Build a Strong Compliant Medical Spa. Embrace an MSO.

This article was originally published at Cohen Healthcare Law Group

Sue, a pain management doctor, wants to open a medical spa because she’s tired of just trying to control people’s pain. She wants to focus on making people beautiful. She does have some major legal concerns.

She’s concerned that the new business will take a lot of time to get started, especially if she decides to work as a pain management doctor until the medical spa takes off. She’d like to bring in estheticians, an acupuncturist, chiropractor, massage therapist, and other health professionals but doesn’t know how to find the right ones. She wants the right location for her medical spa business, the right medical spa equipment, and the best Medical Spa products.

Sue wants to move quickly to get new Medical Spa business. Part of her thinking is to develop relationships with other physicians and health practitioners who can refer clients to her. She wants to be able to focus on meeting and servicing the medical spa clients instead of doing a lot of paperwork.

Sue came to our law firm to review the best legal strategies for getting her business started. She’s aware there are lots of laws, HIPAA and more, that she needs to know and comply with. She’s afraid she’ll miss some key healthcare laws and wants to consult with a healthcare lawyer to prepare her practice so complaints aren’t filed against her.

Why a Management Services Organization is a Good Way to Meet Your Healthcare Law Goals

We review many aspects of Sues’ new business including healthcare lawyer secret sauce and FDA and FTC requirements.

Our discussion about building her practice begins by explaining what a Managed Service Organization (MSO) is and what it can do. Generally, an MSO is used to run the administrative end of the medical spa while the doctor runs the medical end. An MSO is an independent entity that is experienced in the back-end of a running a medical practice. MSOs don’t participate in the medical decision process. Participation could mean that the Medical Spa was in violation of unauthorized medical decision laws or corporate practice of medicine laws.

Some of the many services an MSO can perform for Sue’s medical spa include:

  • Training and education of compliance requirements. The MSO can train the estheticians, acupuncturists, massage therapists, and any other health providers about compliance issues. For example, these health providers need to understand their obligation to keep electronic patient records secure, so they don’t violate HIPAA (Health Insurance Portability and Accountability Act). Other laws that the doctor and staff need to comply with include:
    • Occupational Safety and Health Administration
    • Family and Medical Leave Act
    • Clinical Laboratory Improvement Amendments of 1988

We review each applicable areas of the law and all other titled federal and state laws that affect her medical spa and we give Sue targeted recommendations so she can manage legal risk and upgrade her healthcare compliance.

  • Billing, coding, and collection. The MSO can handle the coding for services, keep track of the billing accounts, submit bills to federal agencies such as Medicare and Medicaid, file claims for bills promptly, create billing reports for patients, and other matters. Often the MSO will start by using their own software which should be designed to match federal and state regulations, insurance company standards, and other requirements. The MSO should explain and help with compliance of various billing laws including Stark Law, the Anti-Kickback Statute, and state billing and referral laws.

Sue appreciates that the medical staff will be trained by the MSO on what information to get from her customers, how to enter it, and how to submit it.

  • Obtaining and/or managing office space. The medical doctor will need a new office – one that is separate from her pain management practice. The MSO can help select the right location, and with the help our experienced healthcare lawyers, negotiate leases or even the purchase of a new office.
  • Obtaining and managing equipment for the medical spa. The Managed Service Organization can help the doctor obtain laser equipment for fat reduction, equipment to perform massages and acupuncture, products needed to perform facials, and many other types of medical equipment so the doctor and staff can treat their patients.

We explain to Sue that there is a fine line between the administrative and medical end. We guided her through the unauthorized practice of medicine and corporate practice of medicine legal issues. Facials, Botox orders, and other treatments require different levels of medical supervision and control. Sue needs to understand she needs to make the medical decisions about the treatments while leaving the purchase decisions to the MSO.

  • Credentialing. Estheticians and other licensed healthcare providers, starting with the licensed medical doctor and any other doctors, need to have the right credentials to practice their profession. Administrative staff and clinical staff also usually need correct credentials before they can serve the public. The MSO can help with credentialing. Sue needs to control the selection of the licensed and healthcare providers.
  • Health plan credentials and enrollment. The lifeblood of most every medical service practice including a medical spa is to submit bills to insurance carriers. The MSO can help set up the right health insurance plans so physicians can be paid.

What tasks can Sue leave to the MSO

The MSO can do many things but the medical decisions must be made by the medical doctor.

Sue’s designated healthcare lawyer explains that The MSO can help with the many generic aspects of the medical spa – aspects that most every type of medical practice needs. These aspects include:

  • Information technology. The MSO can help select the right hardware, software, database services, and other computer technology. They can provide tech support or hire an outfit to do the tech support – provided that HIPAA privacy laws and other regulations are met. In short, like every other part of her practice Sue is advised that the lines between the medical and administrative are often grey and need to be continually monitored.
  • Other MSO services including – auditing, payroll, sales and marketing, disaster management, quality assurance, financial management, and many other tasks and services.

The MSO Structure potentially can help meet the obligations of Stark Law and Anti-Kickback Statutes

As mentioned, Sue wants to be able to work with other professionals and entities to get her business off the ground. She understands that referrals between physicians work well in the pain management practice. Other physicians often refer patient in severe pain to her practice. She wants to be able to get referrals for her medical spa practice without violating federal and state anti-referral laws and without violating AKS (the federal Anti-Kickback statute).

Stark is a federal law that precludes doctors from ordering “designated health services” (DHS) for patients on Medicaid or Medicare – from an entity which the doctor has a “financial relationship” in. the self-referral prohibition also applies to entities in which an immediate family member has a financial relationship in.

Words like “physician,” “designated health service,” and “financial relationship” are all legal terms and clients like Sue need to understand what words mean for their medical spa or other healthcare venture. For example, we would need to review the relationship between the MSO and Sue’s pain management practice by examining whether she can refer medical spa patients to the pain management practice – and vice-versa.

While there may be arrangements that do not qualify as financial relationships, generally using an MSO does, on its face, raise a real concern that Sue’s relationship with the MSO might violate Stark Law. Fortunately, we explain that there are exceptions to the Stark Law that may make her relationship with the MSO valid regarding self-referrals.

Some of the possible exceptions which cover most of the tasks she’d like the MSO to perform include the following tasks and relationships:

  • Personal Service Arrangement
  • Fair Market Value Exception
  • Rental of Office Space and Equipment
  • Payments by a Physician for Items and Services
  • Group practice arrangements with a hospital
  • Non-monetary compensation
  • Incidental payments for medical staff
  • Risk-sharing arrangements
  • Compliance training

An initial exception that may help Sue is the isolated transaction exception which can allow an MSO to infuse capital into Sue’s medical spa by acquiring some of the practice’s assets.

Our MSO healthcare lawyer explains that there are precise details that must be met for each and every exception.

For example, to qualify for the Rental of Equipment exception, Stark law requires that payments made by a lessee (such as Sue’s medical spa) to a lessor (the MSO) for the use of equipment must meet the following conditions to qualify for the Stark Law self-referral exception:

(1) The lease arrangement is set out in writing, is signed by the parties, and specifies the equipment it covers.

(2) The equipment leased does not exceed that which is reasonable and necessary for the legitimate business purposes of the lease arrangement and is used exclusively by the lessee when being used by the lessee (and is not shared with or used by the lessor or any person or entity related to the lessor).

(3) The duration of the lease arrangement is at least 1 year. To meet this requirement, if the lease arrangement is terminated with or without cause, the parties may not enter into a new lease arrangement for the same equipment during the first year of the original lease arrangement.

(4) The rental charges over the term of the lease arrangement are set in advance, are consistent with fair market value, and are not determined –

(i) In a manner that takes into account the volume or value of any referrals or other business generated between the parties; or

(ii) Using a formula based on –

(A) A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed on or business generated through the use of the equipment; or

(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.

(5) The lease arrangement would be commercially reasonable even if no referrals were made between the parties.

(6) If the lease arrangement expires after a term of at least 1 year, a holdover lease arrangement immediately following the expiration of the lease arrangement satisfies the requirements of paragraph (b) of this section if the following conditions are met:

  • The lease arrangement met the conditions of paragraphs (b)(1) through (5) of this section when the arrangement expired;
  • The holdover lease arrangement is on the same terms and conditions as the immediately preceding lease arrangement; and
  • The holdover lease arrangement continues to satisfy the conditions of paragraphs (b)(1) through (5) of this section.”

The Anti-Kickback Statute (AKS) makes it against the law to “willfully offer, solicit, pay, or receive compensation in return for referring business.”- when the request for services performed is billed to federal healthcare programs such as Medicare and Medicaid. Bribes, rebates, and kickbacks are forms of illegal compensation.

Violations of the AKS can result in substantial civil and criminal penalties.

The Anti-Kickback Statute has similar, but not identical provisions to the Stark Law exceptions, called “safe harbors.” MSO relationships, if all the provisions of the safe harbor requirements are met, can be used to help the MSO do many necessary tasks while complying with the concerns of the Anti-Kickback statute. The AKS also has an investment interest safe harbor which can be used if Sue is considering a joint venture with a nearby hospital.

Some other MSO related issues that Sue needs to understand

States do regulate the unauthorized practice of medicine and the corporate practice of medicine.

For example, in our prior blogs, we address issues such as “whether an esthetician doing could practice “under” the physician’s license.” We explain that answer is a strong one since

“The bottom line is that an individual licensed by the Board of Barbering and Cosmetology cannot practice medicine or perform medical procedures.” “Estheticians cannot perform medical procedures. Whatever they do must fall within their legally authorized scope of practice, which is set by statute.”

In addition to explaining what an MSO is, how it can benefit her practice, and how it can be used to address Stark and AKS laws, our law firm also advises Sue that the MSO has its own interests that are much different than Sue’s. Sue’s relationship with the Managed Service Organization must be negotiated and placed into a signed written contract/agreement. The obligations, duties, and remedies of Sue, her medical spa, and the MSO should be set forth in detail. We help negotiate and draft the physician/MSO agreement.

Sue made the smart choice by contacting us. As a result of careful legal review, she will use an MSO for the business side of her medical spa and she has concrete recommendations for resolving key legal, financial, and healthcare practice concerns.

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