Your staff and providers keep your practice running and patients coming through the doors. As a practice owner, we know you’re eager to pay your people for a job well done. Of course, compensation structures aren’t always cut and dry at aesthetics practices. Thinking you may want to compensate referral sources or pay providers commissions? Not so fast. Navigating federal and state regulations regarding compensation compliance is essential to avoid legal pitfalls and penalties for your medical aesthetic practice.
This article provides an overview of these key issues and offers guidance for medical spa owners on how to remain compliant while compensating medical providers and staff. Our next article in this series gives a comparative analysis of some state laws that impact med spa compensation.
Want more resources like this? Here’s a list of our articles pertaining to compensation compliance for healthcare practices:
Management Fees and Fee Splitting in MSOs or DSOs: Proceed with Caution
Med Spa Compensation Laws by State (coming soon)
Understanding the Laws that Prohibit Commissions, Fee Splitting, and Kickbacks
What is Fee Splitting?
Fee splitting refers to the practice of sharing fees between healthcare providers or between providers and non-providers. Many states have strict regulations prohibiting fee splitting to ensure that medical decisions are made in the best interest of patients, free from financial influence by third-parties.
For instance, California's Business and Professions Code Section 650 prohibits physicians from offering or accepting any form of compensation for patient referrals. Similarly, in New York, Education Law Section 6530(18) defines fee splitting as professional misconduct.
To stay compliant, medical aesthetic practices must ensure that compensation arrangements are structured in a way that does not involve sharing fees with non-licensed individuals or entities. This can be particularly challenging in states with stringent regulations, so it's advisable to seek legal counsel to review and structure your compensation plans appropriately.
Federal Physician Self-Referral Law (Stark Law)
Stark Law, also known as the Physician Self-Referral Law, prohibits physicians from referring patients for certain designated health services (DHS) payable by Medicare or Medicaid to entities with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. 42 U.S.C. § 1395nn.
Compensation arrangements must be structured to comply with Stark Law requirements, ensuring that payments are at fair market value and not based on the volume or value of referrals.
There are several exceptions to Stark Law, such as in-office ancillary services, academic medical centers, and fair market value compensation arrangements, which allow certain referrals if specific criteria are met. Reach out to your legal counsel to ensure your compensation arrangements comply with Stark Law Requirements.
Federal Anti-Kickback Statute (AKS)
Kickbacks involve offering, soliciting, receiving, or paying any remuneration to induce or reward referrals for services reimbursable by federal or state healthcare programs. The federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) is a key regulation that prohibits such practices.
Violations of AKS can result in severe penalties, including fines, imprisonment, and exclusion from federal healthcare programs.
Although most medical aesthetic practices are not accepting payment from government healthcare payors (and thus, believe Stark and AKS do not apply), many state regulations have a consistent theme and don’t require medicaid/medicare involvement. Rather, they preclude self-referral and/or kickbacks as a whole. As such, it is good practice for medspas to avoid any arrangement that could be perceived as an exchange of value for referrals or kickbacks. This includes not only cash payments but also free or discounted services, gifts, or other incentives.
Considerations for Compensating Your Med Spa Employees
Fair Market Value and Commercial Reasonableness
Compensation arrangements must reflect fair market value (FMV) and be “commercially reasonable”. FMV ensures that payments for services are consistent with what is typically paid in the market, while commercial reasonableness means that the arrangement makes sense from a business perspective, even in the absence of referrals.
Employment and Independent Contractor Agreements
Clear and compliant agreements are essential for medical providers and staff. Employment agreements should outline duties, compensation, and compliance expectations. Independent contractor agreements must be carefully structured to ensure that the contractor status is maintained, avoiding misclassification issues that could lead to tax and labor law violations.
Bonus and Incentive Structures
While performance-based bonuses can be an effective way to motivate staff, they must be structured in a way that complies with legal regulations. Bonuses should be based on measurable and objective criteria, not tied to the volume or value of referrals.
What’s the law in your state?
Like everything in medical aesthetics law, compensation compliance depends very much on your location. In our next article, we break down state-specific laws that impact compensation compliance in various jurisdictions. These examples are meant to act as a comparative analysis of what states may require. It is imperative to remember that, although the following states provide examples, practice owners must become intimately familiar with their own regulations. In the next article we will examine:
Arizona
California
New York
North Carolina
Texas
Utah
Want an easy way to access state-specific regulations for your state? Become a Marti Law Group member to access a full library of medical aesthetic regulations in your state(s).
Work with Marti Law Group Navigate Compensation Compliance at Your Medical Aesthetic Practice
Compensation compliance is a complex but essential component of managing a medical aesthetics practice. By understanding and adhering to regulations, medical spa owners can create compensation arrangements that are both effective and compliant. Consulting with legal experts who specialize in healthcare compliance is highly recommended to navigate these regulations successfully and ensure the long-term success of your practice. Reach out to our team to learn more.