AHLA's Speaking of Health Law
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AHLA's Speaking of Health Law
Representing Physicians: Private Equity, Non-Competes, and Medical Spas
Jason Krisza, Shareholder, Wilentz Goldman & Spitzer PA, and Michael Schaff, Shareholder, Wilentz Goldman & Spitzer PA, speak with Sidney Welch, Partner, Bradley Arant Boult Cummings LLP, Lymari Cromwell, Partner, Bass Berry & Sims PLC, and Ashley Creech, Associate, Epstein Becker & Green PC, about three cutting-edge topics that are of increasing importance when representing physicians: private equity transactions, non-compete agreements, and medical spas. They discuss how private equity transactions are structured, the attendant regulatory concerns, and the challenges physician practices encounter when engaging in these transactions; what physician non-competes generally look like, the legal and regulatory environment at the state level, and alternatives to non-competes; and the kinds of services offered at medical spas, how they are regulated, and considerations when structuring them. Jason and Michael are editors, and Sidney, Lymari, and Ashley are authors, of AHLA’s Representing Physicians Handbook, Fifth Edition.
Watch this episode: https://www.youtube.com/watch?v=kBEZPqAMxCc
Learn more about AHLA’s Representing Physicians Handbook, Fifth Edition: https://store.lexisnexis.com/ahla/products/ahla-representing-physicians-handbook-ahla-members-grpussku59002.html
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SPEAKER_02:Well, hello everyone. Uh my name is Jason Krizza. I'm a partner at the Walenz-Goldman and Spitzer firm in our corporate and health law departments. And I have the privilege of uh kicking off this AHLA podcast where we're going to be talking about some topics that are very important when you're representing physicians. I have my co-moderator here, Michael Schaff, my partner, also at Will Lentz-Goldman and Spitzer. We've had the privilege and honor of working with our former colleague John Barry as the editors of a brand new publication that's coming out, the fifth edition of the AHLA Representing Physicians Handbook. And this book is really a great resource for attorneys that are representing physicians and talking about some of these issues that are often overlooked by some legal professionals who aren't familiar with these types of matters. And Michael, why don't you tell us a little bit about this handbook and a little bit about the history of it?
SPEAKER_01:Sure. Thank you, Jason. Just so everyone knows this, I'm going back. I'm probably a little bit older than a lot of you, so I have a bit of a history understanding of how A.H. Late started doing things. But um for many years, most healthcare lawyers were hospital lawyers. They weren't physician lawyers. And physician lawyers uh sprouted up over time. Uh, but before that, it was normally the doctor's uh sister, sister-in-law, brother-in-law who was a lawyer, may have just been a real estate lawyer, they may have done their house closing, they may have uh done other types of things, maybe helped them get out of a speeding ticket, et cetera. And healthcare lawyers really focused uh more so on on the hospital uh uh situations. Um and then with the uh addition of uh the um the Stark law and the anti-kickback law, um physicians need to have their own little view of things. And um AHLA decided to set up a representing physician uh practice group, it used to be called a Syslet. And as part of that, um I was one of the leaders of that group. And for a number of years, um a lot of people within our organization uh thought it was really important to write some type of uh either a handbook or some documentation or publication that dealt with representing physicians because there wasn't any except a chapter in the fundamentals book that I had written on how to represent physicians, the buyout, et cetera, like that. So around 2000, in the year 2000, when we started talking and trying to get things going, and uh like many things, things took a little bit of time. And it turned out that um at a uh AHLA seminar in um in New Orleans, uh a few of us got together uh and we had a liquid lunch uh, so to speak. And when you do that, your juices start to flow. And uh we set up a task force uh that myself and Cindy Reese from Bassbury uh put together. And at lunch we put out put together an outline of uh uh representing physician handbook, the different types of topics, et cetera. And as part of that, uh the first edition was published in 2004. Uh-huh. And then what we did uh actually it was published in 2006. Uh uh. But we uh subsequently had uh a second, third, and fourth editions that were published between 2009 and 2016. And now after nine years, uh the illustrious fifth edition is is out there. Um Jason?
SPEAKER_02:Yeah, so I think what's great about this is this is a a living, breathing document. And what we've done was we've tried to add new chapters to talk about new things and new topics that are just increasing or ever um you know new topics in the law that people need to be uh aware of. So what we've done, we've got three speakers today who have all authored chapters in the book. We're gonna talk about three topics that we believe are sort of cutting-edge topics in the representing physician space. We've got private equity transactions, uh, medi spas, as well as non-compete agreements. So the primary point of today's podcast is to really delve into some of these three topics and hear what our authors and speakers have to say about them. So, Michael, why don't you uh take it away and introduce our three illustrious speakers and authors today?
SPEAKER_01:Certainly. Um first of all, we're gonna have Cindy Welsh. Uh she wrote the chapter or was a co-author of the private equity and transactions. She's a partner at Bradley, and she primarily provides regulatory advice to clients engaging in merger and acquisition and private equity transactions. Uh second, we're gonna have Lee Marie Cromwell. Uh she wrote the chapter or was a co-author with respect to non-competes. Uh she's a partner at Bass Berry and Sims. Uh, she focuses on labor and employment issues arising in merger and acquisition transactions. And uh our last speaker is uh is Ashley Creech. She wrote the chapter or or was a co-author on Medispa's. She's an associate at Epstein Becker and Green. She's a litigator and she provides regulatory advice and works on uh transactions.
SPEAKER_02:Yeah, so Sydney, why don't we we start with you and talk a little bit about private equity transactions? So, I mean, we're hearing private equity, private equity, private equity every day. Uh what is a private equity transaction as it pertains to healthcare? What do the transactions look like?
SPEAKER_05:Yeah, absolutely. You know, and it's part of the reason that we have a new chapter in this representing physicians handbook on private equity because it has become such a popular vehicle for physicians to participate in some sort of exit strategy, if you will, or practice strategy. Um, and what private equity is in the healthcare vehicle, particularly for physician transactions, is it's a way for private parties to engage in some sort of ownership interest for for-profit in a healthcare entity. And we've seen a rise in popularity in part to give alternatives to some of the more traditional vehicles, such as hospital purchases of physicians practices that are, as we know, much more limited in terms of constraints, particularly from a regulatory perspective. So, what the sources of investment are doing on the private equity front is moving from the physicians or the small groups of investors to larger firms that are managing the funds for big groups of individuals or institutions, many of which don't have any or have very little healthcare knowledge or experience. And so that really the goal of the private equity transactions is to deliver returns on the investments for these investors. And they can do that in a number of different ways. Some of them involve taking out loans and then using the facilities or the things that are being acquired as collateral to pay back the investors at a high rate of return, while the organization itself is the one that's carrying the debt. They also engage in selling the facilities and assets to other investors or flipping the asset to another buyer for a large multiplier, bringing a great rate of return to the investors. Others have viewed the investment as a way to give capital to allow for expansion of the physician practice platform and allow development of related services, or leveraging experience for things like achieving efficiencies or bringing value-based care services to the table and decreasing cost for you know through vehicles such as group purchasing of the things that we would typically consider to be back office support, but significant cost to physician practices that overhead often running at a rate of about 60%. So what the private equity firms are doing are pulling this capital from private investors that are willing to take on the rest to acquire the platform. And then, you know, what physicians and others have to realize is that ultimately the intent is for there to be a transaction strategy or an exit strategy where the platform gets sold to other private equity firms or other strategic corporate buyers on a long-term basis. So ultimately, in other words, that private equity investment is different from a typical sale to a strategic buyer, such as a health system or insurer, which their goal is to buy it to keep it and to generate more profits there on the private equity. Generally speaking, the goal is for that exit strategy or transaction to take place, bringing a return on investment to those group of investors.
SPEAKER_02:So, Sydney, you've mentioned that these could kind of take the play the form of many forms. You've got loans, you've said that there are platform acquisitions. And how does what's the common structure for these types of things, these types of transactions look like? I assume there's a lot of regulatory concerns when you're structuring this with someone like a private equity group that may not be owned by physicians or other clinicians.
SPEAKER_05:Yeah, that's absolutely right. And that is really what drives the structure of these, you know, transactions and the transactions models to the point where they're almost cookie-cutter innate at this point in terms of what you expect to see in the transaction structure. Um, you know, typically you'd have an asset acquisition with a, you know, um with a friendly PC, what we would term a friendly PC or management services organization structure model. In some states where you don't have regulatory limitations in the form of corporate practice of medicine doctrine, you would have the ability to have an equity investment in the acquired entity, but most do have those corporate practice of medicine restrictions. And so you see the friendly PC or MSO model. And in that model, what we're allowing to have happen by you know by the structure is to have the non-physician investors in the practice through setting up of a management services organization. And so you have a conveyance of non-clinical assets typically to the management services organization. And then the there remains either a one or two, a small number of friendly physician owners or licensed professional owners of the practice entity. Um, and then a management services arrangement between the management services entity and the practice entity, where that management services entity oftentimes is leasing back the uh the assets to the physician practice, and then they're providing all of the management services function, again, that back office support in return for a fair market value fee that it's providing to the practice, and the practice is paying back to the management services organization. And so that's typically what we would see on the management services front. And as I mentioned, the common regulatory consideration for that structure, that model, is the corporate practice of medicine doctrine, which is common in many states, which simply says that you can't have ownership of a professional services organization by a non-licensed individual. And that leads to that structure. There are other regulatory considerations that go into the structure, such as our ever-present anti-kickback statute, STARK Law, False Claims Act, and then related state mini start, mini-kickback type of statutes. And then most recently we've seen an uptick or resurgence in the antitrust laws, as those laws have come back into play as these platforms and add-ons, as we call them, the initial physician practice acquisition and all those that follow, where you've got the FTC and the other government regulations, regulators looking at who's really owning these entities and making sure that they're not following in a muck of the antitrust laws. And in essence, what that's led to is a fair bit of scrutiny at the federal level, and then in turn at the state level, calling for transparency of the ownership of the MSO entity or directly the physician practice entity if it's allowed in that state, resulting in state laws and statutes, regulations that really is requiring disclosure oftentimes of the private equity ownership and payment in those service models.
SPEAKER_02:Yeah, it's interesting you say that because I mean there's I know in New York there there have been some laws about this type of arrangement and disclosure. Really haven't seen much enforcement come from that yet, but it seems like it's coming down the pike. And I know also in New York uh they have their own, while the Corporate Transparency Act seems to be uh somewhat dead, they have their own beneficial ownership structure that they're mandating, not just for healthcare entities, but for all and nearly all entities. Um it's interesting that you say that. And I have a feeling we're gonna see a lot more of this coming down the pike.
SPEAKER_05:It keeps coming in fits and starts, right? Um at the federal level and certainly at the state level. And as we all know in healthcare, there are certain states that tend to be more robust about their regulation, your jurisdiction of New York being one, California, Texas, and that's where we see a lot of the movement on some of these regulatory efforts.
SPEAKER_01:Right. Cindy, when you started talking about uh what private equity transaction is in healthcare, you indicated that it's appears to be very popular these days. Can you explain why?
SPEAKER_05:So I think a large part of the popularity, and we uh were drowning in private equity transactions, as you know, Michael, in 2021, um it was just the pace was absolutely bananas and it has remained you know consistent, although not at that level. I think a large part, a lot of that has to do with the fact that the physician practice space, it provides the practices and an alternative to a hospital acquisition. As physician practices have been for the past 10 plus years struggling with um I've created my practice entity, um, I've grown my practice entity, I want to continue to do that, or I want to leave the next generation with the ability to continue the practice function. How do I access capital in a way that allows me to survive when I've got an overhead of 60%, where I've got hospitals purchasing or employing other physicians coming out of the marketplace, and we want to stay independent, if you will. And private equity transactions have allowed physician practices to do a couple of things. Number one, gain access to that capital. Um, they've also allowed them to realize a higher rate of return because of the lesser regulatory restrictions on what can be paid for and how monies can flow in the structure and transaction system that's created for these transactions. And thirdly, um, they allow for a lot more flexibility on physician autonomy and decision making. Now, don't get me wrong, there certainly are restrictions and things that get put in place, like the non-computes we're gonna talk about later. Um, but I think if you had told many of us as this wave of private equity transactions started, it kind of hearkened back to the management companies of the 1990s, and we would have thought maybe this is not gonna be a successful venture. But many have said, we recognize that we don't engage in the running of the physician practices. There's certain things we can offer to them, but we will allow a certain degree of autonomy. And for the most part, um, at least on my experience, the physician practices have been relatively unencumbered and relatively happy with the way that they've been allowed to continue the practice of medicine.
SPEAKER_01:Yeah. Um, another question I have for you is uh if you're an attorney and you have a doctor who's thinking about doing a PE deal, or you're even a physician thinking about it, uh what would you suggest they look into as to the potential challenges, the downsides, like surprises that are in store for either the uh physician and the practice or the lawyer representing them?
SPEAKER_05:So a couple of things, Michael. I think um that it's really important for the practices to understand that you don't get something for nothing. Um and so this will be a change in how they are used to doing business, at least in terms of control. Um and there also has to be the reasonable expectation is always set in terms of what money and what the monetary value is, meaning that in the private equity transaction, they may realize a cash influx with the initial acquisition, but they shouldn't expect in turn that their employment compensation is going to shoot dramatically up as well. You know, in other words, you you can't have both if there's give and take in terms of the economics of the structure. I think it's really important for physician practices considering a private equity transaction to make sure that they have their house in order, right? And so for them, that means a couple of things. They need to be really well informed as to what the economics of their practice is and what the value of their practice is. And they can do that in a couple of different ways if they don't already have a good business understanding of their practice and what the transaction means. Some of that may come in the form of an engaging an investment banker to work with them and choosing that person or firm carefully is very important. An initial step is probably going to be working very closely with their accountant and appraiser to make sure that they understand again what the value and the economics are. I think the other piece that goes hand in hand with that is making sure that they also understand where their warts are. If you could put your house on the market, you need to make sure that you understand where the flaws are that a potential buyer is going to see and perhaps develop a remedial list to fix some of those challenges and issues before you take your practice to market in order that your practice doesn't get devalued in the process. Because once that taint is out there, it's driving down the value of the transaction or your potential transaction, the marketplace. And then lastly, and although they're certainly more than the ones that I'm going to mention here, I think it's also very important for practices to think about their group dynamics. You know, oftentimes you may have a group of senior physicians and a group of younger physicians. And so the transaction where the senior physicians are going to recognize cash, and that is in fact their exit strategy to the practice of medicine, at least on a shorter term basis than those who have the runway in front of them. They need to make sure that they've had conversations and reconciled some of that tension or potential contradiction on the front side through conversation and strategic planning so that they can be all on the same sheet of music when they go to market with their transaction and make sure that they've looked at what all the options are. Do they get greater value and greater long-term success by perhaps alternatively expanding their footprint and then looking at going to a private equity transaction down the road? So all those are valuable things to be thinking about.
SPEAKER_02:And you know, we're looking forward to keeping up uh up to date with this emerging area of law. Why don't we, you know, talk to uh Lee Marie a little bit about non-competes and have Lee Marie talk to us a little bit about non-competes?
SPEAKER_01:Right. So uh so Lee Marie, um, you know, we always hear about non-competes, what's going on. Uh can you just explain to us what a physician non-compete generally looks like and you know, how are they drafted? What do they generally restrict?
SPEAKER_04:Sure. Um, so uh a physician non-compete at its core is just a contractual obligation that restricts a physician, whether it's an employee or an independent contractor, a shareholder, right? Um, from either becoming a competitor after that relationship ends, or from working for a competitor after the relationship ends. Um, these restrictions are often found in employment agreements. They can be in independent contractor agreements, um, shareholder equity agreements, uh, an LLC agreement. So there are, you know, various places where you can find them, also obviously in purchase agreements. But that's essentially what they're trying to stop, right? Is that that competition after the relationship ends.
SPEAKER_01:Okay, so you know, I I also hear there's a common law, significant common law with respect to restrictive covenants. Can you, you know, tell us how that works and is there what kind of standard is it? Is it a reasonableness standard? How is that affected?
SPEAKER_04:Sure. Yeah, so um there is no sort of overarching federal law governing non-competes. Uh we'll and we'll talk a little bit more about that in a few minutes. But this body of law really is state specific and it's historically has been strongly case law specific, right? So the courts being uh brought in to decide is this non-compete reasonable or not. Over time, you've seen a lot more statutes pop up on a state level regarding um non-competes and physician non-competes, and we can talk about that in a minute. But from a common law perspective, every state has some body of case law governing non-competes. They're all very similar from a case law perspective. Um, so the the courts are looking at um, is there consideration? That's sort of the the one of the fundamental questions, you know, enough consideration to support the non-compete. Number two, does the enforcing party have a legitimate business interest in what they're trying to prevent, right? The the competition that they're trying to restrict. And then third is um, is the agreement reasonable, right? So is it drafted in a way that's narrow, that you know, restricts the worker while also protecting these legitimate business interests of the enforcing party. And so when considering whether it's sufficiently narrow, the courts will look at how long the restriction lasts, um, the the geographic territory of the restriction, the scope, just the overall breadth of the restriction, what is the restriction stopping the physician from doing? Uh, and the court will sort of weigh that, right? What is this interest that the enforcing party has in stopping unfair competition versus what the restrictions are and how uh burdensome is it on the physician in terms of their ability to work?
SPEAKER_02:Lemerie, you mentioned that the courts look at consideration, um, one of the key components of enforcing non-competes. How does that really play into the enforcement of these covenants? Can you delve a little bit more into that?
SPEAKER_04:Yes. Um it varies by state, um, but what the courts look at is it's things like did someone sign um a non-compete at the beginning of the employment uh relationship, such that the consideration there is the opportunity to be employed, the access to the employer's goodwill, access to their patients, access to their confidential information and their trade trade secrets, um, all of that, right? So that goes into sort of support the need for the non-compete. There are some states that have rules that say if you try to get someone uh covered by non-compete after they've already started employment, what are you giving them extra to support that, right? So are you giving them a raise? Are you giving them a promotion? Are you giving them a formal employment agreement, maybe that has, you know, some severance um rights in it? Uh so those are the types of things the courts look at. But I would say the primary thing that we see in the case law is that access to confidential information uh and trade secrets of the employer. Um that, you know, that it sort of serves two purposes. It can serve as consideration, but it also helps the enforcing party prove I really do have a legitimate business interest in stopping this competition because I'm not just trying to stop competition, I'm trying to stop someone from using right, our trade secrets, our confidential information um against us in an unfair way.
SPEAKER_02:I would assume that the non-compete in you mentioned in the acquisition uh context, those, I mean they the the consideration there is pretty clear. It's the purchase price, it's it's there's the clear quid pro quo, and courts, I would assume, are generally going to enforce those.
SPEAKER_04:There's certainly more deferential, uh, a hundred percent, um, if it's in a purchase agreement. Uh and then you also have non-competes, as I mentioned, that can be in an equity agreement, right? The consideration there is you get to be an owner. Uh, so that's obvious, that that's also obvious. Um, but yes, there's certainly more deference shown to um non-competes in a purchase agreement. It doesn't mean they're ironclad. I mean, we've seen the FTC take issues with non-competes and purchase agreements, we've seen courts, um, you know, even Delaware courts um take issue with it, but certainly more deference there.
SPEAKER_01:So, what happens in a situation where you know you're in court and a judge determines uh that the restrictive covenant or a portion of it really should be unenforceable. It's uh it's overly broad broad. So, for example, it's uh in a city environment, they're asking for a 50-mile restrictive covenant. The judge says, wait a second, that's uh not good. Do they just throw out the entire restrictive covenant or or what do they do?
SPEAKER_04:Uh it depends on the state. Uh that's always my answer for non-competes. Depends on the state. Um, so every state has some line of case law governing this. And so you have some states in the U.S. that do not allow reformation or blue penciling at all. The non-competes is either enforceable as it's drafted or it's not. Um, and so if the court finds that it's not enforceable, then the whole thing is just void, right? There's just not going to be uh a provision to enforce. There are blue pencil states in which the courts are empowered to strike several portions of the non-compete, and then they can enforce the remaining language. And then there are reformation states where the courts are empowered to actually reform, redraft, you know, they they can do more than just strike, they can add some words, they can take out words, they can do a bit of rewriting to make it enforceable under the law while also trying to keep, you know, the the main purpose or goal of the restriction that the parties agreed to. Uh, so you know, just depends on where you are.
SPEAKER_02:Lee Marie, you and both you and Sydney had had mentioned this earlier, the FTC. So April 2024, the FTC adopted, you know, they implemented this final rule that would effectively ban most non-competes, not just in the healthcare field, but uh in like across the country. And then that was challenged pretty much right right away. Uh and then there was the uh judge in the Ryan case that issued this nationwide injunction. The FTC initially appealed and then kind of withdrew their appeal. It seems to me that the FTC ban is pretty much dead at this point. Is that your understanding?
SPEAKER_04:Yes, that's right. Uh it was really a Biden administration initiative under the FTC commissioner at that time. Um the Trump administration certainly is not turning its face, you know, with respect to non-competes, but not focused on a nationwide ban. Uh the ban was blocked by the courts. The FTC isn't fighting it. So as far as we know, it's sort of off the table. Unless, of course, you know, if there's a switch in administration again, we could we could go down that path once again. But for now, it is dead. Um and there is not currently any sort of nationwide proposed ban on non-competes.
SPEAKER_01:So following up on that, uh Lee Lee Marie, is you know, my understanding is that there are some states that uh, you know, after the FTC ban became uh questionable, uh started uh uh approving uh and passing state-specific opposition non-compete statutes. Can you uh give some examples of it and and and tell us about our thoughts on that?
SPEAKER_04:Sure. We have seen an explosion of non-compete statutes over the last three to five years. Um and again, they vary by state, but in a nutshell, to give you an idea, these statutes will do things like set comp uh thresholds, right? You can't give someone a non-compete who's a physician unless they make a certain amount. Or um it'll restrict the territory. You you can only restrict them within five miles of their primary practice site. Um some states uh are banning non-competes for physicians or other healthcare workers completely. Um some states have uh the Texas recently did one where uh, and they've had this for a while, there's a physician buyout requirement. So if you give a physician a non-compete, you have to give them the right to buy out of it, to pay an amount to get out of it. Uh, but the recent change in the law in Texas also um capped the non-compete tail at a year and capped the territory at a five-mile radius from their primary practice site. Um, so you know, Texas, California, Indiana, Maryland, DC, Montana, just throwing out some names of states um that have recently uh either enacted physician non-compete statutes or amended them to make them a bit more restrictive. So um anytime you're entering into a physician non-compete, you have to check that state law. Because the way that a lot of these are drafted, if you don't comply with the statute, uh the entire non-compete is likely void.
SPEAKER_02:So are there other alternatives, Lemarie, to like your general five-mile radius or you know, from this office or these facilities? Are there other ways that physicians or I should say physician employers can protect their interests?
SPEAKER_04:Yes. Um, and we've seen more of a reliance on these as employers, I think, just become more realistic in their chances of being able to enforce a non-compete, even if they can get a physician to sign one. So you can have non-solicitation provisions, which keeps folks from soliciting your personnel, right? Your employees, your contractors, or from soliciting your patients for a certain period of time after the employment ends. Um, you can have non-disclosure, right? Protection of trade secrets, confidential information. And those restrictions can generally run much longer than a non-compete and a non-solicit. Um, there we're seeing a lot of forfeiture provisions and liquidated damages provisions, which essentially say you can compete if you want to, right, for a year after you leave. But if you do that, you're gonna forfeit your equity that you have in the in the practice, or you're gonna pay a certain amount in liquidated damages. Um, we're also seeing a bit of an increase in employment agreements with longer like terms that are set, right? So you're gonna work here for five years and you can't leave unless you have good reason. And if you do leave, then you're gonna be in breach, and so there will be damages. Um, so you know, those are sort of ways kind of around some of them aren't perfect, right? Um, some courts might look at an employment agreement with a five-year term and say, yeah, that's not reasonable. Or they might consider a forfeiture provisions too similar to a non-compete. Uh, but they are at least, you know, alternatives that we definitely see employers trying.
SPEAKER_01:Thank you, Lulie Marie. Uh, let's switch over to Ashley about medical spas, what I would call now more of the wild, wild west. So uh Ashley, uh can you tell us what a medical spa is?
SPEAKER_03:Thanks, Michael. Um, so for me, when I think about a medical spa, I think about an entity that provides cosmetic medical services in a spa-like setting. Um, and we'll talk about just a little bit what cosmetic medical services or another name that's commonly used, is aesthetic medical services. Um, as you mentioned, uh, you know, it can be a little bit of the Wild West. Um, not every state has laws or regulations around uh medical spas. Um, but I will say as medical spas continue to increase uh their presence, more and more states are looking at providing sort of more regulations around what is considered a medical spa, and even certain state agencies, Board of Medicines and other states are putting out guidance on how to be compliant and provide a level of care within a medical spa. So for a medical spa, I sort of started with what I consider to be a medical spa, but you know, we do have to look at the state or the jurisdiction of where the medical spa is located. As I mentioned, certain states do specifically define what a medical spa is and what they consider to be those cosmetic services. And within those definitions of a medical spa, there are certain exemptions. Um, you know, a provider may say, well, wait a second, I provide, you know, what can be considered aesthetic medical services. Am I subject to medical spa regulations? Um, and there are exceptions. Certain states will put forth exceptions that if it's a physician office or a dermatology practice, um, that they're not necessarily required or considered to be a medical spa. Um, but then there's also certain caveats of well, if you hold yourself out to be as a medical spa, or if over 50% of the services that are provided to patients are these aesthetic services that it may be considered a medical spa. So you really do have to look at uh the type of services that are being provided.
SPEAKER_01:Right. So I asked what kind of services would fall within the range as an example of a medical spa rather than a regular spa?
SPEAKER_03:Yeah, so a traditional spa would be, you know, if you go somewhere to get a facial, um, certain body treatments or non medical skincare services. And those services can still be incorporated into a medical spa. But cosmetic medical services is really what is the defining point of the medical spa component. And that can be defined really broadly as any service that improves a person's appearance without promoting or preventing an illness or a disease. Some states actually provide specific examples that are very helpful as far as what's considered to be aesthetic services, thinking about injection of dermal fillers, neurotoxins, for example, a common one that people are familiar with is Botox, microderm abrasion services, laser skin treatments, and other medical devices that are used in skin care treatments.
SPEAKER_01:So you talk about these services. So what kind of clinicians provide these services at a medical spa?
SPEAKER_03:Yeah, there is a variety of different clinicians that typically work in a medical spa setting. Um thinking, you know, traditionally physicians, uh, physician assistants, nurse practitioners, nurses, medical assistants, and with the incorporation of some of the spa-like services, the non-medical services that are sometimes included, it can be also include estheticians who provide those services.
SPEAKER_01:So uh in states that do regulate it, okay, how are they regulated? What kind of examples can you give us?
SPEAKER_03:It mostly depends on the type of services that are provided. Um, some states, if they, you know, they may have laser registration, um, if the use of medical lasers is involved in the practice. Um, sometimes they involve laser safety officers, um, as I mentioned, with the addition of the spa light component, a medical spa may even be required to have a cosmetology license in addition to any other type of licensure that may be required by the state.
SPEAKER_02:Right. Yeah, so Ashley, we we get calls all the time. I feel like not only is this the wild west, but it's the most popular thing that our office receives phone calls from. We get calls from physicians, we get our existing physician clients, we get calls from non-physician clients all the time. Uh, hey, we want to set up a medi spa, we we want to do this, we want to do botox, we want to do fillers, we want to do lasers. Um, right. Hopefully they do call us before they actually do that. But go ahead. That's right. But how how does the corporate practice of medicine doctrine fall into this? I mean, you you said that some medium some states regulate medispas, some don't. What is what is the corporate how does the corporate practice of medicine doctrine weave its way into the world of medispas?
SPEAKER_03:Yeah, that's a great question, Jason. And you know, to sort of um go back to what Sydney was talking about earlier, you know, the corporate practice of medicine um, you know, prohibits um lay persons or corporations from the practice of medicine, right? So, you know, I think about this in two different ways. If it's a physician who's wanting to say, hey, I want to set up a med spa practice, then we can do that. Um, and that's you know a very simple structure and making sure that we're compliant with the state regulations, you know, if there's any registration of the medical spa, um, if there's any licensure requirements, you know, if there are certain policies and procedures that need to be done. Um, but if we're talking about a non-physician or, you know, non-professional investor, then we really do have to look at that corporate practice of medicine. And that is going to be on a state-by-state basis and setting up that MSO model that we were talking about earlier in the podcast.
SPEAKER_02:And would you say that it's also influenced by the types of services and the clinicians that are providing those services as well? Because I would think that depending upon what range of services you're providing, there might be some states that even if they do regulate them, they might not require physician ownership, depending upon the services that are being provided.
SPEAKER_03:Yeah, no, it definitely depends on the services. Um, when I think about you know, the type of services are being provided, and you know, again, it varies by state, but the scope of practice of the individual. So we have to look at is the provider able to practice independently? What is within their scope? Um, what training around aesthetic medicine have they been provided? Um, so we do have to consider what services are being provided, what supervision, if any, is needed, and the delegation of services as well. Um so the person providing that as well as those who are, you know, the supervis the person providing supervision um needs to be aware aware of that as well as the um professional who is rendering the care should be um familiar with both of those.
SPEAKER_01:Right. So Ashley, what other kind of regulatory considerations uh when you deal with MediSPAS should be considered? Like are medical directors required?
SPEAKER_03:A lot of the states that have laws around medical spas do require a medical director. Sometimes they require a clinical director, and sometimes a person can fill in both those roles. Um, but they are typically required to have specific training around aesthetic services. Um they're supposed to help implement policies and procedures and provide the oversight of cosmetic procedures performed. Um and usually there is you know that supervision requirement that I was talking about earlier, and it's really careful. Um, really important to be careful to pay attention to that because um certain states may require the medical director to be on site 50% of the time within any given week, um, and then available by other means the the rest of the time. So it's important to take a look at what those specific requirements are.
SPEAKER_01:Right. So it appears that it's everything with respect to medispas are really state specific. You know, um are there some states, do they have licensing requirements for these?
SPEAKER_03:They do. Um in the state of Rhode Island, um, the determination um for medical spa looks at, you know, the ownership structure, um, the services, and the professional licensure of the owners, and that can actually make the medical spa fall under the requirements of a health care facility and have a license in the state of Rhode Island. Um, there are some states based on the corporate structure may call for a medical spa to not only be considered a healthcare facility, but also be subject to a certificate of need requirement, which is interesting. I don't think a lot of people think about that. Um, but I have seen that in my practice where they have fallen under the certificate of need process.
SPEAKER_01:Now, you know, why don't you give us some a few items that if you were gonna advise uh lawyers as to how to approach representing medical spas, give them a couple points of advice that you would say that they should be aware of and how they should address things.
SPEAKER_03:Yeah, I think some of the things that I think about, you know, even if a state doesn't have, you know, a definition for a medical spa or um aesthetic services, I mean I would certainly look and see if if that is there. But also sort of again looking at who is providing the services and what services are provided. Because I think what is interesting is that what services and who's providing the services and how the medical spa is structured, it really can fall under these other areas that we don't traditionally think about, such as healthcare facility licenses, um, state registration. Um, for example, the state of Tennessee requires medical spas to be registered. Um, and also, you know, just thinking about other components related to compliance measures. Um, I think about complying with OSHA standards, um, patient consents, um, looking at infection control policies and procedures and things around adverse events, although they're not common necessarily in the med spa environment, they they certainly can happen. Um, so I think it's important to think about that and then also advertising requirements and how a med spa is holding itself out for services.
SPEAKER_02:You know, I want to thank the the three authors and speakers today for the wonderful conversation. I think this, for me at least, it was very insightful to hear um more about these topics. These are exciting topics that are ever evolving in our our industry. Um, so thank you all for your dedication and and work in this and look forward to continuing this conversation at AHLA events.
SPEAKER_01:Thank you, everyone.
SPEAKER_05:Thanks so much. Thank you. Bye.
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