By Alex R. Thiersch, JD, CEO of the American Med Spa Association (AmSpa)
For many of the people who work in the medical aesthetics industry, the goal of owning a med spa is difficult to realize. After all, 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 med spas are medical in nature, this means that the ownership of such facilities is governed by this doctrine.
However, there is a path to med spa ownership that doesn’t involve you attending medical school for four years and then working as a resident for several more. It is called a management services organization (MSO), and while it still requires the participation of a physician, it allows non-physicians to play a very significant role in the day-to-day operations of a medical aesthetics business.
As its name suggests, an MSO provides management services. It partners with a physician, for whom a separate company that only provides medical services is created. This arrangement, known as a management service agreement (MSA), essentially allows a non-physician to supervise most aspects of a medical aesthetics business, including branding, marketing, owning the real estate, payroll, human resources, accounting, and billing—everything except the administration of medical services.
This can be thought of as a lessor/lessee situation. The MSO typically owns and maintains the facility, and the physician occupies the space. The physician pays the MSO for the right to occupy the space, and the MSO functions in much the same way as a landlord, maintaining the facility and keeping the physician as comfortable as possible. However, unlike an apartment rental that is governed by a lease that dictates the occupant pay a set amount of money for a certain term, the amount paid to the MSO is determined by the amount of business conducted by the physician. If the medical organization treats more patients in a period of time than it did the previous period, the MSO will also make more money. This helps to create a bond between the physician and the MSO—if one side of the business succeeds, they both succeed.
The contractual separation of the two entities also provides benefits to both parties. For example, the physician incurs very little risk when it comes to setting up the business. If the practice fails, he or she is not on the hook for the facility, its contents, and the land on which it is located—that is on the MSO. Additionally, the creation of a separate company for the physician helps to prevent any liability issue incurred at the medical spa from affecting any of the physician’s other medical pursuits. The MSO also typically covers the physician’s liability insurance. This arrangement might seem to favor the physician, but that’s why he or she pays the MSO. And should the physician incur any sort of liability claim, the MSO is in the clear.
It is important to note that while it may seem that a properly set up MSO is in charge of its medical spa, in order for the practice to be compliant, the doctor must be in charge of medical and clinical decisions. The easiest way for an MSO to get in trouble is for it to not actually treat the practice as a medical company. The doctor must manage the medical aspects of the med spa; if he or she does not do this, they are subject to severe punishments, including license forfeiture and large fines. Furthermore, the MSO is subject to repercussions for practicing medicine without a license. As such, it is vital that all parties must understand their roles and obligations.
MSOs have been used by entrepreneurs to form management companies for medical organizations as large as hospitals and managed care facilities, so it stands to reason that creating an MSO for a medical spa would be comparatively simple. However, this is not the sort of thing that can be properly executed using forms you can download off the internet, so you should consult an attorney who has experience successfully setting up MSOs if you are considering entering into this sort of arrangement. This is especially important if a business wants to sell to a large entrepreneur or expand across state lines.
If you want to learn more about MSOs, they are covered in depth at AmSpa’s Boot Camps. Click here to find out when we will be coming to a city near you and register to take part in the course.