Med Spa Ownership

Posted By American Med Spa Association, Sunday, September 9, 2012

gavel and stethoscope
(UPDATED June 25, 2021)
One question that seems to come up time and again is "who can own a med spa?” Unfortunately, there is not one single answer to this question. The rules around medical practice ownership vary by state and can be quite complex. While some states make it easy for interested individuals to find an answer to this and related questions, other states bury it in cumbersome and confounding regulations and ancient court cases that look foreign to even the most astute lay person. To make matters worse, there is currently no national standard regulating the ownership of med spas in the United States, so what may be commonplace in one state may be strictly prohibited in another. While in Illinois, New York, Pennsylvania and California, the laws regarding med spa ownership are clear that med spas must be physician-owned, some other states do not make such a clear distinction.
AmSpa members should check the summary of their state's medical aesthetic laws to see the ownership requirements they need to meet.
In Illinois, for instance, the Illinois Medical Corporation Act prescribes that a medical spa (i.e., any entity that provides medical treatments) must be owned and operated by a physician. A person who is not licensed under the Illinois Medical Practice Act cannot lawfully have any part in the ownership, management, or control of the medical spa at any time. The reason for this requirement is to prohibit a business corporation or lay person from controlling the medical decisions of a physician or professional staff. This legal concept is known as the "corporate practice of medicine.” Medical decisions must always be controlled by a physician, not a lay person or corporation.
But California has a different set of guidelines—there, only licensed health care professionals (including non-physicians) can own any part of a medical spa. Although there is a general prohibition on the practice of medicine by corporations, the California "Moscone-Knox Act” establishes the right of physicians to incorporate and operate professional medical corporations. If the med spa is organized as a professional corporation, 51% of the corporation must be owned by licensed physicians, but the other 49% may be owned by non-physicians such as registered nurses and physician’s assistants.
In Florida, the laws differ once again as Florida has no laws or court decisions prohibiting the corporate practice of medicine. As a general rule, physicians and other health care providers may be employed by or contracted by corporations and other businesses owned and controlled by non-physicians. And corporations and investors can freely invest in and own medical practices that employ physicians so long as the physicians supervise and control the management of the med spa.
Ohio has gone even further, the legislature declaring that the corporate practice of medicine doctrine no longer exists in Ohio. There, the law does not prohibit licensed physicians from rendering medical services as employees of a corporation or any other form of business entity. The Ohio Medical Practice Act only require that the physician exercise professional judgment to render medical services based on the best interest of the patient and within the minimal standards of care of similar practitioners under the same or similar circumstances.
Although it seems that the laws regarding ownership vary from one state to the next, many states do also employ fee-splitting and anti-kickback rules that prohibit physicians from sharing or splitting any percentage of their medical professional fees with others. These rules can often be even more complex than those for ownership. Thus, even where the ownership laws may not be completely clear, there may be provisions that prohibit fee splitting between physicians and non-physicians, in essence rendering it impossible for a non-physician to own and operate a medical spa and split the fees from medical services with a physician.
Some med spas have attempted to circumvent the ownership laws in their state by employing a physician as a "medical director” while a non-physician owns and operates the med spa in its entirety—overseeing all treatments, including medical treatments. In these situations, the physician serving as the medical director generally does not have any ownership interest in the med spa, but is rather operating as an independent contractor for the med spa. This is a perfect example of fee-splitting between physicians and non-physicians and in several states, would be considered illegal.
In Illinois, for example, hiring a physician to be the medical director for a med spa owned by non-physicians is illegal and if caught, the physician’s license can be suspended or revoked and the med spa made to pay steep fines. State licensing boards frequently discipline physicians who loan their licenses in this way for “aiding and abetting the unlicensed practice of medicine.”
These arrangements still seem to be prevalent in several states, likely because individuals do not know or do not understand the laws governing the practice of medicine or do not think these laws apply to med spas. However, ignorance for the law does not provide any defense if the state launches an investigation of a med spa because of alleged illegal ownership or unlicensed practice.
It is imperative that you protect yourself and your med spa business by structuring and operating the med spa in compliance with your state’s laws. If you have questions regarding what is legal in your particular state, please consult a health care attorney familiar with the medical aesthetic laws in your state. (AmSpa Members are entitled to a complimentary annual consultation with the ByrdAdatto law firm.)
For more medical spa legal and business best-practices attend an AmSpa Medical Spa & Aesthetic Boot Camp.