Posted By Administration,
Tuesday, September 5, 2017
By Alex R. Thiersch, JD, Founder/Director of the American Med Spa Association (AmSpa)
Owning a medical spa or aesthetic practice for non-doctors is a goal that’s often difficult to realize. In most states, only a physician or a physician-owned corporation can legally own a medical practice. However, non-doctors can essentially own a medical spa via a management services organization (MSO) and, while such an arrangement still hinges on the participation of a physician, it allows others a very significant role in the day-to-day operations of a medical aesthetic practice.
Most states observe a doctrine known as the corporate practice of medicine, which dictates that only a physician or physician-owned corporation can receive payment for medical services. Since many of the treatments offered at medical spas are medical in nature, the ownership of such facilities is typically governed by this doctrine. (AmSpa members: check your state legal summary to see if your state observes the corporate practice of medicine.)
But entrepreneurs who want to become a part of the medical aesthetic industry on an ownership level and live in states that observe the corporate practice of medicine can look into setting up an MSO, which provides management services (as its name suggests). It partners with a physician’s company, which only provides medical services. This arrangement, known as a management service agreement (MSA), allows a non-physician to supervise most aspects of a medical aesthetic business, including branding, marketing, owning the real estate, payroll, human resources, accounting, and billing—everything except medical services.
Paying the Cost to Be the Boss
It is helpful to think of this as a lessor/lessee situation in which the MSO is the landlord and the physician is the tenant. The physician pays the MSO “rent” to occupy the space, and the MSO maintains the facility and keeps the physician as comfortable as possible. However, unlike an apartment rental governed by a lease that dictates the occupant pay an agreed-upon amount of money for a certain term, the amount paid to the MSO each period changes according to the amount of business conducted by the physician. If more patients are treated in a month or quarter (depending on the terms of the agreement) than in the previous period, the MSO also makes more money. This helps to create a strong bond between the two sides of the business—if one succeeds, they both succeed.
The contractual separation of the two entities also helps mitigate risk for both parties. A physician risks very little when entering into an MSA. If the practice fails, he or she is probably going to be fine. The physician is not liable for the facility, its contents, and the land on which it is located; that risk belongs to the MSO. The MSO also typically covers the physician’s liability insurance. On the surface, this arrangement might seem heavily weighted in the physician’s favor, but that’s why the physician pays the MSO. Also, the MSO is not responsible for any sort of liability claim leveled against the physician.
When entering into these types of arrangements, a few pitfalls must be avoided. First and most importantly, the doctor must always be responsible for medical decisions. Second, payment for medical services must be always made directly to the physician’s company. The MSO is paid by the physician—at the end of each pay period, it submits an invoice for management services to the physician’s company. If this is properly executed, the MSO receives most of the revenue generated by the med spa.
In order for the practice to work properly and compliantly, the doctor must make all medical and clinical decisions. If the physician does not actually do this, he or she is subject to severe consequences, including license forfeiture and large fines. Furthermore, the MSO may be found to be practicing medicine without a license. As such, it is vital that when setting up an MSA, all parties must understand the roles and obligations to which they are agreeing.
A Formula for Success
MSOs have been used for many years by entrepreneurs to form management companies for medical organizations as large as hospitals and managed care facilities, so it makes a certain amount of sense that creating an MSO for a medical spa would be relatively simple. However, an MSA cannot be properly executed using forms downloaded off the internet, so it is important that you consult an attorney who has experience setting up MSOs if you want to enter into this sort of arrangement.
You can learn more about MSOs and many other legal topics of interest to medical aesthetic practices at AmSpa’s Boot Camps. We will be hitting San Jose, Calif., on Sept. 18 and 19, the Chicago suburbs on Oct. 14 and 15, and Atlanta on Nov. 6 and 7. We hope to see you there!