follow the regulations in the individual state in which the practice is located. However, physicians who are licensed in multiple states cannot run afoul of the CPOM rules, even if their practice is not physically located in that state. The unauthorized practice of medicine rules even apply to investors who do anything more than play a passive role in the med spa practice. Accordingly, any entity structure or MSO agreement must protect everyone involved from regulatory and, potentially, criminal ramifications.
Entity Structure Is a Crucial Choice for a Medical Spa
The choice of entity itself can have a major bearing on whether a medical spa is compliant with CPOM rules. If the medical spa is either a professional corporation or a professional limited liability corporation, it would be in compliance with the rules because only physicians can own shares. It may be riskier when the medical spa is structured as a limited liability corporation with outside investors. Nevertheless, it may be possible to structure a medical spa as an LLC, but you need an airtight agreement that does not violate CPOM rules.
Once the entity is selected, you must be careful about the designation of the actual owner. Outside entities that are not physicians cannot be owners of the practice. However, even if someone is not actually designated as an owner of the practice, the written arrangement between the parties could include indicia of ownership that are problematic.
Properly Structuring MSOs for Medical Spas
A common way that a medical spa practice can receive business services from an outside entity is through a management services organization agreement. These MSOs can provide services such as:
- Billing and collections
- Marketing
- HR and payroll
- Office space and equipment
- IT services
- Scheduling
- Purchasing
MSO agreements can be structured in different ways, but the common theme is that all of them must be clearly written in a way that avoids potential issues with CPOM rules. The most important trouble spot that needs to be avoided is any type of arrangement that makes it look like a non-physician receives payments based on medical revenues. Further, the role of the MSO must be restricted to keep them from having any say in medical care decisions. As such, the agreement must clearly specify the role that the MSO plays and ensure that it avoids scenarios in which that organization is doing anything other than supporting the physician behind the scenes.
Some things that you may consider when structuring an MSO agreement include:
- Clearly splitting clinical decisions from administrative control of the practice
- Ensuring that the MSO is paid fair market value for their services and not more or less
- Directing that the compensation provided to the MSO is for Management and not Professional Services
There are compensation arrangements in an MSO that could raise red flags to regulators. Specifically, any MSO agreement must avoid the following forms and types of compensation:
- The MSO receives a percentage of medical revenues (although there is a possibility that they could be paid a percentage of overall revenues)
- Payments on a per-patient or per-procedure basis
- Payments that are tied to the MSO referring patients to The Med Spa practice
- Excessive payments that are disproportionate to the services that are provided (which is a way to mask ownership)
- Equity in the business that fluctuates with revenues
Contact a Management Services Organization Law Firm
Do not risk the consequences that result from violating CPOM rules. Schedule a free case discovery session with Innova Health Law to learn how we can help. Reach out to us online or call us today at 281-936-9904 to speak with an experienced management services organization lawyer.