Medical Spas (“Medispa”) are becoming very popular as business men and women seek to capitalize on being able to provide botox, fillers, lasers and other medical services to their clientele. While many healthcare providers are being presented with enticing opportunities to become involved with Medispas, it is imperative for healthcare providers to understand the regulatory issues related to the Medispa industry.
The Corporate Practice of Medicine/Fee Splitting
Although spas can be owned by anyone, Medispas in New York must be owned solely by physicians and all procedures must be performed by medical professionals and billed through the Medispas.
As per New York’s Corporate Practice of Medicine doctrine, general business corporations are not permitted to employ physicians (or medical professionals) for the purpose of providing medical services or to arrange for the provision of medical services. See Education Law 6522 which specifies that an unlicensed person may not practice medicine or use the title “physician”. Furthermore, a person cannot receive any portion of a physician’s fee unless that person lawfully contributed to the provision of medical services. See Education Law 6530 (19). Violation of these laws may subject a physician to charges of professional misconduct. A corporation may be sanctioned for engaging in a fee-splitting arrangement if it unlawfully employs professions or makes arrangements for medical services.
While Medispas offer medical treatments in a spa setting, it is important for healthcare providers to understand that medical treatments being offered constitute the practice of medicine and are subject to all applicable laws governing the profession of medicine. Healthcare providers are required to keep accurate, medical records for all patient encounters, and must maintain such records for at least 6 years. Additionally, since all medical procedures require a detailed informed consent, a consent should be signed for every procedure outlining the risks and benefits associated with such services.
Scope of Practice
Medical services must be performed by duly licensed individuals trained to perform such services. These services can be performed by physicians, as well as nurses, physician assistants, estheticians under their licenses, so long as appropriate supervision is provided. Physicians should also be wary of providing services or supervising services in which they themselves do not have training or competence. Practicing outside of the scope of a physician’s regular competent area of practice can be deemed to be professional misconduct resulting in an action taken against the physician’s license and can also result in an increased risk of malpractice actions.
Although physicians are prohibited from partnering with non-physicians in a medical capacity, Medispas are permitted to enter into management arrangements with non-physicians whereby the management services organization (“MSO”) would provide the location, furniture fixtures and equipment and non-professional support services to the Medispa. As noted above, since New York State prohibits the sharing of profits between physicians and non-physicians, the fee to be paid to the MSO for the non-professional services should be a fair market value flat fee that does not fluctuate with the volume or value of referrals. Therefore, payment based upon a percentage of the Medispa’s revenue for professional services would be prohibited. Additionally, the fee should be based upon a fair market value analysis, as otherwise it could be perceived as an inducement to obtain referrals. As per the federal anti-kickback statute and applicable New York laws regarding kickbacks, there is a prohibition against offering, paying, soliciting or receiving anything of value in order to reward or induce patient referrals.
When entering into an arrangement with an MSO, practitioners must also be cognizant of the contractual provisions governing the relationship. For instance, all parties to an MSO agreement should be aware of the term (how long the agreement is for), as well as how the agreement can be terminated. A guaranteed exit strategy in the event things are not working out is essential in any arrangement between two parties. Additionally, the parties should review provisions relating to payment of the fees and any applicable penalties, and security agreements in the event of non-payment. The specific services that the MSO will be rendering should also be clearly identified, including for instance staffing, billing services, medical record management, regulatory compliance, medical and office equipment, and the provision of office space, among others. The parties should also be aware of insurance requirements that may be set forth in an agreement, in addition to restrictions including for instance confidentiality and non-solicitation of staff. Furthermore, in the event that the MSO will have access to protected health information, a business associate agreement should be entered into between the parties in accordance with Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Health Information Technology for Economic and Clinical Health Act, Title XIII of the American Recovery and Reinvestment Act of 2009 (the “HITECH Act”), and related regulations.
In sum, while becoming involved with a Medispa can be an exciting opportunity, Medispas present many prospective pitfalls for practitioners to inadvertently run afoul of applicable law. In light of the complexities with regard to Medispas, it is highly advisable to establish the details of the venture, preferably with the aid of legal counsel experienced in healthcare issues. Physicians who enter into suspect arrangements can expose themselves to criminal, civil and licensing repercussions, and hence should remain vigilant.
Should you have any questions regarding Medispas please contact Mathew Levy at 516-926-3320 or MLevy@weisszarett.com
About the Authors:
Mathew J. Levy, Esq. is a Principal of Weiss Zarett Brofman Sonnenklar & Levy, PC. Mr. Levy is nationally recognized as having extensive experience representing healthcare clients in transactional and regulatory matters. Mr. Levy has particular expertise in advising health care clients with respect to contract issues, business transactions, practice formation, regulatory compliance, mergers & acquisitions, professional discipline, criminal law, healthcare fraud & billing fraud, insurance carrier audits, litigation & arbitration, and asset protection-estate planning.
Stacey Lipitz Marder is senior counsel at Weiss Zarett Brofman Sonnenklar & Levy, PC with experience representing healthcare providers in connection with transactional and regulatory matters including the formation and structure of business entities, negotiating and drafting contracts and commercial real estate leases, stock and asset acquisitions and general corporate counseling. Ms. Marder also has experience advising healthcare clients on a wide range of regulatory issues including Stark, the Anti-Kickback Statute, fraud and abuse regulations, HIPAA, reimbursement and licensing matters.
Weiss Zarett Brofman Sonnenklar & Levy, P.C. is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
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 Note that while New York has a rote prohibition on the corporate practice of medicine, this does not hold true across all states. States such as Delaware, Hawaii and Montana, for instance, have no laws or other guidance barring physicians from being employed by non-physicians.