A managed service organization (MSO) is a business that helps medical practices focus on providing healthcare while the (MSO) focuses on the business. In addition to having many practical and business benefits, an MSO is often used to address legal compliance issues such as compliance with Stark Law and the Anti-Kickback Statute.
A Managed Service Agreement (MSA) is the contract between the MSO and the healthcare practice. The contract sets forth the duties and obligations of the MSO – what the MSO can do and can’t do on behalf of the medical practice. The MSA should also address any related financial issues such as the leasing arrangements for any offices the MSO owns or manages.
Our skilled healthcare compliance lawyers have the experience to help your med spas and other healthcare practices understand the benefits of using an MSO. When an MSO is the correct choice for your medical spa, we help prepare the MSA and other companion contracts.
What services do med spas provide?
Med spas (short for medical spas) have become a popular business – both for the people who run the med spas and the customers who use their services. The services that are offered are generally medical aesthetic procedures such as dermal fillers, laser hair removal, facials, microdermabrasion, weight loss, chemical peels, intense-pulsed-light (IPL) skin treatments, platelet-rich plasma (PRP) services, and many other beauty services.
California laws and medical spas
Since medical spas are generally considered to provide medical services, the corporate practice of medicine doctrine generally requires that only physicians or medical facilities owned by physicians can own a medical spa, provide or supervise the services, and receive fees. The Medical Board of California state that those healthcare treatments must be performed by qualified medical personnel. In California, qualified medical personnel means “a physician, or a registered nurse or physician assistant under the supervision of a physician.”
In addition to California’s law on the corporate practice of medicine, California has laws regulating Botox injections, laser hair removal, microdermabrasion, the name of the business, and other aspects of a medical spa.
Legal compliance benefits of an MSO
Among other benefits of an MSO, an MSO can buy the business side of a medical spa – and then, if certain compliance issues are met, lease or sell the business side to the physician side of the medical spa.
As we’ve discussed elsewhere, other legal compliance issues, in addition to the corporate practice of medicine and specific aesthetic procedures, involve:
- “The Anti-Kickback Statute
- Corporate practice of medicine
- Fee-Splitting
- Informed Consent Practices
- Laws governing advertising and marketing
- Law of unfair competition and unfair business practices
- Laws relating to the use of lasers and laser therapies
- Legal rules governing the prescription of controlled substances
- Negligence (Malpractice)
- Physician assistant scope of practice
- Prescriptive devices
- Self-Referral
- Standardized procedures and regulatory requirements for documentation
- Supervision and delegation of procedures to allied health professionals
- The ‘good faith exam’ (or appropriate prior exam).”
Can a non-physician have an ownership interest in a med spa?
One way for a non-physician to have an ownership interest (though not full ownership) of a medical spa is through the use of a management services organization. The MSO allows the non-physician entrepreneur a way to partner with doctors and physician-owned corporations – by providing management services for the medical spa. The MSO can then charge the physician/physician-owned med spa corporation a fee for its services.
What activities can the MSO perform for a medical spa?
As we discussed in a general MSO article, some of the many tasks an MSO can perform for a medical spa include:
- Medical billing, coding, and collection activities.
- Educating and training the medical staff about compliance issues.
- Managing and even providing office space – including selecting the location of the meds spa
- Compliance with various “federal and state laws such as HIPAA (Health Insurance Portability and Accountability Act), OSHA (Occupational Safety and Health Administration) regulations, FMLA (Family and Medical Leave Act), CLIA (Clinical Laboratory Improvement Amendments of 1988), and state laws.”
- Reviewing the credentials of the med spa staff, hiring clinical and administrative staff, and managing enrollment.
- Addressing information technology issues including database management, document management, and buying software and hardware.
- Providing accounting services.
- Buying supplies and medications.
- Managing the payroll and benefits for the business/employees.
- Handling the med spa’s marketing, sales, disaster management, quality assurance, insurance, maintenance of electronic health records, managing the inventory, and many other business activities.
What the MSO and MSA cannot do?
The one key activity the MSO cannot provide is any type of medical service.
The MSA cannot provide that the MSO’s fee will be based on a percentage of the physician or medical practices’ billables or the volume of the business. Our skilled healthcare lawyers help explain what fee structures can be used so that the MSA does not violate Stark Law, the AKS, or any other relevant laws.
A properly drafted MSA can also clarify who (the physician/physician-owned med spa and the MSO) bears any liability risks. Generally, the physician/physician-owned med spa bears the risk of malpractice complaints or any other medical claims while the MSO bears any business risks such as fire, computer malfunctions, and other business risks.
The physician/physician-owned med spa must make the medical decisions. The med spa cannot function as an absentee medical director.
MSOs, medical spas, and legal compliance – Stark Law and the AKS
Two core laws that MSOs help address when developing a med spa business are Stark Law and the Anti-Kickback Statute. Both laws seek to ensure that physicians make patient referrals for medical products and services such as lab tests and medications based on the best medical interests of the patient and not the financial interests of the physician.
Stark Law prohibits physicians, unless an “exception” applies, from referring Medicare and Medicaid patients to a “designated health service” if the doctor or an immediate family member has a financial interest in the designated health service. Stark Law generally applies to Medicare and Medicaid while the AKS applies to Medicare, Medicaid, and other government healthcare programs.
The AKS prohibits companies such as pharmaceutical companies and medical device companies from offering or providing financial incentives (cash, vacations, medical directorships, and other benefits) with the expectation that the doctor will recommend that their patients should use the products and services of the company that provided the kickbacks.
Stark Law and the AKS both apply to medical spas that use many medications, cosmetics, and medical devices in their medical practices. The penalties for violations may be civil or criminal – and can include fines, not being allowed to bill Medicare, Medicaid, or other governmental agencies; and even the forced closing of the business. Criminal penalties could include imprisonment.
An MSO can be used to meet the exception and safe harbor requirements of Stark Law and the AKS – provided the arrangement meets specific statutory requirements. Our skilled healthcare lawyers understand the core requirements and how to draft MSAs that address these requirements.
Stark Law exceptions
The Stark Law exceptions include:
- Personal service arrangements. This exception is useful for doctors who are independent contractors, not employees. The MSO can hire non-employee doctors through a personal service arraignment if the hiring arrangement is placed in writing, covers all the services the doctor will provide, the agreement is for more than one year, the services are reasonable and necessary, the compensation isn’t based on the value or volume of any referrals, and other conditions are met.
- The “fair market value” exception. This exception is generally for non-office space rental or equipment rental services. The arraignment must be in writing, the compensation should be based on fair market value (and doesn’t take into account the volume or value of any referrals), certain rental equipment requirements and prohibitions are met, and other statutory conditions are met.
- Rental of office space and equipment. This exception helps the MSO lease property, office space, and equipment for the medical spa provided the rental/leasing agreements are in writing, last for at least one year, are reasonable and necessary, are not based on the volume or value of any referrals, and other conditions are met.
- Payments by a Physician for Items and Services. This is a catch-all exception that applies if no other exceptions apply.
- The isolated transaction exception – used when the MSO wants the medical practice’s practice assets – which can help infuse the practice with needed capital.
Other Stark Law exceptions include:
- Indirect compensation.
- Certain hospital arrangements
- Group practice arrangements with a hospital
- Non-monetary compensation
- Medical staff incidental benefits
- Risk-sharing arrangements
- Compliance training
- Other exceptions
AKS safe harbors
The Federal Anti-Kickback Statute applies to individuals and entities that receive payments through any federal healthcare program including Medicare and Medicaid. Many of the safe harbors an MSO can use are comparable to the Stark Law exceptions. There are differences that our seasoned healthcare lawyers will review for your medical spa.
A key general requirement is that any benefits received by the MSO should be in writing, the arrangement should last for one year or more, compensation should be established in advance, and payments should be for “full-time services” and should be based on fair market value (and not the volume or value of any referrals or business).
Our skilled healthcare lawyers will also explain when and how the investment interest safe harbor can be used.
Additional reasons to consider an MSO/MSA Benefit for your med spa?
In addition to the legal and compliance issues discusses above, MSOs are useful in helping to:
- Scale the med spa business as the med spa expands across locations, adds services, works with more vendors, and adds employees.
- Sell the business side of the medical spa to non-physicians, private equity groups, and other entities.
A managed service organization can help both the medical and the business sides of a medical function better and meet federal and state regulatory requirements. These requirements include corporate practice of medicine laws, Stark Law, the Anti-Kickback Statute, and state med spa laws. An MSO can help make a medical spa scalable, easier to manage, and easier to sell.
Physicians, other healthcare providers, and entrepreneurs should contact Cohen Healthcare Law Group, PC to discuss the federal, state, and medical board requirements for owning and operating a medical spa. Our experienced healthcare attorneys advise doctors, healthcare providers, and medical businesses about healthcare compliance laws and regulations.
