Justin Marti, attorney and principal at Marti Law Group, provides information on what medical spa owners need to know about the corporate practice of medicine and MSOs.
Medical spa ownership is complicated, even if you’re familiar with the medical aesthetic industry. Navigating medical spa law requires a nuanced understanding of the Corporate Practice of Medicine, how various states apply it, and what implications it has for medical spa ownership. For practice owners, practitioners, industry executives, and advisors looking to familiarize themselves with CPOM and medical spa regulation, we break down the Corporate Practice of Medicine doctrine, why it can be so confusing, how it connects to MSOs, and what it means for ownership.
What is the Corporate Practice of Medicine Doctrine?
The Corporate Practice of Medicine doctrine, or CPOM, allows only licensed physicians to own and operate a medical practice. The underlying theory behind CPOM is that medical boards and regulating bodies do not want licensed providers to be influenced or incentivized by unlicensed individuals or organizations. Clearly, there could be a conflict of interest if providers are being incentivized to perform medical procedures on patients who may not otherwise need treatment.
Why is CPOM so different from state to state?
One of the reasons medical spa ownership can be so complex is because of the way CPOM laws vary from state to state. The application and regulation of CPOM is particularly ambiguous in the medical aesthetics industry because regulatory bodies have different definitions of what a medical spa truly is. Which procedures are considered “medical?” And if all procedures are elective, does it matter if licensed providers are incentivized to perform them? Can CPOM be applied to medical spas?
Because there is no consensus on these central questions, states apply CPOM differently. (For example, “independent practice” states allow nurse practitioners to operate a medical practice without physician oversight).
Medical spa ownership is different from Connecticut to Colorado to California because of these gray areas. We can simplify it a bit, however. States typically fall into three buckets regarding CPOM:
CPOM is in effect and strictly enforced (only physicians can own a medical spa)
CPOM is in effect, but enforcement is relaxed (typically, NPs and physicians can own)
No CPOM (anyone can own a medical spa)
Understanding MSOs and Their Connection to CPOM
MSOs, or Management Services Organizations, came about in the face of CPOM prohibitions. The MSO model has been used for decades as a means of allowing unlicensed or underlicensed individuals (non-physician providers like RNs, NPs, PAs) and investors to take a quasi- ownership role in healthcare practices. How does it work? Medical spas leveraging an MSO model are essentially operating two separate businesses. The medical clinic handles all things medical–like treating patients and operating medical equipment. The MSO, technically a management company, handles all of the business operations: staffing, payroll, accounting, marketing, and more. The two entities use an MSA (management services agreement) to define the operational arrangements and flow of funds between the medical clinic and MSO.
It was not until recently that the medical aesthetics industry began seeing a massive influx of MSOs into the space. MSOs are attractive to private equity groups. First, they create a way for investors to take an ownership stake in the lucrative medical aesthetics industry. In addition, MSOs can be a platform for scaling, expanding, and adding value to a medical spa because they centralize operations and create efficiencies.
Should you sell to or affiliate with an MSO?
Like every business model, MSOs have both benefits and drawbacks to owners. Of course, some non-physician providers or owners have no choice but to create an MSO from the start. It’s a great model that opens up ownership opportunities to a diverse group of people. Established medical spa owners may find an opportunity to affiliate with an MSO or sell to one after their business is established. If you fall into that group, it’s important to weigh the pros and cons.
Benefits of an MSO model:
MSOs offer ownership opportunities for non-physicians
MSOs centralize operations like payroll, marketing, accounting, and more. This creates efficiencies for owners looking to scale or sell.
MSOs are attractive to private equity (PE) groups.
Many PE-backed MSOs offer some equity to owners, which could lead to a second payday when a company sells down the road.
Risks of selling to or affiliating with an MSO:
Are you ready to make changes? Affiliating with an MSO (like any new partnership) will require changes to operations, flow of funds, and even personnel.
A doctor/owner selling her practice to an MSO now becomes an employee of that organization. Sellers, usually entrepreneurs, must consider whether or not they’re ready to give up some control of the business they’ve built from the ground up.
Choosing the right partner is essential. Both sides (the MSO and clinic) should carefully vet the arrangement and craft a mutually agreed-upon MSA.
What’s next for CPOM in medical aesthetics?
The 50 different states (and the District of Columbia) bring varying degrees of CPOM enforcement, which changes the shape of medical spa ownership and regulation throughout the country, as well as for different types of owners.
As the industry continues to grow and gain momentum with private equity groups and investors, it’s even more important for owners to understand the legalities of the industry. Consider your best options, and seek legal counsel before attempting to hang a med spa shingle–or affiliating with an MSO.
Justin Marti is a seasoned entrepreneur and attorney. He co-founded a management services organization (MSO), scaled it to 45 locations across four states, and sold it in a private equity transaction. He then pivoted into law, practicing in the areas of healthcare and business, with a heavy focus on medical aesthetics. Justin’s experience in building and scaling his own MSO gives him the rare ability to think like a true entrepreneur and practice operator, as opposed to just another lawyer. He has completed a number of successful M&A transactions, constructed complex corporate and MSO entities and negotiated myriad agreements for healthcare providers. He likes to say that he is an “Advisor First, Attorney Second.”
Marti will be speaking at the upcoming IECSC New York, taking place March 3-5, 2024, at the Javits Convention Center in New York City. To learn more about Marti's class (and get 20% off education classes using code AMERICANSPA), or to register to attend IECSC New York, click here.