Legal Issues in a Medical Spa or Integrative Care Center: Anti-kickback and Fee-Splitting Concerns - Structuring the Practice

Legal issues involving self-referral, kickbacks and fee-splitting need to be addressed in structuring a medical spa or integrative medicine care center - or even a multidisciplinary clinical health care center or group practice that involves multidisciplinary teams of allied health providers, such as psychologists and nurses.

In the first part, Legal Issues in a Medical Spa or Integrative Care Center: Anti-kickback and Fee-Splitting Concerns - The Laws we looked at some of the governing laws - the federal "Stark" and Anti-Kickback statutes, and mirror state prohibitions such as those on fee-splitting. In this part, we write about the way we help our clients structure their centers or spas so as to address these legal concerns.

Application to Integrative Clinical Care or Holistic Wellness Centers and Medical Spas

While the specific laws are different, the basic concept is that the health care provider (typically, but not always, the physician) cannot be paid a 'volume-based discount.' This prohibition is particularly relevant to the integrative care center (which integrates conventional medicine with complementary and alternative medicine (CAM) therapies, and physicians and allied health care providers with CAM professionals such as chiropractors, acupuncturists, massage therapists, and nutritionists or energy healers) or medical spa. We use the two interchangeably for this discussion because the fee-splitting concerns are the same.

Translating the prohibition down to its most understandable level, the Professional Medical Corporation (or Physician) cannot be paid on per-patient, production basis, the patient payment cannot be split between Professional Medical Corporation (or Physician) and the Medical Spa or Integrative Care Center, because that would be fee-splitting between the two entities.

In terms of payment flow, the patient cannot pay (write the check out to) Professional Medical Corporation (or Physician) for medical services at the Medical Spa or Integrative Care Center, and have Professional Medical Corporation (or Physician) then rebate a percentage to the Medical Spa or Integrative Care Center, as this would be considered a kickback from the patient's fee. Nor can the patient pay the Medical Spa or Integrative Care Center for Professional Medical Corporation (or Physician)'s services, and have the Medical Spa or Integrative Care Center then rebate a percentage to Professional Medical Corporation (or Physician).

Our law office uses two different structures, the "Medical Mall" and the "Center" model, in order to address these concerns.

Also note that whereas federal law applies anti-kickback rules only to physicians (not including naturopathic physicians), some states, such as New York, apply the fee-splitting prohibition to a variety of practitioners including, for example, nurses and chiropractors. But our approach is intended to cover both sets of legal rules.

In the examples below, read "psychologist," "nurse," "practitioner," or simply "other practitioner" for physician if dealing with a non-medical, health care provider. As noted in our previous article on fee-splitting, some states apply these prohibitions broadly against designated non-medical practitioners as well as against physicians.

"Medical Mall" Model

Whose Patient: Professional Medical Corporation (or Physician) is retained as an independent contractor, with independent medical judgment, to see its own patients at the Medical Spa or Integrative Care Center. Therefore, the medical records are owned and maintained by Professional Medical Corporation (or Physician) and not by the Medical Spa or Integrative Care Center. However, the Medical Spa or Integrative Care Center can be given the right to a copy of those records when the contract terminates. (There is an option for Medspa to administer the records but this would be atypical, and Professional Medical Corporation (or Physician) should in any event be considered 'owner' of the medical records).

Fee structure: Professional Medical Corporation (or Physician) will pay the Medical Spa or Integrative Care Center fair market value for space under a separate lease agreement. In addition, Professional Medical Corporation (or Physician) will pay the Medical Spa or Integrative Care Center a monthly management or administrative fee.

Flow of payments: In the Medical Mall model, patients must write checks for medical services provided by Professional Medical Corporation (or Physician) directly out to Professional Medical Corporation (or Physician). The Medical Spa or Integrative Care Center can serve as the billing and collecting agent for Professional Medical Corporation (or Physician), and be authorized to deposit those checks directly into the Professional Medical Corporation (or Physician) account. The Medical Spa or Integrative Care Center can be authorized to withdraw its administrative fee from the account it maintains for Professional Medical Corporation (or Physician).

Possible business advantages: This model arguably presents less of a corporate practice of medicine problem for the Medical Spa or Integrative Care Center, because it puts the Medical Spa or Integrative Care Center at one further remove from the medical practice of Professional Medical Corporation (or Physician) than the "Medical Spa or Integrative Care Center" model. This removal also could, theoretically, potentially distance the Medical Spa or Integrative Care Center from liability for actions of Professional Medical Corporation (or Physician). It may also be easier to use existing coding and bill insurance companies for various therapies under this model, since patients will 'belong' to Professional Medical Corporation (or Physician), making it easier to justify visits as medically necessary.

Financial Implications:

Medical Spa or Integrative Care Center profit = (lease payment received from Professional Medical Corporation (or Physician) + administrative fee received from Professional Medical Corporation (or Physician)) - overhead.

Professional Medical Corporation (or Physician) profit = Income collected from patients seen at the Medical Spa or Integrative Care Center - (lease payment paid to Medical Spa or Integrative Care Center + administrative fee paid to Professional Medical Corporation (or Physician)).

Theoretically, Professional Medical Corporation (or Physician) does better under this model, assuming it generates large cash flow in its practice at the Medical Spa or Integrative Care Center, and that the lease and administrative payments are not too high.

"Medical Spa or Integrative Care Center" Model

Whose Patient: Professional Medical Corporation (or Physician) is retained as an independent contractor, with independent medical judgment, to see the Medical Spa or Integrative Care Center's patients. If the state has a strong corporate practice of medicine doctrine, the medical records should still be owned and maintained by Professional Medical Corporation (or Physician), with the Medical Spa or Integrative Care Center having the right to contemporaneous copies of these records; otherwise, records can be shared among practitioners or a central (i.e., electronic) record can be created, with each of the Medical Spa or Integrative Care Center and Professional Medical Corporation (or Physician) having the right to contemporaneous access and copies upon termination. Patients should be required to execute a consent authorizing access by multiple caregivers within the Medical Spa or Integrative Care Center.

Fee structure: The Medical Spa or Integrative Care Center pays Professional Medical Corporation (or Physician) a pre-set amount for services rendered or to be rendered (for example, $X per Botox injection, or $Y per hour of medical services, or $Z per month). To avoid the appearance of a kickback, this has to be a flat fee and not a percentage. Professional Medical Corporation (or Physician) pays the Medical Spa or Integrative Care Center a monthly management or administrative fee. Typically, there is no additional rental (or lease) payment for space from Professional Medical Corporation (or Physician) to the Medical Spa or Integrative Care Center.

Flow of payments: In the Medical Spa or Integrative Care Center model, the patient pays for medical services rendered by Professional Medical Corporation (or Physician) by writing the check out to the Medical Spa or Integrative Care Center. The Medical Spa or Integrative Care Center again can collect the money either itself or through a third-party MSO or billing and collections service. The Medical Spa or Integrative Care Center can pay Professional Medical Corporation (or Physician) out of this account.

Possible business advantages: The patient experience arguably will be enhanced in a more integrated environment, and this may also be conducive to more cross-referrals within the space, generating additional revenues as well as enhancing collegiality across disciplines.

Financial Implications:

Medical Spa or Integrative Care Center profit = (income collected from patients Professional Medical Corporation (or Physician) has seen at the Medical Spa or Integrative Care Center + administrative fee paid by Professional Medical Corporation (or Physician)) - (service fee paid to Professional Medical Corporation (or Physician)) - overhead.

Professional Medical Corporation (or Physician) profit = (service fee received from Medical Spa or Integrative Care Center) - (administrative fee paid by Professional Medical Corporation (or Physician) to Medical Spa or Integrative Care Center).

Theoretically, the Medical Spa or Integrative Care Center does better under this model, assuming that Professional Medical Corporation (or Physician) generates large cash flow in its practice at the Medical Spa or Integrative Care Center, and that the service fee paid to Professional Medical Corporation (or Physician) is not proportionately high. Note that the shorter the contract term, the more regularly the service fee can be adjusted for a growing or declining practice, respectively. The "Center" model also should be easier to implement administratively, since patients are all writing the check out to the same entity.

However, centers or spas can choose the "Medical Mall" option for some of their practitioners (for example, for the MDs) and the "Center" option for the rest. One consideration is that it may be administratively (and psychologically) challenging to migrate from an all-Mall option, say, to an all-Center option, so it is important to structure the practice carefully from the beginning.

This article represents an introduction to one area that we address in helping our clients structure their medical spas, integrative care centers, or related health practices and business in a manner that is as legally safe yet financially viable as possible. Please contact us for further information.

Michael H. Cohen is Principal in the Law Offices of Michael H. Cohen and has represented physicians, allied health providers, CAM practitioners, and a variety of clinics, centers, and spas on legal issues ranging from malpractice to physician discipline to medical fraud and abuse. He taught Health Law and Insurance Law as a law professor for six years, served as Consultant to the Institute of Medicine in its Report on Complementary and Alternative Medicine, and spent five years as a full-time faculty member at Harvard Medical School.