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

The supervising physician or medical director is the central figure in a medical spa. The medical spa can offer medical treatments under the delegation and supervision of the supervising physician. Without them, the medical spa and those working within it would be liable for charges of unlicensed medical practice. However, because we are dealing with the practice of medicine, compensating the medical director can cause the medical spa to encounter a number of legal issues.

Short aside—a majority of states have moved to an independent practice model for nurse practitioners (NPs). Some states are moving in that direction for physician assistants (PAs) as well. In these states, medical spas owned or staffed by NPs and PAs may not need a supervising physician. While this article won't fully apply in those situations, many of the concepts will carry over to paying whoever is in the role of supervising and delegating treatments.

Corporate Practice of Medicine (CPOM)

The most common issue has to do with what is called the "corporate practice of medicine." In its simplest form, this doctrine means a non-physician can't own a medical practice or employ a physician. Most states have some form of this complex legal concept, though many have varying levels of exceptions or exemptions. AmSpa discusses this concept quite frequently (just search "corporate practice of medicine" above). In this case, it needs to be addressed first, before you open. It is a foundational issue and really means the question isn't how to pay a supervising physician—it's "how does the physician pay you?"

In the states that follow this doctrine, the medical spa itself would need to be owned by an entity authorized to practice medicine, such as a physician or medical corporation. (AmSpa Members can see if their state follows this doctrine by reviewing their State Legal Summary.) Just as in a traditional doctor's office, the fees collected from the patients go to the owning doctor, who then uses them to pay themselves, employees, rent for the office space and other necessary business expenses. These other expenses and non-medical services can be provided or administered by a non-physician.

This medical spa structure where there is a physician owner of the practice and a non-physician provider of non-medical services is generally referred to as a management services organization (MSO) model. AmSpa also discusses this concept frequently (see here and here). While there are many details and complexities involved in setting up a compliant MSO that cannot be covered here, the below considerations also come into play, whether we are talking about paying a medical director or a physician owner paying an MSO.

Fee-splitting and Kickbacks

Even in states that do allow non-physicians to own medical spas, there are still rules that can influence how a physician is compensated. These rules use different terms, such as fee-splitting, kickbacks and referral payments, but they are all aimed at stopping what state governments view as activities that would divert a physician's (or other healthcare professional's) professional duty to their patients, or that the financial incentive could induce physicians to make unnecessary referrals or referrals to specific businesses, or, in some way, not act in the best interests of their patients.

The language used to prohibit these activities varies widely between states, but it is often written broadly enough that any sort of monetary or non-monetary commission, bonus, payment, or share of a fee in relation to influencing a patient's provider choice or medical services is enough to raise the issue. You may be thinking, "But the physician is being paid for their supervision, not for referrals, so this shouldn't be a problem." That may be the intent of both you and the medical director, but often it doesn't matter what was intended, but rather the practical effect or how it can be viewed. Is the physician rewarded in some way for directing their patients to the medical spa, or is there an incentive for the medical spa to refer patients to the physician's practice? If either party gets more of a benefit for referring, such as a percentage of revenue or per-patient payment, it might violate the state's rules.

Of course, that doesn't mean that all percent-based, per-patient-based or variable compensation plans are prohibited everywhere. What is allowed in your situation will depend on the state you are in, the legal structure of your medical spa and the specifics of the compensation plan. So, while some compliant plans may be broadly similar, what works for one medical spa may not work for another, even if they are in the same state.

Assuming you and your advisors have worked through the above issues on the legalities of pay structure, the question then remains, "how much to pay the medical director?" The simple but unhelpful answer is "fair market value." The medical spa is not paying for the use of the physician's license, which is prohibited in every state. Instead, the medical spa wants the physician to effectively fulfill this role as a 'medical director' and provide the oversight that the medical spa needs to compliantly operate. This oversight will take a certain amount of time in reviewing charts, assessing patients, reviewing protocols, monitoring providers, etc. This will be different for different medical spas. One that has physician assistants and nurse practitioners realistically needs less daily physician time than one that employs nurses and medical assistants. Regardless of how much time is needed, the medical spa wants to adequately compensate the physician to invest that time. If the physician is not practicing full time at the medical spa, there will be a competition for their time. Obviously, the actual dollar amounts or hourly rates will depend on the local market, the physician's credentials and practice, and the realistic time commitment. While there unfortunately isn't a single answer to this question, there is a way to arrive at an answer for every medical spa's situation.

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