Jul 25 So you Want to Open a Med Spa: Understanding The Future of Medical Aesthetics
A medical spa, often known as a med spa, is a practice that offers cosmetic medical procedures in a spa setting. Med spa services typically include a variety of skincare and aesthetic treatments.
Med spas are rapidly becoming more and more popular in the United States. In 2022, the global med spa market was valued at $16.4 billion, and by 2030, it’s projected to be a $50 billion industry. This rapid growth is occurring in response to the increasing demand for minimally invasive cosmetic procedures and a greater consumer emphasis on wellness and self-care. For recurring treatments like Botox injections, a soothing spa setting is a much more comfortable place to receive treatment than a physician’s office.
Opening a med spa can be an appealing business idea as the industry matures. If you’re considering making a med spa your next business venture, there are a few key points to keep in mind:
- In New Jersey and New York, as well as some other states, a physician must own and operate a med spa.
- Because a med spa is a medical practice, it must meet state and federal requirements.
- State guidelines determine which services may be offered and the supervision required for each.
In addition, it’s also crucial to familiarize yourself with the general process of starting a business before you move forward with a business plan and other considerable investments.
Beyond rent and other initial startup costs, you need to budget for business formation fees, insurance, staff compensation, utilities, and any remodeling necessary to transform the space you choose into a med spa setting.
Choice of entity formation
Some states, including New Jersey and New York, abide by the corporate practice of medicine doctrine. Companies that employ physicians to provide medical services must be incorporated according to their respective states’ professional service corporation’s requirements. It’s also why med spas in these states must be owned and operated by physicians—a physician is qualified to practice medicine, but a corporation isn’t.
As you create your med spa business plan, plan your incorporation carefully. Failure to properly structure the business entity can result in governmental penalties and the facility’s closure. Whichever structure you choose, be sure to register it appropriately with your state and the IRS.
All med spa LLC or partnership members in New York must be licensed physicians. New Jersey has a similar requirement, requiring that all members be licensed and authorized to render medical services or closely allied professional services. Examples of individuals who may fit the latter category include physical therapists, nurses, nurse midwives, and optometrists.
It’s also possible to register a med spa business as a corporation. Still, in New Jersey, it must be licensed by the New Jersey Department of Health and Senior Services and comply with the Department’s requirements. In New York, the shareholders must all be licensed physicians.
Both structures have benefits and drawbacks. There is no “one size fits all” option for incorporating a business; the best structure is the one that most appropriately fits your business’s unique needs. We can discuss corporate structures, their benefits, and their requirements with you in detail and assist you in this process.
Contracts and agreements – well-written agreements
In both New Jersey and New York, a non-physician can invest in a med spa through a management service organization (MSO), which provides professional services to the spa. These services include billing, marketing, staff training, and vendor management. However, any med spa working with an MSO must be very careful to remain compliant with state laws regarding the operation of a med spa—stepping outside prescribed requirements can result in fines and other penalties. If you’re considering going the MSO route, it’s critical that you have a clear, airtight contract that spells out exactly how the MSO is to operate. This is just one of the multiple contracts you’ll need your healthcare attorney to draft your med spa business. Others include:
- Facility lease. Unless you purchase a building for your med spa, you’ll need to lease a space appropriately sized for your services.
- Equipment leasing or purchase. Medical equipment and non-medical business equipment like computer networks and office furniture require a significant capital investment. You may decide to structure your agreement to allow you to lease or buy additional equipment as your practice grows.
- Retail skincare products. Although not a requirement, many med spas increase their revenue by selling skincare products to patients. Consult with your tax advisor for the sales tax reporting requirements for the sale of these products within your state.
- Medical supplies and consumables. Unlike equipment, a one-time purchase or lease, you’ll need to continually purchase medical supplies and consumables like alcohol prep pads, gloves, gels, lotions, and syringes for your med spa operations.
HIPAA compliance and medical records
As a medical practice, a med spa is required to comply with HIPAA and all other federal laws regarding medical records, such as HITECH.
Similarly, a med spa is subject to the same compensation structure requirements as any other medical practice. This means fee-splitting is prohibited, as are any payments for referrals.
As you develop your compensation structure, whether it’s salary-based or pays physicians and other staff members hourly or per procedure, ensure that it’s compliant with applicable laws by having it reviewed by an experienced healthcare attorney. This extends to how your MSO is compensated if you partner with one.
Advertising restrictions for a healthcare entity
It’s worth mentioning again: Services offered in a medical spa constitute the practice of medicine and must be treated accordingly.
That means your spa is required to meet the same advertising restrictions as any other medical practice. Your advertising may not misrepresent your credentials, expertise, or skills. Similarly, your advertising cannot be deceptive or misleading in any way, such as implying that a particular patient outcome is guaranteed.
Benefits of a Med Spa
Despite all the legal requirements and significant capital investment necessary to open a med spa, there’s a reason why so many physicians choose to take their careers in this direction: med spas are profitable.
Operating a med spa is quite different from operating a private practice. One significant difference is that healthcare insurance coverage rarely covers the procedures offered by med spas. Although there are exceptions, med spa services are cosmetic and nearly always elective for the patient. Because of this, patients nearly always pay out of pocket, and you do not need to negotiate with insurance providers for the reimbursement of the services provided.
With the elimination of having to negotiate with insurance providers, you have the freedom to offer more customized treatment packages. For many patients, aesthetic services are part of their regular healthcare routines. As their provider, you can offer recurring treatment packages, long-term treatment plans, and price points that accurately reflect the services the patient receives.
Med spas are also relatively recession-proof businesses. Even during economic downturns, med spas offer a way to look good, feel good, and enjoy a brief moment of respite from everything else happening in the patient’s life. As more and more Americans prioritize wellness and embrace self-care, med spas will only become more cemented into the American healthcare landscape.
Pitfalls of a Med Spa
Alongside all the benefits med spas offer, it’s also important to acknowledge their pitfalls. Perhaps the biggest challenge that comes with operating a med spa is medical compliance. Ultimately, you’re still a medical provider that requires adherence to the same federal and state requirements as any other provider.
Each practitioner’s license must be in good standing, marketing efforts must comply with federal and state law, practitioners must carry malpractice insurance (depending on the state), abide by HIPAA patient privacy requirements…the list goes on and on. The easiest way to ensure you don’t miss anything is to write a comprehensive compliance checklist with your attorney or business advisor, then refer back to it continually as you file for appropriate licenses, draft contracts, and move forward with launching the med spa.
Work with an Experienced New York and New Jersey Healthcare Industry Advisors
As you consider your entrance into the med spa space, let us assist you in the myriad of regulatory compliance matters from the earliest stages of business planning to ensure the success of your new business venture.
At Sax, LLP, our team is uniquely equipped to advise you on the best ways to move forward with your med spa business plan. Ready to learn more? Contact us today to schedule your initial consultation with a member of our firm.
About the Author
Debbie Nappi, CPA, MST is a Partner at Sax LLP, and serves as Co-Leader of the firm’s Healthcare Practice. She is an advocate for her clients, and specializes in consulting services, revenue cycle management and physician productivity in the rapidly changing landscape. She can be reached at [email protected].