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

Proper medical spa payment and compensation structure is one of the lesser known legal issues that successful medical spa owners MUST be familiar with. From a business standpoint tying employee pay to performance assures that a medical aesthetic practice can remain profitable while also allowing providers to maximize their earning potential. In retail, salespeople are often incentivized with commission—they receive a percentage of the sales they make that meet certain conditions set by their employers. The rationale is that when salespeople are given the opportunity to earn more money, they will work harder.

However, a medical spa is not a retail outlet.

Despite its superficial resemblance to a salon or traditional spa, a medical spa has to play by a different set of rules and answer to different authorities, because its employees administer medical treatments. And in most states, if medical spa owners are paying employees commission, they are engaging in an illegal practice known as fee-splitting. It is important for medical spa owners and operators to understand this issue and its consequences in order to avoid big trouble.

The controversy

In most states, a patient who receives a medical treatment—such as many of the services provided at medical spas—is required to provide payment to a physician or a physician-owned corporation. (This doctrine is 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, they have engaged in fee-splitting.

AmSpa members can check their state legal summary to see if their state observes the corporate practice of medicine.

This practice is somewhat common at medical spas, and it typically doesn't represent any sort of shady attempt to practice unlicensed medicine. The physicians who operate these establishments simply wish to reward the people who bring business to the practice. However, the fact remains that 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 physicians are found to be engaging in fee-splitting in a state in which it is illegal, they could face the suspension or revocation of their license, as well as a significant fine. What's more, the staff members who receive the commission payment are also subject to a fine. So if you are an aesthetician, registered nurse, nurse practitioner, physician assistant, or laser technician who is being paid commission, it is certainly in your best interest to find out if fee-splitting is illegal in your state; if it is, stop receiving these payments. If you are a physician who is giving commissions in a state in which fee-splitting is illegal, you should cease doing so immediately.

This does not mean that medical spa employees cannot be awarded extra compensation, however. Physicians can establish structured bonus plans–such as the medical spa compensation plan in the AmSpa store–that can provide employees incentives and are perfectly legal in the eyes of authorities. These types of programs can be very lucrative for employees, and they will prevent all involved from incurring crippling penalties that can alter lives and end careers.

Also, if your medical spa engages in the practice of giving gift cards to clients, be advised that this can also be viewed as a form of fee-splitting, because these cards represent payment that is not made directly to a physician or physician-owned corporation.

An exception

Viewed through an impartial lens, it would seem that using a deal site such as Groupon or LivingSocial to drum up business would represent a form of fee-splitting. This is because medical spa vouchers sold through these services—from which the service receives a percentage of the sale, a lot like a commission—can be used by customers to purchase medical treatments. However, several states have enacted laws that permit this, provided the medical outlet maintains a high level of transparency during the process. Again, check with your local health care attorney to find out the specifics of the regulations regarding deal sites in your state.

It is worth noting, however, that even if using deal sites in the manner described above is legal where your business operates, some in the industry consider such arrangements to be unethical. As such, you may be better off negotiating a flat fee with Groupon or LivingSocial instead of paying it a percentage. It is always better for a business to try to stay away from morally questionable practices, even if you are forgoing some money by doing so.

To learn more about medical spa business and legal best-practices attend an AmSpa Medical Spa & Aesthetic Boot Camp near you.

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