Medi-Spa Structure

Compliance is key


In today’s market, many spas are looking to expand their service lines to include cosmetic medical services, such as laser therapies, IV hydration, and Botox treatments. With the prevalence of cosmetic medical services on the rise, people are now electing to receive these treatments in a spa setting – as opposed to a traditional medical office. Regulations abound, yet they often fail to provide spas with direct guidance on these emerging services and the technological advancements in treatments. When forming a spa that provides cosmetic medical services (a “medi-spa”), there are a number of issues a business owner should consider.

When forming a spa that provides cosmetic medical services there are a number of issues a business owner should consider.

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First, it is critical to understand whether a medi-spa needs a state license or registration to operate. If a license or registration is required, it often must be obtained in order to form the entity itself. The time it takes to obtain any necessary license or registration can also impact the medi-spa’s application to state tax authorities during the formation process.

Second, it is critical to understand what licensing boards regulate the medi-spa and its professionals. For example, estheticians are typically regulated by a state cosmetology board. Healthcare professionals can be regulated by a variety of boards, including but not limited to boards of medical examiners, nurses, chiropractors, pharmacists, and dieticians. Each board has its own applicable rules and regulations, which often require certain credentialing and limit the scope of services the licensed individual can provide.

Similarly, the healthcare professionals in the medi-spa may be subject to Corporate Practice of Medicine (“CPOM”) regulations. The CPOM regulations generally prohibit unlicensed individuals from holding ownership interests in entities that provide medical services.  For example, the CPOM regulations in New Jersey would prohibit an individual who is not a physician from holding an ownership interest in a corporation that employs physicians to provide professional medical services, with certain exceptions, and also limits the types of entities through which professional medical services can be provided.

Once formed, healthcare providers are also subject to a number of federal laws, including the Anti-Kickback Statute (the “AKS”), the Civil Monetary Penalties Law (“CMPL”), the Health Insurance Portability and Accountability Act (“HIPAA”), and the Stark Law. First, to the extent the provider participates directly or indirectly with a federal healthcare program, the provider is subject to the AKS, which prohibits the exchange or offer to exchange anything of value, directly or indirectly, overtly or covertly, for the referral of business reimbursable by federal health care programs.

Similarly, the CMPL prohibits offers or transfers of any remuneration that a person knows or should know is likely to influence an individual eligible for benefits under Medicare or a State health care program to order or receive any items or services from a particular medical provider or supplier that may be paid in whole or in part by Medicare or a State health care program.

Third, the Stark Law and its implementing regulations place certain limitations on physician referrals and prohibit physician referrals of Medicare and Medicaid patients to designated health service providers (DHSP) with which the physician has an existing financial relationship.

Fourth, HIPAA, which includes a Privacy Rule and Security Rule, requires strict adherence. HIPAA provides for records retention periods, patient health information protection, and limitations on disclosure of patient health information, among many other things.

Of course, these laws do not include a myriad of state and municipal laws which apply to a medi-spa and spa professionals.

With COVID-19, many states relaxed certain regulations, permitting healthcare providers to expand their scope of services. With the end of the pandemic, it is questionable as to whether these rule relaxations will remain in place, whether new legislation will be enacted, or whether these expanded scopes of practice will be tightened.

To reduce their risk, medi-spas and spa professionals should consult with counsel when creating their entities and expanding their scope of services. Consulting with an attorney can help medi-spas and spa professionals from incurring unnecessary risk and ensuring that their services comply with Federal, State, and local laws, rules and regulations, while avoiding unnecessary fines, penalties, lawsuits, and license infractions.