The Corporate Practice of Medicine and MSOs: What Medical Spa Owners Need to Know

13 January 2024

Navigating the Complexities of Medical Spa Ownership and Regulation

Medical spa ownership is a complex endeavor, especially when it comes to understanding the Corporate Practice of Medicine (CPOM) and its implications for the industry. CPOM is a doctrine that allows only licensed physicians to own and operate a medical practice, aiming to prevent unlicensed individuals or organizations from influencing medical procedures. However, the application and regulation of CPOM vary from state to state, creating confusion and challenges for medical spa owners. In this article, we will explore the intricacies of CPOM, its differences across states, the connection to Management Services Organizations (MSOs), and what it means for medical spa ownership.

What is the Corporate Practice of Medicine Doctrine?

The Corporate Practice of Medicine doctrine, or CPOM, is a legal principle that restricts the ownership and operation of medical practices to licensed physicians. The rationale behind CPOM is to ensure that healthcare providers are not influenced or incentivized by unlicensed individuals or organizations. This is particularly important in the medical spa industry, where aesthetic procedures are performed, as there is a potential conflict of interest if providers are incentivized to perform unnecessary treatments.

Why is CPOM Different from State to State?

One of the reasons medical spa ownership is complicated is due to the variation in CPOM laws from state to state. The ambiguity arises because regulatory bodies have different definitions of what constitutes a medical spa and which procedures are considered “medical.” Additionally, states have different levels of enforcement when it comes to CPOM. Some states strictly enforce CPOM, allowing only physicians to own a medical spa, while others have more relaxed enforcement, permitting nurse practitioners and physicians to co-own. There are also states that have no CPOM restrictions, allowing anyone to own a medical spa. These differences create challenges for medical spa owners, as the rules and regulations can vary significantly depending on the state in which they operate.

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Understanding MSOs and Their Connection to CPOM:

Management Services Organizations (MSOs) have emerged as a solution to navigate CPOM restrictions. MSOs allow unlicensed or underlicensed individuals, such as nurses and physician assistants, as well as investors, to have a quasi-ownership role in healthcare practices. In the context of medical spas, the MSO model involves operating two separate businesses. The medical clinic focuses on providing medical treatments and services, while the MSO, acting as a management company, handles the business operations, including staffing, payroll, accounting, and marketing. The relationship between the medical clinic and the MSO is defined by a management services agreement (MSA), which outlines the operational arrangements and financial flow between the two entities.

The recent influx of MSOs in the medical aesthetics industry has attracted private equity groups. MSOs offer a way for investors to have a stake in the lucrative medical spa industry, while also providing opportunities for scaling and adding value to the business through centralized operations and efficiencies.

Should You Sell to or Affiliate with an MSO?

The decision to sell to or affiliate with an MSO depends on the individual circumstances and goals of medical spa owners. For some non-physician providers or owners, creating an MSO from the start may be the only option to enter the industry. Established medical spa owners, on the other hand, may consider affiliating with an MSO or selling their business to one after it has been established. However, there are pros and cons to consider.

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Benefits of an MSO model include ownership opportunities for non-physicians, centralized operations that facilitate scaling and selling, and attractiveness to private equity groups. Some PE-backed MSOs even offer equity to owners, potentially leading to additional financial gains in the future. However, there are risks involved, such as the need for operational changes, relinquishing control as a doctor/owner becomes an employee of the MSO, and the importance of choosing the right partner through careful vetting and crafting of a mutually agreed-upon MSA.

Conclusion:

As the medical aesthetics industry continues to grow and attract private equity investments, understanding the legalities of medical spa ownership is crucial. The variations in CPOM enforcement across states and the emergence of MSOs as a workaround further complicate the landscape. Medical spa owners must carefully consider their options and seek legal counsel to navigate the complexities of CPOM and MSOs. With a thorough understanding of the regulations and the right partnerships, medical spa owners can ensure compliance and make informed decisions for their businesses in this rapidly evolving industry.

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