Medical Spa Legal Issues

Medical spas are exploding in popularity, and owners/entrepreneurs need to carefully address legal issues.

I have had many, many calls over the past year or so by entrepreneurs, be they self-employed businesspersons, or health care providers such as physicians, nurses, chiropractors, massage therapists, seeking to combine aesthetic medical services with wellness consultations. The combinations of therapies suggested are truly endless. But all these business proposals require carefully addressing common legal and regulatory issues, whether the business is styled a medical spa, a health clinic, a wellness center, an integrative medicine specialty clinic, "retail" medicine, a holistic health place, or something else.

And, the intersection of the corporate practice of medicine doctrine, the anti-kickback and self-referral provisions including Stark as well as state law prohibitions, and consideration of the overall business structure are complex. So, too, are referrals involving dietary supplements. Potential liabilities, billing and coding, and the flow of payments have to be looked at together. Where MDs are involved, the picture is always more complicated since they are subject to more stringent regulation.

Recently, our firm advised a new holistic health care center, where the doctor in charge (medical director) wanted to disclaim primary care, and also enter a leasing arrangement with other practitioners. The idea was to try to keep the liabilities among practitioners separate from one another. This is difficult to do in practice. One measure we implemented was a series of provisions that went right into the lease, binding non-MD practitioners to certain credentialing and risk management provisions.

Here is a Summary Checklist I put together a while back of Legal Issues in Complementary, Alternative, & Integrative Medicine, much of which is also pertinent to spas. The checklist simply provides a preliminary glimpse of the different pieces of the Rubiks Cube that have to be fit together:

1. Business Structure
a. Ownership structure
b. Anti-kickback and self-referral prohibitions
c. Prohibition on corporate practice of medicine
2. Clinical Practice Structure
a. Licensure and scope of practice
b. Credentialing providers
c. Supervision/quality assurance
d. FDA issues/dietary supplements and medical devices
e. Professional discipline
f. Malpractice
g. Advertising and claims
h. Privacy and confidentiality/HIPPA
i. Medical records/documentation
j. Miscellaneous (including insurance)
3. Billing and Coding
a. Fraud and abuse
c. Medicare

Here is the longer, unformatted, Checklist of Legal Issues in Complementary, Alternative, & Integrative Medicine:

1. Business Structure
a. Ownership structure (e.g., corporation, partnership, LLC, LLP, etc.)
i. Who will own the corporation (e.g., shareholders; partners) and how is the corporation capitalized/how will risk and profit be distributed?
ii. How will liability be shared (e.g., among partners through a partnership agreement, or limited liability through incorporation; caveat--corporate structure does not protect against malpractice judgment, which is against an individual)?
ii. What are the tax implications of each type of corporate structure?
b. Anti-kickback and self-referral prohibitions
i. Is an entity receiving an illegal discount or payment in exchange for referring patients (a volume-based inducement)? (Check employee ownership and profit-sharing arrangements; check payments flowing between entities; volume-based payments with practitioners, marketing companies, billing companies, laboratory services, suppliers, supplement and device manufacturers, and others).
ii. Is so, is there a legal safe harbor for that activity?
c. Prohibition on corporate practice of medicine
i. Is a medical corporation required?
ii. What are the state law requirements regarding who may own medical or other professional corporations?

2. Clinical Practice Structure
a. Licensure and Scope of Practice
i. Licensed providers
1) Statutes, board regulations, cases set forth the scope of licensed practice.
2) Are therapeutic practices such as recommending dietary supplements or energy healing within the authorized scope of practice?
ii. Non-licensed providers
1) Make sure provider is not engaged in the unlicensed practice of medicine or of other health professions.
2) Check state statutes that may authorize non-licensed providers to practice.
b. Credentialing Providers
i. Credentials review for affiliated practitioners (licensure; education; history of malpractice or discipline; relevant certifications; methods and treatment plans; communication abilities); negligent credentialing can be grounds for malpractice claim.
ii. Professional liability insurance. All providers should have their own.
iii. In addition, the enterprise should have a general umbrella insurance policy covering other possible liabilities.
c. Supervision Requirements/Quality Assurance
i. State law supervision requirements (e.g., MD supervision of acupuncture in limited cases; related to ensuring practitioners are within their authorized scope; state laws regarding duties MD's can and cannot delegate).
ii. Tracking/managing patients (including dissatisfaction or complaints) can help reduce lawsuits.
d. FDA Issues/Dietary Supplements and Medical Devices
i. Beware of unapproved drugs or use considered experimental.
ii. Beware of unapproved medical devices; check borderland areas such as use of electroacupuncture and 'energy'' reading by machines.
iii. Related scope of practice issue: non-MD's cannot diagnose and treat disease.
e. Professional Discipline
i. State law (statutes, regulations cases establish the principles as to when providers will be disciplined).
ii. FSMB (the Federation of State Medical Boards) has suggested guidelines for MD inclusion of CAM therapies.
iii. Ethics codes may be available for guidance from relevant professional associations.
f. Malpractice Issues
i. Standard of Care/ Safety and Efficacy
1) Be sure that the recommended therapy has support of safety and efficacy in the literature; keep a literature file for documentation.
2) Beware of using a CAM therapy to substitute for necessarily conventional (standard) care or inducing over-reliance (e.g., on nutritional protocol).
3) Monitor conventionally when relying on CAM therapy; also diagnose conventionally given potential liability for missed diagnosis.
ii. Informed Consent
1) The form merely documents a conversation; be sure to engage patient in shared decision-making.
2) All risks material to a treatment decision must be disclosed
3) States may have different rules regarding assumption of risk.
iii. Scope of Practice/Duty to Refer
1) CAM providers must know when the patient's condition is outside the skill, training and expertise and refer judiciously to MD's and specialists; failure to refer can constitute malpractice.
2) Beware of advice contrary to MD's as potential liability risk
iv. Vicarious Liability/Referrals
1) Vicarious liability may attach for employees, agents, or those supervised by a provider or organization.
2) Liability may be shared if referral is to a "known incompetent."
3) Liability may be shared if there is "joint treatment."
v. Professional Liability Insurance
1) Make sure it covers the contemplated therapeutic practices.
2) Query and get response in writing from the insurer.
vi. Other Risk Management
1) MD's: notify patient in writing if not acting as primary care doctor.
2) Non-MD's: notify patient in writing of scope of practice.
3) Avoid guarantees and inflated claims.
4) Unapproved drugs and medical devices can trigger multiple investigations.
5) Selling supplements may be considered a conflict-of-interest (ethically; legally) and trigger finding of a higher level of culpability in a malpractice claim.
g. Advertising and Claims
i. In-person claims
1) Beware of guarantees or of false and misleading claims about therapies or their therapeutic potential (e.g., supplements).
2) Statements should be truthful and not misleading, or there is potential for claims of misrepresentation or fraud.
ii. Physical media
1) DSHEA prohibits "disease claims" but allows "structure-function" claims for supplements in third-party literature.
2) FTC prohibits "false and misleading" (deceptive) advertising in any form.
iii. On-line media (including email contact)
1) FTC prohibits "false and misleading" (deceptive) advertising in any form.
2) Beware of health advice (creating a patient-provider relationship) on-line: state statutes may prohibit; is could be unlicensed practice of medicine, or unprofessional conduct (diagnosis and treatment without physically seeing the patient).
3) Care must be when when structuring contact as educational and informational (generic rather than specific to an individual's condition); consider use of FAQs and reference gateways to additional information.
4) Follow HIPPA privacy requirements if applicable.
h. Privacy and Confidentiality/HIPPA
i. HIPPA form should be part of initial patient forms, if required.
ii. Releasing Records (follow HIPPA to ensure no violation of privacy).
iii. Sharing Records with other providers in the integrative setting; follow HIPPA to ensure no violation of privacy.
i. Medical Records/Documentation
i. State law requirements must be followed for that profession (e.g.,: date of service and patient's name on each page; SOAP format; diagnostic system; treatment plan that meets the standard of care; adequate follow-up testing and treatment; orders for lab work as needed; informed consent and practice forms, including authorization to treat and privacy release forms; ICD-9/CPT pairs for medically necessary care; records should be clear and legible, with proper required countersignatures).
ii. Informed consent forms (see above).
iii. Standard of care (record should document that it was followed and if not, why there was a deviation).
iv. HIPPA compliance (see below--HIPPA forms should be included).
v. Billing and coding (see below--documentation must comply and be consistent with these requirements).
vi. FSMB (the Federation has suggested guidelines for MD documentation of decisions involving use of CAM therapies).
j. Miscellaneous
i. Lab tests (CLIA prohibits certain tests).
ii. Bloods and fluids (OSHA has personnel and facility training requirements).
iii. Managed care (MD's PPO contract may prohibit CAM or 'medically unnecessary' treatments).
iv. Insurance - general umbrella liability policy

3. Billing and Coding Structure
a. Fraud and abuse
a. Proper coding is necessary; applying some CPT codes to CAM therapies may be problematic; be sure ICD-9/CPT pairs match. E&M coding must be correct.
b. No upcoding, overstating, or improper coding.
c. Unbundling: some charges cannot be unbundled (billed separately) from others.
d. Services must be medically necessary.
e. Scope of practice must be respected in coding.
f. Some discounts, waivers of copay, and professional courtesies may be considered kickbacks and self-referrals, or fraudulent.
g. "Incident to" billing for nonphysicians may be permissible if providers are following certain procedures.
b. HIPPA compliance
a. Required for provider who submits claims electronic or via Medicare.
b.Privacy policy should be implemented and stated if HIPPA is inapplicable.
c. Medicare billing
a. raises special concerns

The present checklist is intended as a guide to help spot the legal issues that tend to arise in a CAM consultation; it is not intended as legal advice or opinion nor as a comprehensive list of potential legal issues in a given situation. With a legal consultation, these issues can be fitted into the puzzle interactively, as a lot depends on the proposed business structure, which can vary in order to meet the legal requirements in each state.