Who Can Own a Medical Spa: Unpacking MSOs

Posted By Madilyn Moeller, Tuesday, January 9, 2024

MSO paperwork

By Jay Reyero, JD, ByrdAdatto, and Alex Thiersch, JD, American Med Spa Association

One question that comes up often is “who can own a medical spa?” Unfortunately, the answer to this question is not always straightforward. First, it is important to note that the term “medical spa” can be used in many different ways within the industry. It could be called a medspa, or Medi Spa or med spa. Second, regardless of the way the term is used, a medical spa is a branded term for a medical practice where a patient can go for a variety of cosmetic and (typically) non-invasive procedures, ranging from Botox to chemical peels and laser treatments. The continued growth of the medical aesthetics industry and increasing revenues of medical spas has attracted intense interest from private equity and other investors. But there are some key regulatory requirements investors and potential owners need to be aware of when considering medical spa ownership. The rules around medical spa ownership vary by state and, unfortunately, many states offer very little or even conflicting guidance. This post will look at some of the considerations for both medical professionals and non-medical professionals when contemplating medical spa ownership.

Medical spas and the practice of medicine

As noted above, the first important fact to understand is that a medical spa is a medical practice. Most states define the practice of medicine broadly, so many services that intuitively may seem non-medical do qualify as medical services. This can include services commonly provided in medical spas that are considered “non-invasive.” In most states, any time a person diagnoses, treats, operates or prescribes for any human disease, pain, injury, deformity or other physical or mental condition of another person, it is considered the practice of medicine. Although many aesthetic or cosmetic medical procedures performed in medical spas are commonly referred to as “cosmetic treatments,” they constitute medical services and must therefore be performed by or delegated to an individual acting within the appropriate scope of practice.

Medical spa requirements

Because a medical spa is a medical practice, owning one means taking heed of certain regulations and, unfortunately, as mentioned, many states offer little or even conflicting guidance regarding medical spas. However, one important regulatory hurdle is the corporate practice of medicine (CPOM). The prohibition against CPOM is a state law doctrine developed to ensure only licensed physicians or entities wholly owned by licensed physicians practice medicine, thus limiting the commercialization of medicine by non-physicians. If the services provided by a business are not the practice of medicine, then the business will not be regulated by a state’s CPOM laws. However, as we discussed, most states define the practice of medicine broadly. Accordingly, most states regulate medical spas in the same way they do other medical practices. This can cause confusion for entrepreneurs, mid-level practitioners, spa professionals and other non-physicians looking to participate in medical spa ownership. Some states, such as Texas, have enacted specific laws stating non-invasive services are, in fact, considered medical services. Texas Administrative Code (TAC), Section 193.17, “Non Surgical Medical Cosmetic Procedures” clarifies that the provision of non-surgical, elective procedures is the practice of medicine.

Considerations for medical professionals

In general, licensed physicians (MDs and DOs) can open and operate medical spas in every state. While there are states that require a licensed physician to be the full owner of a medical spa, some states allow other licensees—such as nurse practitioners (NPs), physician assistants (PAs) or registered nurses (RNs)—to partner with a licensed physician to open a medical spa. How such states allow for the partnership will, once again, be state-dependent. While some states may impose limitations on the amount of ownership the non-physician may have (for example, in California, at least 51% must be owned by the physician), other states may be silent as to limitations. Yet, while medical professionals may have an ability to own a medical spa, the management services organization (MSO) model is still a necessary structure to deal with the desire of the non-physician to “own” and not share a portion (or a majority) of the business.

Considerations for non-medical professionals

But what if you’re a non-medical professional wanting to own a medical spa? The MSO model, with proper setup and implementation, has long been the gold standard as the model used when non-physicians are involved in a health care arrangement. An MSO is a non-professional entity and can therefore be structured using any type of non-professional entity, such as a corporation, limited liability company or limited partnership. The MSO is an entity whose purpose is to provide management, administrative and support services to other businesses. In the context of a medical spa, the MSO is performing these services for the medical spa so that the medical professional(s) can focus on providing medical services. The MSO model separates the professional entity—the one responsible for the clinical operations and that provides the patient care—and the management entity—the one responsible for the administrative operations that handles the business of the practice. The entities must be structured in a way that the management entity does not interfere with the professional entity’s medical judgment. These two entities are then tethered legally by the management services agreement (MSA) through which the professional entity engages the MSO to provide defined management, administrative and support services—for a fee. In states with a strict CPOM doctrine, this approach is a necessity. In states that allow limited exceptions, it offers a way to manage uncertainty as to how those exceptions might be applied. Even in states that do not follow the corporate practice of medicine, the MSO arrangement can often still be beneficial with regard to limiting risk and liability.

ByrdAdatto can help structure your medical spa

Medical spa ownership structure can be complex. It is critical to understand the rules and regulations specific to your state that dictate medical spa ownership. ByrdAdatto is working hard to ensure its clients are well equipped and ready to own and operate their businesses. If you have any questions or would like to learn more about MSOs, contact ByrdAdatto at info@byrdadatto.com.

AmSpa Basic and Plus members can take advantage of a complimentary legal consultation once per year with the aesthetic law firm ByrdAdatto.

Jay Reyero, JD, is a partner at the ByrdAdatto law firm. His practice focuses on the representation of business clients, with health care being the core of his practice. His health care and regulatory expertise involves the counseling and advising of physicians, physician groups, other medical service providers and non-professionals. Specific areas of expertise include federal and state health care regulations and how they impact investments, transactions and various contractual arrangements, particularly in the areas of federal and state anti-referral, anti-kickback and HIPAA compliance.

Alex R. Thiersch, JD, is the founder of the American Med Spa Association, and he is also a partner at the business, health care and aesthetic law firm of ByrdAdatto. He has extensive experience representing industry professionals before state medical boards and is one of the most sought-after speakers in the country regarding matters of practice management and medical aesthetic law, including conferences for the American Society of Plastic Surgeons, the American Society for Aesthetic Plastic Surgery, the Global Aesthetics Conference, Vegas Cosmetic Surgery, the American Academy of Anti-Aging Medicine, the Medical Spa Show and others.

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