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LLCs and Your Med Spa: Are You Protected?

Posted By Administration, 31 minutes ago

By Robert J. Fisher, Attorney, ByrdAdatto

As a med spa owner, there are a lot of things that need to be done when you start your business. You have staff to hire, space to rent or buy, clients to find. The first step to creating a successful business is coming up with a novel, innovative idea or service for which there is a need. But, then what? Chances are, you probably need to form a business entity if you do not already have one. This might seem obvious for many, but the question that often follows is “what kind of entity?” One of the most popular choices over the past few decades has been a limited liability company, or “LLC”. An LLC is attractive to many business owners because it offers liability protection as well as ease in maintenance and broad flexibility in terms of taxation and structure.

The main advantage to an LLC is that it provides its owners (or members) with liability protection. In general, members of an LLC are not personally liable for the acts of the LLC. Meaning, if a lawsuit were filed against the LLC or any creditor issues arose, the members’ personal assets would be protected in most scenarios. However, this liability protection is not unlimited. A member can be held personally liable in certain situations or if the “corporate veil” were otherwise pierced. (See Bradford Adatto’s article here for more on this topic.)

Another advantage is an LLC’s taxation status – much flexibility exists in how this can be setup. The default tax status for most LLCs is that of “pass through” taxation (i.e., disregarded entity or partnership taxation), where the profits and losses “pass through” to those of the members and are reported on each member’s individual tax returns (as opposed to a corporation, which must pay its own taxes). However, this is only the default tax option. An LLC can actively opt for another tax status, such as C-Corporation or an S-Corporation. An S-Corporation also has pass-through taxation, but is attractive for a number of reasons, the main one being if members want to pay themselves wages as income reported on a W-2 (versus payments as profit distributions). There are some restrictions in selecting an S-Corporation, but overall it is important to note that an LLC can take on a variety of taxation statuses, all of which should be reviewed with a CPA or tax advisor and legal counsel.

Once these options are reviewed and selected, the next step is forming the LLC. There are two main formation documents for an LLC: the Certificate of Formation if in Texas (the Articles or Certificate of Organization in other states) and the Company Agreement if in Texas (the Operating Agreement in other states). The Certificate of Formation is filed with the state to officially form the entity while the Company Agreement is an internal document setting forth the agreement among the members regarding the management, control, operation, and other terms related to the LLC. As compared to a corporation, a Company Agreement combines the concepts of a corporation’s Bylaws and Shareholders’ Agreement into one document.

In sum, an LLC can protect your assets, business ideas, and offer tax flexibility, so it is a great option for many new and established business owners. If you have any entity-related questions or need help forming an LLC, consider reaching out to ByrdAdatto for a consultation.

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

Robert J. Fisher’s passion for healthcare traces back to his high school days of shadowing doctors. His passion evolved in college to study as a pre-med major. The last major evolution of Robert’s interest in health care was the transition to an interest in health care law. With this education, a business attorney for a father, and a renowned orthopedic surgeon for a father-in-law, Robert has the pedigree for success as a business and health care attorney at ByrdAdatto.

Tags:  Business and Financials  Med Spa Ownership 

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9 Common Mistakes Made on Medical Aesthetic Malpractice Insurance Applications

Posted By Administration, Thursday, October 18, 2018

By David Shaffer, Insurance Office of America

If you own or operate a medical aesthetics practice, dealing with medical malpractice insurance is a part of your professional life. And if you don’t pay close attention to the specifics of your practice’s policy and/or the type of information shared with your insurer, you could certainly end up paying more for it than you should; or find yourself without coverage if—or when—a claim occurs.

It is important to note that multiple factors should be taken into consideration when a medical aesthetics practice is being underwritten.  Additionally, underwriting rules, rates and guidelines vary between insurers. The following mistakes are those commonly observed when the entities of the medical aesthetics practice are shown as the policy’s named insured. When coverage to a medical aesthetics practice is extended through a physician policy, the underwriting review process does change, even though many of the same underwriting criteria are evaluated.

Click here for more information on medical spa insurance. AmSpa members are eligible for a customized insurance package through the Insurance Office of America.

1. Inflated Treatment Counts

When underwriters underwrite medical aesthetics practices, they will often consider the number of treatments the practice administers when determining pricing. It stands to reason that if a facility administers a greater number of treatments, there is greater potential of being sued when compared to a facility that administers fewer treatments. But how do underwriters actually view treatment counts?

Most insurers’ underwriting guidelines are seeking treatment counts based upon a medical aesthetic practice’s patient visits. Some practices confuse this and report, for example, the number of units injected or the number of times a laser is fired. What exactly is meant by “patient visits?” Here’s a real-world example. Assume a client undergoes a Botox treatment.  The facility should attribute one treatment count for the patient, regardless of how many times he or she is injected or the number of units that are injected. If the patient chooses to have another type of treatment during the same day’s visit (laser hair removal, for example), it would count as a separate treatment. This patient then accounted for one Botox treatment and one laser hair removal treatment.

In fact, I just had a client going through the renewal process, and they saw a 64% increase in price because they greatly overestimated the number of treatments expected to be perform in the coming policy year. Once we went back and looked at their renewal applications, we saw that  their year-over-year projections had almost tripled, yet their anticipated gross receipts only reflected a marginal increase. With an updated and more accurate treatment count in hand, underwriting was able to adjust the facility’s pricing to a level comparable to the insured’s actual growth.

2. Revenue Overestimates

Another underwriting factor that is commonly used when determining malpractice pricing for a medical aesthetics practice is annual estimated gross revenues. It is not uncommon for new facilities to greatly overestimate their projected revenue. After all, there is really no way for them to know exactly how much revenue they are going to generate in their first year. Unfortunately, this could likely result in these practices paying more than they need to for insurance. When a business is just starting out, unnecessary additional expenses can be the difference between success and failure.

I usually tell prospects to be realistic and attainable with their first-year revenue projections.  Underwriting knows that new medical aesthetic practices cannot accurately predict their revenues. However, the projections establish an initial exposure baseline for reviewing underwriters. Unlike workers compensation policies, the vast majority of the malpractice insurers offering malpractice to aesthetics practices do not audit policy revenues (or treatment counts) at the end of the policy term. Therefore, if a projection of $1 million is shared and only $250,000 in revenue is generated, the insurer will not return any premiums resulting from overestimation.

3. Improper Medical Director Coverage

Medical director coverage is another confusing area of the application process. Although the roles and responsibilities of a medical director may be clearly defined in an agreement/contract, the coverage afforded or needed may not. If a medical aesthetic practice’s medical director is working in a purely administrative capacity (no direct patient care or patient interaction), the facility’s policy customarily will extend adequate coverage without the need for adjustment.  However, if the medical director wants or needs to become involved in patient care (i.e. patient consultations and/or good faith examinations), an adjustment to the practice’s policy or even separate coverage is usually required.

During the application process, an aesthetics practice needs to clearly explain the medical director’s role at the practice. Once clarified, there needs to be a determination of where coverage for the doctor will be provided. This could be through the practice’s malpractice policy, the doctor’s individual policy or perhaps a separate policy intended solely for medical directorship duties.

In my experience, nearly all medical aesthetic practice policies will automatically extend to a doctor’s administrative duties. By that I mean, those services such as creating and updating policies, procedures, consents, signing charts, etc. - all responsibilities that do not directly involve the patient. Assuming the medical director is involved to a greater extent, such as, performing good faith examinations, conducting patient consultations before or after a treatment and actually performing treatments, additional coverage would be required.

4. Failure to Identify Multiple Locations

It is important that a medical aesthetics practice with more than one location discloses each location when applying for medical malpractice insurance; otherwise, it could face enormous gaps in its coverage.

Most policies will include a location-specific endorsement restricting coverage to a scheduled insured location. Practices with more than one location need to make certain their underwriter is aware of all locations so they can either be added to the location endorsement, or have the location endorsement completely removed.

Along the same lines, if a medical aesthetics practice is performing treatments, such as Botox or fillers, at off-site locations—in traditional spas, for example, or even in patients’ homes—it must be declared on the application.

4a. Insurance and Botox Parties

A lot of underwriters will hesitate at offering coverage when a treatment provider wants to perform treatments off-site. This occurs most often when treatments are performed within a patient’s home: A Botox party is a perfect example.

Multiple underwriting concerns arise from such events such as:

  1. Alcohol is being served, potentially resulting in impaired judgment;
  2. The space is unsanitary;
  3. There is less control over the space, resulting in potential slip and fall accidents;
  4. Theft;
  5. …and more.

Some insurance companies won’t have  problems with off-site events, as long as the same policies, procedures and consents are used. Others don’t like the exposure and will elect not to provide coverage.

5. Failure to Maintain a Retroactive Date

It is important for an aesthetic medical practice to maintain its retroactive date—the first date for which an insurance company will provide coverage for claims occurring from treatments that have been provided—from one policy to the next. If a practice retains coverage with the same insurance company, this will likely not be an issue; however, if it moves from one insurance company to another, it must make sure that the retroactive date is carried forward. Should this not happen, claims made from treatments that occurred prior to the inception of the current policy will not be covered.

When an aesthetic medical practice retains its retroactive date upon switching insurers, the new insurance company will assume the defense and indemnification of a claim arising from services performed while a prior insurer provided insurance. This would be the case even though the new insurer didn’t provide insurance during the policy term in which the treatment was administered. When a practice elects to forego its retroactive date, they are choosing to self-insure against any claims that may still arise from treatments occurring prior to the establishment of their new retroactive date.”

6. Improper Named Insured

In many cases a medical aesthetics practice is operated by both a medical corporation and a management company, especially in those states where it is illegal for anyone other than a physician to own a medical aesthetics practice. And often, one or the other will be left off the application for medical malpractice insurance.

I always encourage people to show both medical corporations and management corporations as the applicant when completing their malpractice application. Including both entities on the policy will give the most flexibility to the practice if the relationship between the two corporations should experience turmoil and the relationship fails. In addition, including both entities ensures that each corporation is provided insurance if a claim does occur.

7. Failure to Accurately Depict a Physician’s Activity

Most policies that are written for medical aesthetics practices have the ability to incorporate physician coverage, but that coverage should be restricted to a physician’s activity at said practice. His or her activities outside the medical aesthetics practice, such as those at a private practice or at a different facility, should not be incorporated into their application when seeking coverage through the medical aesthetic practice’s policy.

While completing an application for inclusion in a medical aesthetics practice policy, it’s important for physicians to limit their exposure bases to what is actually being performed at, and on behalf of, the medical aesthetics practice. This includes items, such as the number of hours worked, the treatments administered or any supervision. Restricting the exposures will help to reduce the pricing applicable to the physician’s inclusion in the practice’s policy. Practices don’t want to pay for physicians’ full-time premiums when they are only working 10 hours a month.

8. Failure to Address Claims Remedies

Although it may not be terribly common for claims to occur within a given medical aesthetics practice, when they do arise, a practice needs to clearly demonstrate that it has taken steps to address the issues that caused the claim.

To help reduce their premiums, a practice needs to show that they have been proactive with risk management and have taken steps to become a better underwriting risk. This could be in the form of implementing additional staff training, amending policies and procedures, incorporating new safety measures, requiring direct supervision for a given treatment, terminating problematic staff or any other steps necessary to prevent the reoccurrence of a similar claim. Essentially, underwriting needs to see that the practice has taken positive steps forward with claim prevention.

9. New Procedure Additions

If a medical aesthetics practice is planning on incorporating a new procedure into its services menu shortly after securing a malpractice policy, it has a couple of options. It can seek underwriting approval and add coverage to its policy when the new treatment is actually added; or, alternatively, if the addition is imminent, the practice could consider a different course of action.

What I’ve found is that, if a new procedure is going to be added within a reasonable amount of time—usually one to three months of the policy’s effective date—I encourage my clients to incorporate it into their new business or renewal application. When the underwriters are conducting their initial valuation, they can usually add a treatment into coverage at a lower cost than doing so mid-term. A mid-term change may require an additional premium just because the adjustment needs processing.

For many, working through malpractice applications for the first time or at each renewal may seem like a dreaded but necessary evil. With any luck, by implementing these tips, your practice could potentially see lower annual premiums and, more importantly, prevent possible gaps in coverage.

 David Shaffer has been working in the medical professional liability insurance field since 1996, where he uses his unique combination of underwriting expertise and broker knowledge to assist medical aesthetic facilities, medical spas, hospitals, healthcare facilities, physicians and physician groups with their insurance needs. In addition to medical professional liability, Shaffer also has the ability to assist clients with other insurance needs, such as employment practice liability, directors and officers, business office packages, workers compensation and various other lines of coverage customary to the healthcare industry. 

Tags:  Business and Financials  Med Spa Ownership 

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Finding and Training Quality Staff the Top Concern of Medical Spa Owners

Posted By Administration, Tuesday, October 16, 2018

By Alex R. Thiersch, CEO of the American Med Spa Association

In 2017, AmSpa conducted a survey that asked medical spa owners to identify their top concerns in the industry. What we found was that, while compliance and larger business trends definitely weigh heavily on these people’s minds, finding and retaining talented, gifted employees is their primary concern. Following is a look at the top six areas of interest, according to the survey respondents.  

1. Finding, training, and retaining quality staff.
People truly are the most important part of any medical spa. The medical aesthetic industry is an experience-based business, so it’s no surprise that finding, training, and retaining quality staff is the top concern of medical spa owners. They’re looking for people who are not only qualified to perform neurotoxin injections, for example, but are also gifted salespeople who have the ability to promote the medical spa’s brand, since the industry is a unique confluence of medicine and retail. 

2. Staying compliant with regulations.
Obviously, compliance should be at or near the top of any list of medical spa concerns, since the rules and regulations that govern the industry are so ephemeral. Owners who want to remain compliant are good for the industry, since it suggests that, by and large, folks working in medical aesthetics want to do the right thing and run a tight ship, but may not know exactly how to do that. 

3. Growth
A medical spa owner who is concerned with growth is likely to be making money already, so seeing this listed so high suggests that these people are already doing quite well and want to find out how to do even better. 

4. Marketing and advertising
Because medical spas are medical facilities, marketing and advertising are quite a bit more complicated than they would be for a traditional medical practice or a retail outlet. Getting the word out about your medical spa can seem like a difficult balancing act and, again, the level of concern expressed by owners suggests that they want to do this the right way, but don’t quite know how.

5. Market saturation and competition
This is another sign of a healthy industry, although it certainly doesn’t seem like a good thing to people who have built successful businesses and then suddenly have to deal with newcomers who have seen how lucrative the industry can be. Learning how to provide the products and services your market wants is one of the keys to maintaining a successful medical spa.

6. Controlling costs and taking on debt
They say you have to spend money to make money, but how much is too much in the medical aesthetic industry? Keeping track of a medical spa’s finances, both in terms of everyday expenditures and big-picture financing, is vital for practice owners to understand, and its position on this list reflects that.

All of these concerns point toward the fact that this is an industry that is absolutely exploding. It’s difficult to find employees, because there aren’t enough qualified professionals; compliance is difficult because of quick expansion; competition is springing up all over the place—all these things point toward a robust industry, and these medical spa owners want to get their piece of the pie. We at AmSpa want to help you do just that, so stay tuned to learn more about all these factors in medical spa success.

Tags:  Business and Financials  Med Spa Ownership 

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Can RNs Inject Botox in Florida? The Nursing Board Says… It’s Complicated

Posted By Administration, Tuesday, October 9, 2018

By Patrick O’Brien, Legal Coordinator for the American Med Spa Association

The question of who can inject Botox and fillers in a medical spa is one of the most common in the industry, and for Florida it seems that the answer may be more strict than in many other states. Botulinum toxins (i.e. Botox, Dysport, or Xeomin) and injectable fillers are year after year one of the top procedures performed in med spas and they are consistently among the top procedures sought by patients. This popularity is the case in Florida as well. But who can perform Botox and dermal filler procedures in Florida? 

Can Physicians? Yes, physicians are licensed to diagnose, treat and prescribe for any human disease or injury. Physician assistants can as well if their supervising physician delegates the practices in a written protocol. Nurse practitioners may also perform botulinum toxin injections if authorized by their supervisory protocols. What about registered nurses (RNs)? Well... let’s look at the law.

Florida Board of Medicine
According to the Florida Board of Medicine there are no laws or rules that directly address who may or may not inject. RNs must practice within the scope of practice of their license as described in the Nurse Practice Act. Registered Nurses are licensed to practice “professional nursing” which is defined as, among other things, 
“the administration of medications and treatments as prescribed or authorized by a duly licensed practitioner authorized by the laws of this state to prescribe such medications and treatments.”

Based on that it would seem that RNs should be able to perform these treatments. After all, physicians definitely can prescribe and inject toxins and filler and these are certainly either a medication or treatment (or both). But the answer is not so clear from the Florida Board of Nursing.

A Challenged Rule

According to a 2015 administrative hearing which you can read here, the Nursing Board had an answer to a frequently asked question on their website. It read 

“Can a practical or registered nurse inject Botox? The injection of Botox is not within the scope of practice for practical or registered nurses and does not constitute the administration of medication”.

The hearing in question was challenging the validity of the statement on the grounds that it constituted a “rule” that was adopted in violation of Florida’s rulemaking procedure statute. The final order found that rule had indeed been adopted in violation of the statute and prohibited the Board from relying on the statement (or similar statements) as a basis for disciplinary actions. That was in March of 2015, and the “Botox FAQ” no longer appears on the Board’s website, and it doesn’t appear that an administrative rule was passed since then. 

The Supervision Question

In February of 2017 we have a disciplinary action made against an RN for injecting Botox without a physician’s order, which you can read here. This makes sense as an RN is permitted to administer treatments and medications when authorized by the prescribing practitioner. 

Based on that ruling, hypothetically, if this RN had a valid physician’s order she would not have been subject to discipline, so we have a better idea of the Board’s stance as to what an RN needs to do to inject Botox versus the 2015 blanket statement. 

But not so fast! 

We have an order issued later that same year from a request for a declaratory statement in October of 2017. You can read it in full here.. In it, the RN stated they had training in injecting Botox and dermal fillers and provided two certificates from training courses. The RN intended to provide Botox and dermal filler treatments under the supervision of a physician. On the face of it this seems promising: we have an RN with training in a procedure getting physician’s orders to do the procedures. It should meet all of the tests to fit within the RN’s statutory scope of practice. 

However the Board decided that, no, the RN was not permitted to do this. In the order they draw a distinction that “aesthetic injections” are not part of the scope of practice for RNs. It should be noted that declaratory statements are the Board’s opinion regarding the requesting nurse’s specific situation and may not be applicable to other sets of facts.

So Where Does That Leave Us? 

It seems the Board of Nursing has an unwritten policy that RNs cannot inject Botox or dermal fillers even when under the supervision of a physician and with specific training and education. It is true that “injections for aesthetic purposes” are not specifically authorized in an RN’s scope of practice, but likewise there is nothing specifically forbidding the practice or declaring toxins, fillers, or “aesthetic injections” not a medicine or treatment. So Florida registered nurses are left in limbo as to what they are actually permitted to do with their license. 

Plainly reading the statutes points to a different answer than the Nursing Board has been giving. AmSpa and partner law firm ByrdAdatto are reaching out to the Board for clarification and will post the information as soon as it is available.

Tags:  Med Spa Law  Med Spa Ownership 

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Keys to Keeping Medical Records in a Medical Spa

Posted By Administration, Monday, October 8, 2018

By Patrick O’Brien, Legal Coordinator for the American Med Spa Association

Medical spa medical records are a piece of your compliance plan that cannot be overlooked. It’s easy to look past them when considering other parts of building your business, but they are vital to your practice. According to our 2017 State of the Industry Report med spas indicated that 70% of their clients are repeat customers. This is a wonderful statistic to read because loyal customers are happy/satisfied customers and they can and will generate great recommendations and buzz for new customers. But these loyal clients and customers are much more than that; they are also patients. Because most of the procedures offered in med spas are medical procedures the practice must retain appropriate records just as any other clinic or doctor’s office would. 

The content and retention requirements for medical records are set by each state and their respective medical boards. In general the records should include, among other things, medical histories, exam notes, details of procedures and treatments. Typically these should be kept for several years after seeing the patient with the two years that New Mexico requires being the shorter side and 10 years as in Tennessee and South Carolina being on the longer side. Physicians may be subject to Board discipline for failing to properly maintain and keep patient records, so you will want to review your own state statutes and advice of your medical board to determine what information should be kept in the medical records and how long you should keep them. 

Watch AmSpa’s webinar on patient charting for more information on the topic.

The 2017 industry survey also uncovered this interesting stat: half of med spas we heard from see more than 50 patients a week. This is great from a business perspective, but daunting from a record keeping perspective. Every one of those visits will need an entry made in that patient’s records, and the med spa’s records system, in addition to being able to keep up with the volume of updates, will also need to comply with Federal and State privacy laws. 

The big one is the federal Health Insurance Portability and Accountability Act (HIPAA). I’m sure you’ve heard more about HIPAA than you ever cared to so I won’t bore you with too much detail other than to say patient medical information needs to be securely stored and accessible only to authorized individuals. Most states also have a version of a patient information privacy law with similar concepts. 

While the general gist of the laws are “protect patient information” you’ll need to check your jurisdiction for specific implementation requirements. For instance California has the Confidentiality of Medical Information Act which has stricter requirements on when and who you can disclose confidential health information. AmSpa members can check their state’s medical aesthetic legal summary, or utilize their annual 15-20 minute complimentary compliance call with ByrdAdatto for more specific information.

It takes a lot to build a successful med spa and the more successful it becomes the more important it is to have a streamlined and secure medical record system and policy. Don’t let paperwork be a limitation on your Spa’s success. If you want to learn more about record retention policies and systems consider attending one of AmSpa’s Medical Spa & Aesthetic Boot Camps to learn medical spa legal and business best-practices.
 
If you liked reading through our 2017 State of the Industry Report we will be gathering data for 2019 survey soon. Did your spa see more customers this year? Did you add new service lines? Or bring on more staff? We hope to hear from you so together we can define data in the medical spa industry.

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

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How Core Doctors Are Missing Out With Med Spas, and How They Can Fix It

Posted By Administration, Thursday, October 4, 2018

By Alex Thiersch, JD, Founder and Director of the American Med Spa Association

The medical spa industry is worth over $4 billion and as it continues to boom core doctors—plastic surgeons, facial plastic surgeons, oculoplastic surgeons, and cosmetic dermatologists—are uniquely placed to do exceptionally well in this still-expanding space. As physicians, they are allowed to own medical spas, and ideally, they would not only profit from the medical spas themselves, but also use them to direct business to their surgical practices. After all, medical spas tend to do a lot of the same things these core doctors do, albeit non-invasively, and it does stand to reason that if patients go to a medical spa looking for a Botox injection, they might eventually want a nose job or a face-lift. In that case, the core doctor who owns the medical spa might be uniquely positioned to offer his or her services.

However, despite the apparent synergy between these two types of businesses, many of the core doctors who treat medical spas as extensions of their surgical practices end up very disappointed in the actual results. I chat with core doctors all the time, and those who have opened medical spas with the idea of using them primarily as feeders for their practices tend to view them as poor investments. Their medical spas tend to flounder, and the amount of business they drive to their surgical practices is disappointing.

In truth, medical spas that are designed primarily to act as feeders for surgical practices are set up to fail, and most core doctors tend to be very bad medical spa owners. They typically don’t understand the medical spa business, how much work it takes, the profit margins, the necessary volume, and numerous other factors vital to maintaining a successful medical spa. But that doesn’t mean that a medical spa can’t still be a successful business for a core doctor or help to generate surgical business—it simply means that a core doctor needs to understand the realities of the medical spa industry before he or she decides to dive headlong into it.

A Different Kind of Practice

The business model with which core doctors tend to be familiar is very different from the one under which medical spas operate. Surgical practices offer big-ticket procedures, such as breast augmentations and face-lifts; therefore, they do not need to deal with a large volume of patients and they do not need to do as much marketing as, say, a retail outlet —by the nature of their business, they tend to generate sufficient revenue to at least get by.

Medical spas are very different. Granted, they must follow the same rules and regulations to which more traditional medical facilities adhere, but the medical aesthetic field is unique in the medical world in that it is entirely elective and entirely cash-based. People who use medical spas do so because they want to, not because they need to, and treatments at medical spas are much less expensive than the ones available from core doctors’ surgical practices. Therefore, for a medical spa to succeed, it must have a high volume of patients, its employees must master the art of selling, and it must do what it can to get patients to return. In other words, it must be run like a retail center rather than a medical office.

For that reason, medical spa operators need to incorporate a totally different mind-set than the type that is typically utilized by core doctors. Medical spas run by core doctors who do not adapt to a more retail-oriented focus often end up failing. When I tell core doctors that I have medical spa clients who generate up to $6 million annually, they are usually blown away. Many of them cannot wrap their minds around how that can be possible.

Understand What You Know, And What You Don’t

In order for a medical spa to succeed in creating business for a core doctor’s surgical practice, it must first succeed on its own terms and, to facilitate that, core doctors typically need to let someone else run the show. Core doctors need to come to terms with the fact that the medical spa business is much, much different than the one they are used to, and they need to partner with people who are experienced with marketing and sales in a retail environment.

A core doctor’s time is better spent doing the things medical spas cannot do: highly profitable surgical procedures. If a core doctor can get a true businessperson to operate the med spa, they will do much better in the end. Giving up this control can be difficult for core doctors to do, since a lifetime of academic and financial success tends to make them think they can achieve anything. However, most doctors don’t go to business school—they usually don’t know retail and they don’t typically understand sales. These qualities—not medical knowledge or surgical skill—are what tend to make medical spas successful.

In addition, medical spa team members need to have the tools and the processes to be able to sell. A medical spa receptionist, for example, should not be someone fresh out of high school and being paid $12 an hour; a receptionist should be one of the highest-paid people on an administrative staff, because he or she needs to be able to sell. 

A medical spa should have talk tracks for nurses and estheticians, so they understand that their jobs are about selling themselves and selling the doctor. Employees at medical spas also need to understand that selling retail products is very important to maintaining a healthy business. These are things that successful medical spas do that may seem distasteful to doctors, who are used to a professional environment that is less aggressive. But this is the reality of the medical spa industry, and every day more and more physicians are finding this to be true.

The businesspeople who are entering the medical spa industry are willing to do whatever it takes to be successful. A core doctor might think he or she doesn’t need help, but chances are the opposite is true.

There are many resources in the AmSpa store to help you build your business and to train your team to put your medical spa practice in the best position to succeed.

Still the Practice of Medicine

Although a medical aesthetic practice must be focused on sales, it is also required to follow the medical rules and regulations of the state in which it is located. These laws can vary widely depending on your state, so consult an attorney familiar with aesthetics when setting up your practice and your procedures. AmSpa members can check their state’s medical aesthetic legal summary to see the rules and regulations governing their practice.

Most states observe a doctrine known as the corporate practice of medicine, which dictates that a medical practice must be owned by a physician or a physician-owned corporation. As previously established, medical spas are retail outlets, but they are also unquestionably medical practices, so in states where the corporate practice of medicine is observed, medical spas must be entirely owned by a doctor or his or her corporation. 

This can present difficulties for a core doctor who wishes to partner with a businessperson to run a medical spa, because it is likely that said businessperson is going to want some equity in the practice. If the state in which the medical spa is located observes the corporate practice of medicine, this would be illegal.

Ownership Options

There are options, however. If a core doctor wishes to partner with an entrepreneur to open a medical spa in a corporate-practice-of-medicine state, they can look into setting up a management services organization (MSO). As its name suggests, an MSO provides management services. It partners with a doctor, for whom a separate company is created; this doctor’s company exclusively provides medical services. 

This arrangement, known as a management service agreement (MSA), allows a non-physician to supervise almost every aspect of a medical aesthetic business, including branding, marketing, owning the real estate, payroll, human resources, accounting, and billing—everything except the actual administration of medical services.

Essentially, this is a lessor/lessee situation. More often than not, the MSO owns and maintains the facility, while the doctor occupies the space. The doctor pays the MSO “rent” 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 doctor as comfortable as possible. 

However, unlike a rental agreement 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 fluctuates according to the amount of business conducted by the physician. If the medical organization treats more patients in a month or quarter (depending on the terms of the agreement) than it did the previous month, the MSO will also make more money. This represents the sort of equity a core doctor’s business partner might seek—in function, if not form. Read more on MSOs here.

The corporate practice of medicine also dictates the ways in which rank-and-file medical spa employees can be incentivized. In the world of retail, salespeople are often offered commission—they receive a percentage of the sales they make that meet certain conditions set by their employers. However, in states that observe the corporate practice of medicine, all payments for medical services must be made in full to a physician or physician-owned corporation. In these states, if a medical spa owner is paying employees commission, he or she is engaging in an illegal practice known as fee-splitting. 

This is somewhat common at medical spas—the people who own and operate these establishments generally only wish to reward the people who bring business to the practice. But the fact remains that if a medical spa is found to be engaging in fee-splitting in a state in which it is illegal, the doctor who owns the practice could face the suspension or revocation of his or her license, as well as a significant fine. What’s more, the person who receives the commission payment is also subject to a fine. Again, a performance-based bonus structure can be offered as an alternative to commission. Read more about med spa compensation here.

Medical spa owners and operators who are not familiar with the ownership requirements in their states should contact an experienced health care attorney to learn what is expected of them. 

Becoming a medical director for a medical spa, rather than opening his or her own facility, is another option for a core doctor. A lot of core doctors I have represented are doing this very successfully. The advantage of this arrangement is that the core doctors don’t need to deal with actual day-to-day operation of a retail store; they can simply lend their name to a medical spa, perform some consultations, oversee the practice’s other medical professionals, and then high-tail it back to their own practice rather than needing to worry about the minutiae of the business. This can provide a core doctor with a look at the industry without requiring him or her to make the enormous ownership commitment. It’s important, however, to understand the risks and responsibilities of med spa medical directors before making this decision.

Conclusion

The core doctors who oversee a properly maintained and operated medical spa stand to gain a great deal from the arrangement. A successful medical spa can earn a lot of money by itself and, if a medical spa has a lot of patients, it makes sense that the number of referrals to an affiliated core doctor’s surgical practice would be higher than if the medical spa is struggling.

If a core doctor wants to enter the medical aesthetic industry, he or she cannot engage in half-measures. A medical spa that is created to function primarily as an addition to a surgical practice is unlikely to find a great deal of success; a medical spa that is designed to succeed on its own terms, however, offers numerous benefits to its owners, not the least of which is the possibility of increased surgical business.

Attend an AmSpa Medical Spa & Aesthetic Boot Camp to learn the legal and business best-practices to build and run a successful medical spa practice.

 

Tags:  Business and Financials  Med Spa Ownership 

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The Keys to Private Equity in Med Spas for DSOs and MSOs

Posted By Administration, Friday, September 28, 2018

By Michael S. Byrd, JD, Partner, ByrdAdatto

In many states, only doctors can own a medical spa, unless you set up a special organizational structure to manage your practice.

Dental Service Organizations (DSOs) and Management Service Organizations (MSOs) share similar business and legal compliance characteristics. DSOs are management organizations in the business of providing all back-office business management services to dental practices. MSOs, on the other hand, provide similar business services to support medical practices.

Learn more about MSOs by reading here or by watching our webinar on the topic.

The common thread between MSOs and DSOs in the private equity world is that they tend to manage practices that operate like a retail store from a business perspective and like a health care practice from a regulatory compliance perspective. In the DSO market, this looks like branded chain of dental offices typically found in retail real estate space. Similarly, the MSO market looks like retail elective health care services, such as medical spas, weight loss centers, and IV therapy centers. In addition to the business similarities of DSOs and MSOs, the regulatory hurdles are similar for the management of dental and medical practices, and the legal solutions to these regulatory hurdles are structurally the same.

The DSO market is the mature older brother of the emerging MSO market. Tusk Partners recently with fascinating insights titled “What private equity looks for in acquiring a DSO.” The article highlights the financial condition of private equity in the DSO market, noting a strong seller’s market. The key indicator of this financial market for 2017 is a valuation multiple of around 10.5 times EBITDA. The article additionally highlighted feedback from private equity professionals on the question of what private equity looks for when evaluating a DSO business. The salient points from the feedback highlighted in this article is:

  • PE Investors are typically growth oriented, versus value oriented. It’s important to be clear that the business strategy is in alignment with private equity strategy.
  • The founders must be able to clearly articulate a vision for the next 3-5 years.
  • The founders must be able to clearly communicate the competitive advantage (secret sauce) over the competition.
  • The DSO must be compliant from a regulatory standpoint. Compliance includes the legal structure from a corporate practice perspective, as well as patient privacy and patient billing.
  • The DSO must be able to articulate a strategy to attract and keep clinicians.

Businesses in the younger and emerging MSO market would be wise to pay attention to the trends and developments in the DSO market. Private equity is coming in to the MSO market even though it is several years younger than the more developed DSO market. Clint Carnell, the CEO of The HydraFacial Company and founder and chairman of Orange Twist Brands, has a deep background in private equity funding. After discussing the legal regulatory complexities of the MSO model and the insights from the Tusk Partners article, I asked Clint what he believed to be the most important strategy in building an MSO towards private equity funding. Clint succinctly and profoundly responded “You have to keep it simple.” Clint’s response is telling, as it spotlights the business from the view of a potential private equity investor. Private equity investors must be able to clearly understand the business itself, the value proposition, and the business’s vision. If the MSO house is not in order from either a regulatory or business perspective, private equity will quickly run.

ByrdAdatto represents DSOs and MSOs in all stages and helps build and maintain compliant structures that are designed to withstand the scrutiny of private equity due diligence. If you have any questions regarding your DSO or MSO business, need assistance with corporate structure, or merger and acquisition activity, please contact ByrdAdatto. AmSpa members receive a complimentary 15-20 minute annual compliance consultation call.

Michael S. Byrd , JD, is a partner with the law firm of ByrdAdatto. With his background as both a litigator and transactional attorney, Michael brings a comprehensive perspective to business and health care issues. He has been named to Texas Rising Stars and Texas Super Lawyers, published by Thompson Reuters, for multiple years (2009-2016) and recognized as a Best Lawyer in Dallas by D Magazine (2013, 2016).

Tags:  Business and Financials  Med Spa Ownership 

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An Exit Strategy: When the Physician Leaves a Med Spa

Posted By Administration, Thursday, September 27, 2018

By Renee E. Coover, JD, ByrdAdatto

As medical spas increase in number and size throughout the country, it is not uncommon for physicians to leave one med spa to join another or open a new med spa. When a physician leaves, many questions arise: is the med spa required to notify patients of the physician’s departure? Can the physician contact the patients to announce he/she is leaving the med spa? Who should take possession of the patient’s medical records? These questions can be easily answered if the departing physician and the med spa negotiate an exit strategy and even execute a “separation agreement” to clarify the terms of the physician’s departure. 

“The goal of any separation plan should be to remove the emotional issues, which often are intertwined in a practice breakup or departure, and concentrate on the fundamental business elements to assist a smooth transition,” says Brad Adatto, JD, partner at the law firm ByrdAdatto. Adatto lists ten items to help medical spa practices start thinking about shaping their separation plans including reimbursement, liability, debt, and more.

One of the questions patients frequently ask is how to find the physician once he or she has left the med spa. The med spa is required to provide that information to patients. According to the American Medical Association Code of Medical Ethics, the “patients of a physician who leaves a group practice should be notified that the physician is leaving … and should also be informed of the physician’s new address.”  It is unethical for the med spa to withhold this information upon request of a patient of the departing physician. 

But what if the departing physician wants to contact patients to advise them of the departure? Can the departing physician get in trouble for “soliciting” patients from the med spa? This depends on whether the departing physician has signed an agreement with the med spa that includes a non-solicitation clause. In most cases, the physician will be required to sign a Non-Solicitation Agreement upon employment stating that he or she will not solicit the patients of the practice for his/her own benefit or induce patients to cancel their relationship with the practice and follow the departing physician to a new practice. If the physician contacts patients, even just to announce the departure, this could be construed as a method to solicit those patients and would constitute a breach of the Agreement. This holds true in the med spa setting, where the same rules and regulations of the medical practice apply. To avoid breaching the non-solicitation agreement, the departing physician should discuss an exit strategy with the med spa to determine how patients will be notified of the departure and put the agreement in writing. Read more about restrictive covenants in your med spa contracts here.

Another question that frequently arises when a physician leaves is what to do with patients’ medical records. A patient’s records may be necessary in the future for medical care, employment, insurance, or even litigation. When the physician leaves, the med spa retains the patient’s records in most cases but this should also be spelled out in a separation agreement with the departing physician to avoid confusion. 

For a departing physician, there are many key issues to resolve before leaving the med spa. In addition to the questions discussed herein, there are also questions of insurance coverage, severance pay, return of equipment or property and other financial issues. Having a separation agreement in place prior to the physician’s departure can save both the physician and the med spa time and money. The separation agreement should detail the terms of the physician’s departure and outline the answers to the important questions that affect the terms of leave. 

If you have questions regarding the proper exit strategy for physicians in med spas, it is important to consult with an attorney who can advise you on the myriad issues and craft an exit strategy. 

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:  Business and Financials  Med Spa Ownership 

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Med Spa Law Terms You Need to Know

Posted By Kate Harper, Wednesday, September 26, 2018
Updated: Thursday, September 27, 2018

By Renee E. Coover, JD, ByrdAdatto

As revenues in the medical spa industry increase, so does the enforcement of medical spa regulations. The 2017 Medical Spa State of the Industry Report calculated that the industry was valued at nearly $4 billion with an annual growth trajectory of 8% through 2022. Legally speaking the report found that 37% of practices were not performing good faith exams, 31% were paying commission on medical treatments, and 10% were even relying on laser techs or aestheticians to perform injectable treatments. An expanding industry can present increasing risk for medical spa owners and operators. As the number of medical spas has increased, so has the number of lawsuits filed against them, and because there are few specific rules and regulations governing the administration of nonsurgical cosmetic procedures, there are limited opportunities for training and certification.

In order to protect yourself and your business from exposure to problems such as these, you should familiarize yourself with the nature of the industry and some issues that are commonly faced by medical spa owners and operators. The specific rules and regulations that govern medical spas may be a bit difficult to pin down, but ignorance is never an acceptable excuse.

The industry

The American Medical Spa Association (AmSpa) defines a medical spa as follows:

“Medical spas operate under the full-time supervision of a licensed medical professional in a spa-like setting. When visiting a medical spa, patients can be pampered with traditional spa services but also have the option of getting medical services like Botox, laser hair removal and medical-grade skin therapies. The medical professionals of the med spa are licensed, educated and trained in the medical procedures and treatments provided to ensure the highest level of care for every patient. State regulations differ as to what type of ‘medical professional’ can be an owner or medical director of a medical spa, so we recommend you contact your local attorney for your state’s laws and regulations.”

The blanket term “medical spa” covers a range of establishments, including laser clinics, free-standing medical spas and Botox bars. In addition to traditional storefronts, these businesses are turning up in hotels, shopping malls and airports as more and more physicians seek to supplement their incomes by opening medical spas.  

Despite this growth, the industry’s rules and regulations are somewhat nebulous. However, there are a few core principles that conscientious medical spa owner and operators can observe to keep themselves out of legal trouble.

Medical spas are regulated as medical facilities
Laws governing the industry vary from state to state 

A medical spa can be a profitable business venture, but it can also attract legal problems that can stifle its earning power. Following are the top legal issues that medical spa owners and operators commonly encounter:

The Legend of the “Medical Aesthetician”

Aestheticians are the fastest-growing segment of the medical spa industry. In nearly every state, aestheticians are regulated as an individual profession. However, you should be wary of anyone who refers to herself as a “medical aesthetician.” Simply using the term is enough to trigger an investigation in many states.

Why? Because in most states, aestheticians cannot perform medical procedures, and suggesting otherwise is inherently misleading. The proper term is “aesthetician in a medical spa.” Check your spa’s business cards, website and marketing materials to make sure that the term “medical aesthetician” is nowhere to be found. You may be inviting far more scrutiny than you realize simply by using an improper title. Read more on misleading med spa titles here.

The Commission Conundrum

Offering employees commissions for bringing in business may seem like a great way to incentivize performance, but in most states, it is illegal. Why? Because in states that recognize the Corporate Practice of Medicine, all medical fees generated by a medical spa must be paid only to a physician or a physician-owned corporation. Splitting fees from medical procedures with a nonmedical employee is known as “fee-splitting,” and it is prohibited by law. If you are taking or giving a commission in a state that observes The Corporate Practice of Medicine Doctrine you are exposing both yourself and your medical spa to disciplinary action.

“If a medical spa is found to have done this, the physician faces suspension or revocation of his or her license, as well as a significant fine,” says Alex Thiersch, JD, founder and director of AmSpa. “The employee who receives the commission payment also faces a significant fine, so all involved should make sure that this is avoided. States are cracking down on fee-splitting, so there’s no better time than now to make sure your house is in order.”

Instead of offering commissions, medical spa owners and operators should enact a preset bonus structure to reward employees. That way, they can show their appreciation without putting themselves in regulatory crosshairs. There are two compensation packages available in the AmSpa store (among other business-building tools) that offer ways for you to incentivize your stay while staying within the bounds of the law.

Gift Cards

You may also wish to reward employees or even patients who bring in business with gift cards, but doing so in a medical setting such as a medical spa can represent a violation of state and federal anti-kickback laws, which prohibit physicians from paying for referrals. These laws are designed to ensure that physicians cannot simply buy patient referrals. 

“Because gift cards have a cash value attached to them, they can be viewed as representing a kickback and, therefore, expose the practice to legal action,” writes Thiersch

Supervision and delegation

Medical spa physicians are busy people. For example, in many states, a physician is required to conduct an in-person initial consultation and exam on every patient who intends to undergo a medical procedure, including laser treatments and injectables. Obviously, this would require physicians to spend a large amount of time conducting these exams and far less time performing more lucrative procedures. Luckily, this task can often be delegated to mid-level practitioners—nurse practitioners or physician assistants, for example—since it is within their scope of practice.

Generally, any patient care task at a medical spa can be delegated to whoever the physician wants, provided that person has been properly trained, is experienced and is properly supervised. For example, laser technicians can perform laser treatments, because those tasks fall within their scope of practice. Aestheticians, on the other hand, typically cannot perform medical procedures, so they cannot be delegated such tasks. Make sure that your medical spa complies with these standards. Read more about supervision and delegation here.

Ownership

In states that enforce the Corporate Practice of Medicine Doctrine, only licensed physicians or physician-owned corporations may own a medical corporation. By definition, medical spas are medical corporations and thus, in states that observe the corporate practice of medicine, only physicians are legally allowed to own medical spas. 

Although this is unfortunate for aestheticians who would like to try to cash in on this growing industry at an ownership level, there are other ways for aestheticians to get a piece of the pie. Aestheticians typically can own the management company that administrates the day-to-day operations—billing, purchasing supplies and equipment, leasing space, providing support services, etc.—of the medical spa. Such a company cannot share in the profits of the medical spa, but it can be paid a fee by the medical corporation. Read more about non-physician medical spa ownership structure here.

You can attempt to find more information about topics such as these and your specific situation by conducting Internet searches for terms such as “medical practice act,” “[your state] board of regulation” and “aesthetician act.” However, such information is difficult to find, and there is little of it available in many states. AmSpa members can check their state’s medical aesthetic legal summary or take advantage of their annual complimentary compliance consultation call with ByrdAdatto.

Attend an AmSpa Medical Spa & Aesthetic Boot Camp for a deeper dive into medical spa legal topics, and to learn strategies to make your practice efficient and profitable.

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:  Business and Financials  Med Spa Law  Med Spa Ownership 

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Physician Liability in Med Spas

Posted By Administration, Thursday, September 20, 2018

By Renee Elise Coover, JD, ByrdAdatto

Physicians in the medical spa industry are lured by the lucrative income and flexible nature of med spa ownership but as the popularity of this business model increases, so does the risk for liability. 

The number of med spas in this country is at a record high. Dermatologists, plastic and cosmetic surgeons are opening med spas or adding med spa services to existing practices as the demand for non-invasive cosmetic procedures rapidly grows. Additionally, non-core physicians, mid-level practitioners, and entrepreneurs are beginning to outpace core doctors in the medical spa space, according to the 2017 Medical Spa State of the Industry Report

Though med spas offer non-invasive and fairly simple medical treatments like Botox and laser hair removal, these procedures carry the same risk of litigation as any other medical procedure. Due to the aesthetic nature of the treatments and spa-like setting where most treatments are performed, there is a public perception that med spa procedures are risk-free. This misconception has contributed, in part, to the recent rise in litigation, putting med spas in the spotlight for all the wrong reasons. 

Physicians now must be especially cautious when signing on as a “medical director” of a med spa, offering med spa-like treatments or opening a med spa of their own. As the saying goes, ignorance is not an excuse; but for many physicians, ignorance of the law can also cost them their license.

There are several common patient allegations that put physicians at risk of losing their medical license. Lawsuits are often filed by patients due to allegations of lack of supervision of medical treatments, inadequately trained med spa personnel, less than optimal results, and lack of informed patient consent. 

For more information about medical malpractice lawsuits listen to the recent episode of AmSpa’s Medical Spa Insider podcast with patient advocate law firm Sukhman|Yagoda.

 

Perhaps the most problematic issue that most patients are not even aware of is improper ownership of the med spa. In many states med spas must be physician-owned in accordance with that state’s medical practice rules, but many physicians either do not know the laws or they are trying to get around them. If a physician signs on as a “medical director” of a medical spa but has no ownership and no supervision of the medical procedures, the med spa will be charged with the unauthorized practice of medicine in several states and the physician could lose his or her license.

Non-physicians interested in participating in medical spa ownership should click here to learn about MSO ownership structures.

In Illinois, the Department of Professional Regulation has put med spas on their radar and in the past few years, hundreds of physicians have been fined, suspended or lost their licenses due to allegations of improper ownership or lack of supervision in the med spa setting. 

Physicians must be very cautious when opening a med spa or offering med spa services as part of an existing practice.  To reduce the risk of liability, physicians should educate themselves and their staff regarding written protocols, relevant laws and regulations for their particular state, legal and regulatory issues associated with med spas, adequate supervision and proper delegation of medical procedures, and risk management

AmSpa members can view the legal summary of medical aesthetic regulations or schedule their complimentary annual 20-minute consultation call with an attorney from ByrdAdatto.

For more guidelines on how to open and run a legally compliant and sustainably profitable medical spa practice attend one of AmSpa’s Medical Spa & Aesthetic Boot Camps

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

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