How to Open a Medical Spa (Medspa) if your License Requires Physician Supervision

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.

How to Open a Medical Spa (Medspa) if your License Requires Physician Supervision

Medical spas are big business these days. These facilities offer medical-grade aesthetic procedures like laser hair removal, Botox injections, dermal fillers, acne therapies, hair transplantation, microdermabrasion, and more. Furthermore, medical spas can provide their patients with medical-grade skincare and weight loss products. And Americans are spending millions of dollars on these and other therapies in an effort to look their best and, in some cases, turn back the clock.

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. 

“But wait!” you argue. “I’ve seen medspas in my community operate without any physician ownership or oversight. 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. Some entrepreneurs, whether unaware of the rules or unwilling to follow them, 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

If you’re a non-physician who wants to have an ownership interest in a medical spa without breaking the law, what can you do? Entrepreneurs can set up management services organizations (MSO), allowing them to partner with physicians or physician-owned corporations in order 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 the following:

  • Branding
  • Marketing
  • Advertising
  • Real estate ownership and management
  • Payroll
  • Accounting
  • Equipment rental
  • Design
  • Administrative support
  • H/R (excluding medical personnel hiring)
  • Vendor relationships

The MSO can perform any business-related function other than providing medical services.

Importantly, 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 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 success of the practice is hard to predict. Just remember that if your management fee will fluctuate based upon the volume of business experienced by the practice, the variability of your management fees might attract some unwanted attention from regulators.

An MSO Can Shield Both Parties from Liability

A benefit of the MSO arrangement that is often overlooked by both healthcare professionals and entrepreneurs is the fact that it compartmentalizes liability for all parties involved. For example, physicians or physician-owned corporations take on minimal business risk when they choose to operate 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.

Important Considerations

While MSOs provide physicians and non-physicians an opportunity to collaborate in a medical spa business with distinct ownership interests, certain pitfalls must be avoided. These include the following:

  • The physician must be responsible for all medical decisions, which includes 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.

Medspa Legal Costs

As we outlined above, healthcare—including the medspa business— is highly regulated. 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 that work with them.

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 that you budget $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 in the 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” from the outset.

Call Jackson LLP Today to Schedule a Consultation with a Medical Spa Attorney

At Jackson LLP, we focus our practice on health law and helping entrepreneurs and startups meet their legal needs and allowing them to focus on running and growing their businesses. If your business will be anywhere in Illinois, Michigan, Wisconsin, Florida, New York, or Connecticut, we can help. To schedule a complimentary consultation with one of our lawyers, call our office today at (855) 633-2339 or schedule using our online booking system below.

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