ALERT: New Bill Would Restrict MSOs and Medical Corporations in California

Posted By Mike Meyer, Thursday, May 20, 2021

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Update (May 24, 10:30 AM CDT): California's controversial SB 642, which threatened to outlaw the MSO structure upon which many medical spas in the state are legally built, has been converted to a "two-year" bill by the California Senate Appropriations Committee, effectively tabling it until next year's legislative session and more or less ensuring that it will not advance out of committee in its current form. We will continue tracking this bill and update you when and if there is any further action taken on it.

Update (May 20, 4:30 PM CDT): AmSpa will present a webinar covering this new bill, California SB 642 and What it May Mean For Your Business, on Wednesday, May 26, at 1 PM CDT. It will feature AmSpa CEO Alex Thiersch, JD, AmSpa Legal Coordinator Patrick O'Brien, JD, and ByrdAdatto Partner Michael Byrd, JD. Click here to register now.

By Patrick O'Brien, JD, Legal Coordinator, American Med Spa Association

A new bill introduced in California contains provisions with far-reaching consequences for medical spas, MSOs and the aesthetic medical industry as a whole. As currently written, the bill would prohibit physician-owned medical corporations from making certain agreements that are commonly employed in the industry with non-physician-owned businesses. The bill, known as Senate Bill 642 (SB 642), was introduced by Senator Sydney Kamlager. SB 642 is currently with the Senate Committee on Appropriations after receiving a recommendation to pass the bill as amended from the Committee on Healthcare.

The majority of the text of SB 642 is focused on maintaining professional autonomy and medical practice independence in hospital and other licensed health care settings; these sections would not apply in the majority of medical spa cases. However, one section of SB 642 contains provisions that restrict physician-owned businesses from contracting for certain services with non-physician-owned businesses.

Currently, California requires medical corporations to be majority owned by licensed physicians, with other health care professionals able hold a minority share. Unlicensed persons may not have any ownership in a medical corporation, including medical spas. In order to streamline the business and administrative aspects of their businesses, medical spas will frequently partner with non-professional entities to provide specialized administrative and management support services. This has the benefit of freeing the physicians and other licensed professionals to focus on practicing medicine rather than spending time on business management duties. This type of arrangement is commonly referred to as a management services organization (MSO) arrangement. SB 642, if passed, would prohibit a medical corporation (such as a medical spa) from contracting with other businesses for management services of their assets or business operations; these business tasks would need to be administered internally by the medical corporation. This would result in the medical corporation or medical spa having increased overhead and administrative costs due to needing to hire additional clerical and administrative staff and could reduce the total amount of medical services the business is capable of offering due to the physician owners needing to attend to these business matters.

It is possible that this section may be further amended or removed if the bill advances. However, as it currently stands, this bill would greatly upend the operation of many compliant and safe medical spas in California. In addition, if passed, it could serve as an influence on other states. We will be monitoring this legislation this year.

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