By Alex R. Thiersch, JD, Founder/Director of the American Med Spa Association (AmSpa)
The laws about owning a medical spa in Illinois are not necessarily straightforward, but are increasing in importance because the state is a hotbed for the medical aesthetic industry. If you travel in and around the bustling city of Chicago, you may find yourself overwhelmed by the number and variety of medical spas in the area. However, likely due to the size of the industry in the state, Illinois has become known as one of the most active states in the nation in terms of regulatory investigation of medical aesthetic practices.
Ownership is one of the key factors that Illinois regulators look at continuously—they are very concerned with who owns and collects revenue from the state’s medical spas, and they are quick to punish those whose ownership structures are found to not meet the requirements of Illinois law. Therefore, it is important for Illinois medical spa owners—and prospective Illinois medical spa owners—to know what constitutes a legal ownership structure in the Land of Lincoln, since laws can vary greatly state-to-state. (AmSpa Members: Consult your legal summary to find answers to Illinois medical spa ownership questions.)
Corporate practice of medicine
Illinois observes a legal doctrine known as the “corporate practice of medicine,” which dictates that a physician or a physician-owned corporation must be the sole owner of a medical facility in the state. Since medical aesthetic practices are medical facilities—unorthodox medical facilities, but still—they are required to adhere to this standard. Additionally, only physicians or physician-owned corporations can collect revenue from medical procedures administered, and non-doctors—including nurses, estheticians, and entrepreneurs—cannot employ or contract with doctors to serve as their medical director and then collect revenue from medical spa services. This is designed to ensure that physicians are in complete control of all medical treatment; this extends to the pricing of procedures and the purchase of medical supplies and drugs. In the eyes of the state, a doctor should always have control of these factors and, if one is not, the pursuit of profit will win out over the welfare of the patients.
The arrangement that tends to get people in trouble in Illinois is when an entrepreneur, a nurse, or an esthetician opens a medical spa and enters into a medical director contract with a doctor. If a non-doctor accepts payment for medical services, it is a violation of the corporate practice of medicine, even if the doctor is heavily involved in the day-to-day operation of the facility (which is not always the case with medical directors). In such a case, the revenue—and, therefore, a degree of control over medical treatment—flows to a non-doctor, which is prohibited.
If an entrepreneur or a nurse wants to become a part of the medical aesthetics industry on an ownership level in Illinois, he or she can look into setting up a management services organization (MSO). An MSO partners with a physician, for whom a separate company is created; this company only provides medical services. This arrangement is known as a management service agreement (MSA) and essentially allows a non-physician to supervise almost every aspect of a medical aesthetics business, including branding, marketing, owning the real estate, payroll, human resources, accounting, and billing—everything except the actual administration of medical services, for which the physician remains solely responsible.
Essentially, this is best thought of as a lessor/lessee situation. The physician pays the MSO “rent” for the right to occupy the space, and the MSO as a landlord, maintaining the facility and keeping the physician as comfortable as possible. However, the amount paid to the MSO fluctuates according to the amount of business conducted by the physician. If the medical organization conducts more treatments in a month or quarter (depending on the terms of the agreement) than it did the previous term, the MSO also will make more money. This helps to create a bond between the physician and the MSO—if one succeeds, they both succeed.
Words of warning
Often, AmSpa consults with nurses and entrepreneurs regarding the corporate practice of medicine issues in Illinois, but it is equally as important for non-core doctors—surgeons and general practitioners, for example—who are becoming medical directors to watch out for this. Ultimately, they can have their licenses investigated because of this doctrine. In this space in the future, we will discuss some recent court cases in states such as Michigan and New Jersey, in which there have been severe consequences for violating the corporate practice of medicine—contracts have been invalidated, insurance payments have been recouped, and coverage has been denied. This is a real issue that medical aesthetic professionals need to be aware of. To be sure you are on the right side of medical spa law consult an attorney familiar with medical aesthetic regulations in your state.