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Med Spa Law: FBI Raids and Anti-Kickback Settlements in Dallas Show Increased Enforcement

Posted By Administration, Friday, August 10, 2018

By Brad Adatto, JD, Partner, ByrdAdatto

Legal enforcement has been a big topic among med spas across the country recently, and that includes Dallas. During the last 12 months we have covered a wide range of articles on significant litigation by the government and the commercial payors challenging how providers submit bills. The allegations have ranged from completely fabricated bills to overpayment of fees for out-of-network services.

The civil litigation has involved United Healthcare’s allegations against Next Health, LLC for engaging in fraudulent activity, Quest Diagnostics’ settlement of a whistleblower lawsuit; and Blue Cross Blue Shield of Mississippi’s suit against a community hospital alleging it violated its contract for overpayment and recoupment of claims.

This May, the Dallas area health care industry had two new breaking enforcement stories. The Dallas Morning News reported on an FBI raid at a Dallas-based healthcare management company. The FBI has not provided any insight as to the reason for the raid, and the company has denied any wrong doings.

That same week, the Dallas Morning News broke a separate story of federal authorities settling a civil suit with a physician for allegedly being paid kickbacks by a Dallas-based lab. Federal authorities believe that the lab used a “sham investment model” to make payments for blood and urine screens. The lab was not a part of the settlement agreement, and no allegations have been made against it.

With these types of allegations, and heightened enforcement by the federal government, parties should ensure they understand the implications of the federal anti-kickback statutes, the federal travelers act, and wire fraud rules because the federal government is using these laws to pursue providers. Providers must scrutinize all their health care related investments, be conscious of these cases, and be mindful that any arrangement they enter into must be compliant with both state and federal laws, in both form and substance. (AmSpa members: check your state’s medical aesthetic legal summary for more information on the legal regulations in your state.)

For more information on your state’s laws and regulations, attend an AmSpa Medical Spa & Aesthetic Boot and be the next med spa success story.

Brad Adatto, JD, is a partner at ByrdAdatto, a business, healthcare, and aesthetic law firm that practices across the country. He has worked with physicians, physician groups, and other medical service providers in developing ambulatory surgical centers, in-office and freestanding ancillary service facilities, and other medical joint ventures. He regularly counsels clients with respect to federal and state health care regulations that impact investments, transactions, and contract terms, including Medicare fraud and abuse, anti-trust, anti-kickback, anti-referral, and private securities laws.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Business and Financials  Med Spa Law 

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Potential Legal Issues With Your Med Spa Website

Posted By Administration, Thursday, August 9, 2018

By Alex R. Thiersch, JD, Founder/Director of the American Med Spa Association (AmSpa)

Does your med spa website meet all your local laws and regulations? According to the 2017 Medical Spa State of the Industry Report, a website is the most frequently used marketing tool for med spa practices. If you don’t have one, you’re losing out. A very common mistake being made by med spas across the country, however, is the failure to create and maintain a website that accurately reflects and realistically represents the business structure and ownership of the med spa.

Due to recent substantial growth in the med spa industry, regulatory authorities in several states are cracking down on med spas that are, or appear to be, operating illegally. But just how are these state regulatory agencies obtaining information on the business operations and workings of med spas? And what information is leading investigators to believe a med spa is operating illegally?

Websites. Technology and social media has driven businesses, big and small, to use the Internet as a tool to provide information to their clients. Med spas are no exception. A majority of med spas across the county operate websites with information about their “team” of professionals, the services provided, specials and discounts offered and even explanations of the different treatments and procedures clients can purchase.

Many of these websites provide bios of the professionals that own and operate the med spa and perform medical procedures. But, unfortunately, in several instances those individuals are not licensed to practice medicine and thus, cannot perform medical procedures or own a medical practice. State regulatory authorities have caught onto this- and now they are enlisting investigators to examine med spa websites looking for signs of illegal ownership or the unauthorized practice of medicine.

For instance, in Illinois, the Department of Financial and Professional Regulation (“IDFPR”) has begun launching investigations against med spas based solely on their website content. (AmSpa members: check your state’s medical aesthetic legal summary for more information on medical advertising in your state.) The IDFPR, much like other state regulatory agencies, has an enormous case load and it is impossible for investigators to personally visit every med spa to investigate and determine whether the spa is in compliance with state laws. Instead, to save time and effort, investigators are tasked with reviewing the websites of med spas to obtain information on ownership, business structure, fee structure, staff qualifications, and services.

If the med spa website does not realistically reflect its business practices or falsely depicts a non-physician as an owner or co-owner of the med spa, it will quickly be on the IDFPR’S “radar” and the owners and employees associated with the med spa can face suspension of licenses, fines and penalties. Click here to read more about non-physicians owning med spas.

Although not all states have prohibitions against non-physician ownership of medical spas, most states prohibit fee-splitting between physicians and non-physicians. If a website advertises ownership by a non-physician and highlights a physician as a “medical director” for the med spa, it is likely that the non-physician owner is receiving patient fees and then splitting these fees with the physician on staff. This constitutes fee-splitting between the physician and the non-physician owner of the med spa and it is illegal.

To ensure that your med spa website is in compliance with state and federal laws and to avoid the widening “radar” of investigating state agencies, it is important to perform a careful review your website for any terms or titles that may be red flags. Although there is no script to follow in creating a flawless med spa website, here are a few essential pieces of advice:

  1. List the physician owner prominently on the website to show the physician’s involvement in the business;
  2. If you employ an advanced practice nurse or licensed nurse practitioner to consult with and treat patients under the supervision of the physician owner, include this individual prominently on the website to inform clients and potential clients of that individual’s involvement in patient care;
  3. Importantly, if employing a registered nurse or aesthetician as the med spa’s “go to” coordinator or office manager, bestow upon the individual a title that properly reflects his/her duties, responsibilities, and limitations.

As technology grows, websites and other forms of social media become increasingly important for med spas looking to grow their business and compete in the marketplace. Now is the time to reevaluate your med spa’s online presence and ensure that if you have a website, or plan to establish one that you are conforming to the law and using the website to help, not hurt your business.

To learn more about how to build and run a legal and successful medical spa practice attend an AmSpa Medical Spa & Aesthetic Boot Camp and be the next med spa success story.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Business and Financials  Med Spa Law  Med Spa Ownership 

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Can Nurse Practitioners Own a Medical Spa in Massachusetts?

Posted By Administration, Tuesday, August 7, 2018

By Alex R. Thiersch, JD, Founder/Director, The American Med Spa Association (AmSpa)

The question of who can own a med spa is always one of the most common with medical aesthetic practices, and in Massachusetts it can be a tricky one because of the nature of the laws in the state. Massachusetts is one of a few states that has a clinic licensure statute—a comprehensive regulation that outlines a process by which a person or organization other than a physician or a physician-owned company can own a health care facility, such as a medical spa.

In the past, we at AmSpa and ByrdAdatto have worked with companies in the commonwealth to obtain clinical status for their businesses. However, approximately a year ago, we were informed that in some cases, this process may not be necessary.

“We reached out [to the Massachusetts Department of Public Health] because this potential client had said that according to their conversations with the department of health, as a nurse practitioner (NP) licensed in Massachusetts, they do not have to get a license to own a clinic,” said Renee E. Coover, JD, associate at ByrdAdatto. “That was flying in the face of everything that we had been told by the department of health—they said if you’re a non-physician, you must have clinic licensure in order to operate as a medical spa.”

When ByrdAdatto reached out to the Department of Public Health, it was told that in the opinion of the department’s legal counsel, an NP does not need to obtain a clinic license to own a medical spa. However, since this was merely the opinion of one person, the firm felt uncomfortable telling clients that such a course of action was legally sound.

“If they went to the department of health and they got the same answer, we would be fine, but if they happened to talk to someone else who said, ‘No, that is not the case,’ we were fearful we were going to give out incorrect information,” Coover says. “We’re going to reach back out to the department of health, because at this point, I don’t feel as confident giving information one or way or the other as to really what the law says when it comes to clinic licensure.”

As it stands, though, this issue may be moot, because Massachusetts law states that NPs require physician supervision in order to have a prescriptive practice.

“In light of that requirement, it would be difficult at this point to say an NP could own their own practice, because if they’re going to be prescribing anything—Botox, fillers, etc.—all of those types of treatments are going to need a prescription,” Coover explains. “They’re still going to require physician supervision. Without that prescriptive authority, I don’t know really how they would be able to independently have this medical spa.”

However, Massachusetts Senate Bill S.1257, which is currently in committee, would, if passed, remove the requirement for physician supervision for an NP prescriptive practice. If this bill passes, NPs could theoretically operate a practice completely independently of a physician. This, in turn, raises some questions about how an NP who owns a practice would be able to market it—is it really “medical” if there’s no physician involved?—but these are issues that will need to be addressed when and if the bill passes.

See the process for clinic licensure in Massachusetts in the video below:

For more information on medical spa law attend AmSpa’s Medical Spa & Aesthetic Boot Camp in Boston September 15–16 where you’ll learn the keys to build and run a legally compliant and profitable medical spa practice. See the full 2018 Boot Camp schedule to find a Boot Camp near you and be the next med spa success story.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Med Spa Law  Med Spa Ownership 

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How the New California Privacy Act Affects Med Spa Practices

Posted By Administration, Wednesday, August 1, 2018
Updated: Wednesday, August 1, 2018

By Brad Adatto, JD, Partner, ByrdAdatto

Med spas and other aesthetic practices should be aware of the new California Consumer Privacy Act of 2018 recently passed and signed into law. With seemingly daily reports of data breaches or improper sharing of user data, consumer privacy is a growing concern. California is the latest State to take action to protect consumers’ personal information and has passed a law that provides strong and broad protections to do so. Signed into law on June the 28, 2018, the California Consumer Privacy Act of 2018 (“Privacy Act”) creates some of the strongest consumer privacy protections in the nation.

New Privacy Act Details

The Privacy Act creates a right for consumers to

  1. Request that businesses disclose what information they have collected, sold, or shared on them,
  2. If they so choose, to have that collected information deleted, and
  3. To proactively opt-out of future data collection, selling, and sharing.

These protections in turn create numerous compliance, notice, and penalty issues for businesses who collect information from California residents.

Businesses subject to the Privacy Act will need to provide proper notice of the types of information collected and the rights of the consumer under the act before any information is collected. Businesses also will need to ensure that their data collection and use practices involve only the types of information and uses that have been properly disclosed to the affected consumer.

Additionally, businesses will need to have trained personal to accept, verify, and respond to consumer requests within the statutory deadlines. And finally, businesses subject to the Privacy Act will need to have data systems capable of securely storing the information while providing for rapid and accurate access for requests, and to delete the information if requested.

Additional Details Regarding Patient Privacy

Medical businesses who are covered under the Health Insurance Portability and Accountability Act (“HIPAA”) or California’s Confidentiality of Medical Information Act (“CMIA”) have additional hurdles to overcome. The Privacy Act exempts “protected” or “health information” that is already covered under the prior laws. However, medical businesses will need to determine what information they have and comply with the Privacy Act for other types of information not covered by HIPAA or CMIA.

The safe and accurate handling of information and consumer requests will be critical to medical practices in particular as the Privacy Act creates substantial penalties for failure to maintain compliance, mishandling of information, and failure to respond appropriately to consumer requests. Luckily medical practices in California have some time to learn more about what is covered before being subjected to penalties, as the Privacy Act is slated to take effect on January 1, 2020.

Read the full text of the law here. If you have concerns on how the California Consumer Privacy Act of 2018 may impact your business consult a healthcare attorney familiar with California law.

AmSpa members may take advantage of their annual compliance consultation with the business, healthcare, and aesthetic law firm of ByrdAdatto. Become a member today to gain access to business and legal compliance tools to keep your practice profitable and on the right side of regulations.

Brad Adatto, JD, is a partner at ByrdAdatto, a business, healthcare, and aesthetic law firm that practices across the country. He has worked with physicians, physician groups, and other medical service providers in developing ambulatory surgical centers, in-office and freestanding ancillary service facilities, and other medical joint ventures. He regularly counsels clients with respect to federal and state health care regulations that impact investments, transactions, and contract terms, including Medicare fraud and abuse, anti-trust, anti-kickback, anti-referral, and private securities laws.

Tags:  Med Spa Law 

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The Dangers of Med Spas Purchasing Overseas Botox

Posted By Administration, Tuesday, July 31, 2018

By Alex R. Thiersch, JD, Founder/Director of the American Med Spa Association (AmSpa)

Med spas purchasing Botox or other drugs from legitimate overseas sources in order to save money open themselves to significant legal risks. For instance, in June 2018, Oregon-based physician Brenda Roberts had her medical license revoked for obtaining and using prescription medication from foreign countries. Roberts was a family practice doctor who began administering Botox treatments at her home on the side. She wasn’t necessarily doing anything improper in terms of patient care, and she was keeping appropriately detailed records on her patients, but after Allergan noticed that she was having Botox sent to her home and cut off her account, she began buying Botox from United Pharmacies, a “rogue pharmacy” that operates outside of U.S. Food and Drug Administration (FDA) governance. FDA agents went through her trash and found that she had used Botox that was intended for sale in Europe.

Parallel Importation

Roberts was participating in a practice called parallel importation. In countries such as the United Kingdom, Germany, France, Sweden, and Canada, government regulates the cost of pharmaceuticals. Broadly, these measures are designed to prevent drug manufacturers from charging too much for what those governments consider essential medicine, but they also apply to pharmaceuticals used for elective procedures such as those offered by medical spas, including Botox.

In the U.S., however, drug manufacturers essentially can charge whatever they feel the market will bear for their products, and that price is invariably much higher than what is charged in other countries. In response, licensed dealers in countries where cost controls are enforced sell their products to customers in the U.S. at prices that are up to 50% less than what the buyers would have to pay if they were purchasing the drugs directly from the manufacturer.

This transaction benefits both parties. The buyers get legitimate pharmaceuticals for much less than they would have to pay if they were buying directly from the manufacturers, and the dealers can make a decent profit simply by marking the product up slightly. These are not cheap, counterfeit pharmaceuticals like the ones that are typically manufactured in China that have flooded the medical aesthetics market in recent years; these are the same drugs that are approved by the FDA and sold in the U.S.

Legal Concerns

However, while parallel importation is broadly legal in the U.S.—the Supreme Court ruled that to be the case in a 2013 case involving textbooks—this case demonstrates that the distribution of drugs that are not explicitly intended for use in the U.S. is still absolutely illegal, and that the FDA and the U.S. Drug Enforcement Agency (which also participated in the investigation) are taking cases such as this one extremely seriously. There hasn’t been a great deal of enforcement yet, but this case demonstrates that the issue is absolutely on the agencies’ radars.

Despite the relatively minor risk of being caught, ByrdAdatto and AmSpa steadfastly believe that medical aesthetics practices should not participate in parallel importation. The potential consequences clearly outweigh the cost savings. If a practice’s profitability depends on getting 30% off Botox, it needs to re-evaluate the way it does business. Practices should remain compliant with the FDA and other regulatory agencies, regardless of whether a drug is overpriced. It is absolutely possible to run a medical spa practice that is both financially sound and compliant with all laws and regulations. Learn the keys to running a medical spa practice profitably and legally at an AmSpa Medical Spa & Aesthetic Boot Camp. Consult with your healthcare attorney if you need more information. AmSpa members can take advantage of their annual compliance consultation with the business, healthcare, and aesthetic law firm of ByrdAdatto.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Business and Financials  Med Spa Law 

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Med Spa Law Update: Illinois Nurse Practitioners and Full Practice Authority

Posted By Kate Harper, Monday, July 30, 2018
Updated: Thursday, August 9, 2018

By: Renee E. Coover, JD, Associate, ByrdAdatto

Last year Illinois passed a bill granting full practice authority to nurse practitioners, joining 23 other states and the District of Columbia. We’ve been getting a lot of questions regarding the status of this law and when people will be able to apply. Unfortunately, although the bill has been passed by the legislature and signed by the governor, Illinois NPs must still wait for the final rules to be established.

Renee Coover, JD, associate with the law firm of ByrdAdatto spoke with the executive director of the Illinois Society for Advanced Practice Nursing (ISAPN) to try and gain some insight into how the process is moving along. She learned that, at this time, the Illinois Department of Financial and Professional Regulation (IDFPR) is still developing these rules, and is getting close to a first comment period.

This means that, as of this writing, no NPs in Illinois can apply for full practice authority so until the rules process is complete all APRNs in the state are still required to have a written collaborative agreement with a physician. According to ISAPN the goal is to have rules available for release on or before January 1, 2019.

Click here to see the ISAPN update from January outlining the rule-making process and noting some of the pertinent information that is available, including:

  • The attestation form necessary for attesting to the 4000 hrs of practice and the 250 hrs of CE and training will be developed and distributed by IDFPR.
  • An APRN who applies for Full Practice Authority will have a license # that begins with 309.
  • An APRN with FPA who prescribes controlled substances will need to apply for a controlled substance license, not a mid-level CLS (that license number will begin with 310.

See AmSpa Founder/Director Alex Thiersch’s thoughts on the bill shortly after it was signed by the governor.

 

For more information on what full practice authority might mean for Illinois APRNs ones the rules are finalized watch AmSpa’s webinar on what full practice authority means for Illinois nurse practitioners.

Renee E. Coover, JD, is an associate with ByrdAdatto, a law firm focusing on business, healthcare, and aesthetics. She has a unique background, blending litigation with healthcare law. A former litigator in high-stakes employment cases, Renee has extensive experience with counseling and representing businesses in employment matters, policies, and contract disputes, and defending business owners in state and federal trials. She has also served as General Counsel for the American Med Spa Association, advising health care professionals on regulatory and legal issues governing the medical spa industry.

Tags:  Med Spa Law 

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Nurse Practitioners and Physician Assistants in Medical Spas: An Overview

Posted By Administration, Friday, July 27, 2018
Updated: Thursday, July 26, 2018

By: Sam Pondrom, Attorney at ByrdAdatto

Medical spas utilizing mid-level practitioners like nurse practitioners (“NPs”) and physician assistants (“PAs”) is on the rise in the U.S. Merritt Hawkins, a national healthcare search and consulting firm specializing in recruitment, recently released the results of their annual review of physician and advanced practitioner recruiting.  In it, Merritt Hawkins found that NPs were the third most requested recruitment search, trailing only family physicians (#1) and psychiatrists (#2).  PAs also cracked the top 20 for requested recruitment searches, coming in at #20.

This recent expansion largely can be traced back to two key reasons.  First, NPs and PAs have broad scopes of practice and cost less to employ than physicians.  Second, NPs and PAs have less onerous education requirements, so a person can become a mid-level practitioner faster than they could a licensed doctor.  Accordingly, mid-level practitioners can perform many of the functions of unlimited licensees while reducing the cost of providing a healthcare service.  Moreover, because experts anticipate shortages in the supply of physicians, the use of mid-level practitioners likely will continue to expand because they can bring their services to market faster than physicians.

NPs specifically have been granted full practice authority in several states, and the Medical Group Management Association recently reported that practices employing APRNs/NPs were more efficient and profitable.

One important downside to the increased demand for NPs and PAs is the patchwork of statutes and regulations governing their practice.  NP and PA scopes of practice are set by state law, as are the requirements for supervising and delegating to mid-levels.  This means it is crucially important to understand the type of relationship (e.g., collaborative, supervisory, or independent) that a state requires an unlimited licensee to have with a NP or PA.  It is likewise important to know the limitations a state places on the medical tasks that mid-levels can perform and what tasks, if any, an unlimited licensee must perform to ensure the mid-level is maintaining the community’s standard of care (i.e. countersignature, chart review, meetings with the mid-level, etc.).

AmSpa members can check their state legal summary, or utilize their annual compliance consultation with the business, healthcare, and aesthetic law firm of ByrdAdatto for more information on the legal requirements for mid-level practitioners in medical spas.

If you have any questions about the use of NPs or PAs in your medical practice, please contact Jay Reyero at jreyero@byrdadatto.com or Sam Pondrom at spondrom@byrdadatto.com.

Tags:  Med Spa Employee Types  Med Spa Law 

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Wow New Patients and Have Better Patient Retention in Your Med Spa by Selling an Experience

Posted By Administration, Thursday, July 26, 2018

By: Alex R. Thiersch, JD, Founder/Director of the American Med Spa Association (AmSpa)

A med spa is a medical facility, but by presenting your med spa as a luxe experience, you can gain new patients and gain better retention on your existing clientele.

The non-invasive medical aesthetic procedures that make up the menu of services often require licensed medical professionals to perform them, and these facilities always require a doctor to be involved with the business. Additionally, because medical professionals are involved, and these treatments are often classified as the medical procedures, medical spas are regulated like medical practices. (AmSpa members: see the laws governing aesthetics in your state in your medical aesthetic legal summary.)

These facilities, however, are a far cry from doctor offices. They often resemble retail storefronts or day spas, and are subject to business realities like marketing, product sales, and especially customer service. Everything in a medical spa—from retail sales, to reviews, to patient retention, to the ability to bring in new business—improves if the spa goes out of its way to create a stellar patient experience. This doesn’t just mean performing excellent treatments, although that is part of it. It means creating a singular, spectacular client experience from website, to phone call, to every interaction after they step through your doors.

“Our entire purpose working in this industry is to ‘wow’ our clients,” says Dori Soukup, founder of InSPAration Management. She continues, “We’re not just a medical spa—we deliver experiences.”

Once a patient steps into your facility, your aesthetician can be one of the most solid touch points in creating that consistent experience, along with your front desk staff. Terri Wojak of True U Education outlines ways that aestheticians can offer complete “concierge services” to customers in a medical spa. These services include:

  • Prepping the skin prior to treatments;
  • Assisting medical professionals during procedures;
  • Review post-treatment care with patients; and
  • Performing follow-up calls.

Your patients’ experience isn’t just about the treatment they’re coming in for, or the products that they buy. As Bryan Durocher of Durocher Enterprises says, “People buy solutions to problems, and they buy feelings.”

Matt Taranto, owner of AesthetiCare and Mint Aesthetics in Leawood, KS, says that he doesn’t just want to be the person his clients come to for Botox or fillers. “I want to be your lifetime anti-aging consultant.”

Investing in providing your patients with a world-class experience can be transformative for your business. Not only can it increase your current patients’ average spend per visit, and increase your retention rates, but it can build your reputation as the go-to medical spa in your area, which will increase your ability to attract new clients.

For more information on medical spa legal best-practices attend one of AmSpa’s Medical Spa & Aesthetic Boot Camps.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Business and Financials  Med Spa Law 

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Med Spa Business Planning: A Step-by-Step Guide

Posted By Administration, Wednesday, July 25, 2018
Updated: Wednesday, July 25, 2018

By: Bryan Durocher, Founder and President of Durocher Enterprises 

A detailed business plan is a must-have for a successful, profitable, and sustainable medical spa practice. “Business is a numbers game”. We have all heard that saying before and it is very true. Having a positive bottom line in this industry means really keeping an eye on operating expenses and understanding what the numbers mean and what to do to keep them in proper alignment.

Having a handle on your numbers means understanding what the overall financial picture needs to look like and breaking it down into manageable bite size action steps that need to happen every day. It starts with you and your vision and then educating your team members as to their role in the financial process.

Many med spas or cosmetic practices are not profitable. This is mainly due to the lack of understanding and education on the part of the ownership. With most payroll expenses take a significant amount of the gross service sales revenues. Our profit margins in this industry are very tight and there is little room for error. Keeping an eye on your numbers allows you control over knowing where you are, and planning for where you want to go. An owner who knows their numbers is not waiting for the financial advisor to tell them if they are successful or not. Keeping your finger on your business’ financial pulse allows you to dance, shift and change with your business’ needs quickly and intelligently.

For additional help building your medical spa business plan, see the Business Plan Template in the AmSpa store.

Financial Projections

Every business plan must include pro forma financial statements. These are financial statements that are used for you to predict the future profitability of your business. Your projections will be based on realistic research and reasonable assumptions, trying not to overstate your revenues or understate your expenses. If you are going to seek a lender or investor, they will use these financial statements to highly scrutinize your med spa. The bottom line, the lender or investor wants to know when and if your spa will be profitable.

The pro forma statements that are required are listed as follows:

  • Pro Forma Income Statement
  • Pro Forma Cash Flow Statement
  • Pro Forma Balance Sheet
  • Yearly Projections (Income Statement, Cash Flow Statement, & Balance Sheet)
Income Statements

These are a tool to review your gross sales vs. the expenses you incur while operating your business. The model we will use allows for totaling gross service and retail sales, then deducting the costs of doing business and allotting them to the appropriate categories to show our net profit before taxes. These statements should be done at the end of each month to identify what is working and where our opportunities for improvement are. The most important result is the timely completion of the statement. You need to understand the process and do not physically have to do it. If you are not a “numbers” person, a bookkeeper, accountant, and tools such as med spa/spa software, Quick-books® or you may use a computer spreadsheet program such as Excel® can support you in getting the job done.

Format and Sources of Information

Information for a three-year projection can be developed from your pro forma cash flow statement and your business and marketing analysis. You can also pull together a first year forecast by combining information on sales from business owners and trade associations. The first year’s figures can be transferred from the totals of income and expense items. The second and third year figures are derived by combining these totals with projected trends in the industry.

Cash Flow Statement

Definition and Use

The cash flow statement (or budget) projects what your business needs in terms of dollars for a specific period of time. A cash flow projection tells (1) whether or not you can pay bills, and (2) when you’ll need cash infusions to keep going. This statement deals only with actual cash transactions and not with depreciation or other non-cash expense items.

For information on financing options for your medical spa practice, listen to the Medical Spa Insider Podcast Episode 10 with Wells Fargo’s healthcare specialists.

Balance Sheet

Definition and Use

A balance sheet shows what items of value are held by the company (Assets), and what its debts are (Liabilities). Professional lenders look at your balance sheet to analyze the state of your finances at a given point in time. They are looking at things like liquidity (how easily your assets can be converted into cash) and capital structure (what sources of financing have been used, how much was borrowed, and so on). Professional lenders use such factors to evaluate your ability to manage your business.

The following is explanation and instructions of how the ‘Strategic Assumptions’ data will apply to a business plan.

Revenue Assumptions

  • # of treatment rooms
  • How many hours a day and days per week the med/spa will be open
  • Estimate of the price points for services offered
  • How long each of the spa services will take

The above assumptions will then be used to answer the following questions

  • Hours open per day divided by length of treatment = # of treatments per day per room
  • # of treatments per day multiplied by price of service = Revenue per room per day
  • Revenue per room per day multiplied by # of treatment rooms = Total Service Revenue per day
  • Total Service Revenue per day multiplied by days per month = Total Service Revenue per month
  • Total Service Revenue multiplied by retail percentage% = Approximation of Retail Sales
  • Retail Sales plus Total Service Revenue = Total Spa Revenue operating at 100% capacity
  • Total Spa Revenue operating at 100% capacity multiplied by % selected by identifying which of the below works for your model = the Actual Capacity Assumption.

Actual Capacity of your spa when it first opens will depend on many factors. For example, if you are an existing practice expanding into an ancillary spa, your Actual Capacity ratio would be higher than that of a spa being built with no existing clientele.

  • If you are building a spa with no existing medical practice attached to it, begin with an Assumed Actual Capacity Rate of 10% in the first month.
  • If you are expanding your medical practice to include a spa and you have an existing clientele base that will support, begin with an Assumed Actual Capacity Rate of 20-35%.
  • An average you could calculate is 4% growth per month
  • Goal to be met by the end of year one is 45% capacity
  • Ultimate goal will be to operate at 75% capacity

Keep careful notes on your research and assumptions, so you can explain them later if necessary, and also so you can go back to your sources when it’s time to revise your plan at some later date.

Service Expense Analysis

When it comes to your expenses shopping around will do you well. Remember it is not what you “make” it is what you “keep”. I have highlighted the major expenses that are usually out of line and cause a lack of profit.

Fixed vs. Variable Expenses

Fixed expenses are those costs that remain the same month in and month out. It is easy to incorporate them into your budget as you know the number you are dealing with already. Items such as lease payments, loan payments, accounting fees when on retainer, insurances, cleaning services, and depreciation can all be examples of fixed expenses.

Variable expenses change with volume of business your company does. Meaning the “more” or “less” business you do, these numbers can rise and fall exponentially. Example variable expenses include credit card fees, education & travel, repairs & maintenance, salaries & commissions, telephone, and utilities.

Expenses and Professional Services Used to Run Your Business
  • Get at least three references for each individual or company you are going to use in helping you operate and grow your business.
  • Look at your natural skill sets – Do you love doing the task? Can you pay someone else to do the task and make more money doing what you do best? Could you have more quality time and a better life by delegating out the task?

“I’d rather have 1% of a 100 people’s efforts than use a 100% of my own”. –John Paul Getty

Advertising & Promotion

This category covers all of the tools you use in marketing and promoting your business. It is a category you have to pay particular attention to as advertising costs can add up very quickly. Items covered under this expense include; magazine, social media, television, and radio advertising, marketing materials such as business cards, menus, brochures, and referral cards, all direct mail pieces, and client entertainment.

With any investment into advertising/marketing/promotion, think about tangible return. Can you track the return on investment? For example, are you advertising with a display ad in the yellow pages? If you are investing heavily in any particular area you must have a tracking system put into place to monitor results. Otherwise, how do you know if it is a wise investment? The strongest form of marketing is “word of mouth” and it can be the least expensive. A referral card program is the best way for techs to build a clientele and it is traceable. Special events are another strong revenue tactic.

When creating your advertising plan, also keep in mind the specific legal requirements that apply to medical practices.

Payroll Expenses

Your costs for salaries, commissions on technician’s revenues, EDD, FICA, and workman’s comp insurance are totaled and listed here.

Hands down this is one of the most challenging areas with your business and has to be monitored closely. If this area is out of alignment refer to the commission structure in for a plan that allows for profitability.

Supplies – Back Bar

This would consist of anything used to perform a service. Professional supplies need to be separated from retail products that are purchased for resale. Request that your distributors or vendors itemize them separately for you if possible.

This is another challenging area. These expenses if not checked can mount up very quickly. The three main culprits are; the actual cost of the product to perform the service is too high, product waste and inventory control.

Product Cost

When choosing professional products to perform service you have to compare the cost of the products needed to perform the service and how much you are charging for the service and does the product cost amount to no more than an average of 18% of the service price charged in a med spa. You may find some services are slightly higher and other come under the seven percent and in the end balance out. A business that too focused on injectables or fillers will run into to challenges with cost of goods. You want a balance of service revenue from machines as well.

Example:

Inappropriate Cost – European Facial $100.00

Cleanser/Toner/Mask/Moisturizer/Eye Cream/Cotton Pads $20.00

Product Cost $20.00 divided by $100.00 Service Cost = 20%

Waste

The second culprit is technicians using or wasting too much product. When staff is not paying for the product sometimes there is little care in how much they use or how much is rinsed down the drain. Coach your team in the appropriate amounts of product needed for their particular services offerings. Another option is to use products that are formatted for individual services so there cannot be waste.

Inventory Control

Create a monitoring system for back bar products where technicians have to turn in completed packaging before they can get new supplies. Appoint an individual to be responsible for inventory control and ordering. This person would do a physical count of inventory each week, note shrinkage (missing product) and create a master order form to track purchases. By all means do not let your sales reps decide what to order for you.

Retail Expense Analysis
Product Cost

This category covers the expenses of buying the products you retail in the med spa or spa. You are looking for the highest profit margin possible. Typically a branded line’s cost will range between 48%-56% of the retail price. Private label or specialty items can have a much lower product cost and higher profit margins that you set based upon market acceptance.

An inventory system is essential for keeping track of ordering. Most software systems allow for inventory control and adjustments. Having a point person handling this is important to monitor cost, orders, and shrinkage. It is easy to overspend in this category especially when there are sales and promotions constantly offered from your vendors.

For more information on systems and best-practices to build your medical spa profitably and legally, attend one of AmSpa’s Medical Spa & Aesthetic Boot Camps.

Bryan Durocher is the author of Wakeup Live the Life You Love in Beauty, and is the founder of Essentials Spa Consulting and Durocher Enterprises. Durocher was named one of the “Top 20 People to Know in the Beauty Industry” by Global Cosmetic Industrymagazine, and provides coaching, consulting, global industry trends, and marketing solutions for medical spa, spa and industry professionals internationally. He has published many articles and has provided business education internationally at a variety of national and international industry events including AmSpa’s Medical Spa & Aesthetic Boot Camps and The Medical Spa Show.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Business and Financials  Med Spa Law 

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Fee-Splitting: Pitfalls of Med Spa Compensation

Posted By Administration, Tuesday, July 24, 2018

By: Alex R. Thiersch, JD, Founder/Director of the American Med Spa Association (AmSpa)

One of the most common legal issues in medical spa practices involves “fee-splitting” and how that relates to med spa ownership and employee compensation. Despite a medical spa’s superficial resemblance to more traditional retail outlets, it has to play by a different set of rules and answer to a different set of authorities because it administers medical treatments. In most states, if a medical spa owner is paying employees commission, he or she is engaging in a practice known as fee-splitting, which is illegal. Therefore, it is important for medical spa owners and operators to understand this issue and its consequences in order to avoid running afoul of regulatory agencies.

Commission: A Common Mistake

In most states, a patient who receives a medical treatment—such as many of the services provided at medical spas—is required to provide full payment directly to a physician or a physician-owned corporation; this is in accordance with a doctrine known as the corporate practice of medicine. If these physicians or corporations give a percentage of that payment to a non-physician who was responsible for securing the patient’s business, for example, they have engaged in fee-splitting.

This practice is not uncommon at medical spas, and it typically doesn’t represent any sort of shady attempt to practice unlicensed medicine—the doctors who operate these establishments simply wish to reward employees who attract business to the practice. Regardless, in many states it is illegal to engage in this practice, and doing so places both parties to the transaction at risk.

The Consequences

If a physician is found to be engaging in fee-splitting in a state in which it is illegal, he or she could be subject to the suspension or revocation of his or her license, as well as a large fine. Additionally, the person or people who receive the commission payments also are subject to fines. Therefore, if you are an aesthetician, registered nurse, nurse practitioner, physician assistant, or laser technician who is being paid commission, mention it to your employer to make sure he or she knows about the problematic nature of this setup. If you are a physician who is giving commissions in a state in which fee-splitting is illegal, you should stop doing this immediately. Consult your local health care attorney or AmSpa to learn about the laws governing fee-splitting in the state where your practice is based.

This does not mean that medical spa employees cannot be awarded extra compensation, however—medical spa owners can establish bonus plans, pay-per-service systems, and perhaps even profit-sharing programs that are perfectly legal in the eyes of regulatory agencies. These types of programs – like the compensation plan available in the AmSpa Store – can be very lucrative for employees, and they will prevent all involved from incurring penalties that can alter lives and end careers.

AmSpa members can check their medical aesthetic legal summary, or utilize their annual complimentary compliance consultation with the business, healthcare, and aesthetic law firm of ByrdAdatto to ensure their compensation plan meets all regulatory requirements.

A (Possible) Exception

Viewed through an impartial lens, it would seem that using a deal site such as Groupon to drum up business would represent a form of fee-splitting, as medical spa vouchers sold through these services—from which the service receives a percentage of the sale—can be used by customers to purchase medical treatments. Check with your local healthcare attorney to learn about the specifics of the regulations regarding deal sites in your state, but for this reason and others outlined in our previous blog, we don’t recommend partnering with Groupon or a similar site.

For more information on how to run your medical spa practice legally and profitably, attend an AmSpa Medical Spa & Aesthetic Boot Camp, and be the next med spa success story.

Tags:  AmSpa's Med Spa & Aesthetic Boot Camps  Business and Financials  Med Spa Law  Med Spa Ownership 

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