United States: Medical Spa Ventures: A Healthy Proposition

Medical spas can be a healthy proposition for entities looking to generate revenue through ventures with physician partners. "Medical spa services" are loosely defined as those less complicated, mainly cosmetic medical procedures that must be performed by appropriately licensed personnel and delivered in a consumer-indulgent environment. Common examples of such services include microdermabrasion, intense pulsed light ("IPL") therapy, laser skin resurfacing and collagen injections. Medical spa services can be offered alone or in conjunction with more traditional spa services, such as deep muscle massage and hot stone therapy, and complementary products, like skin care lotions and UV-blocking accessories.

Any kind of for-profit entity, from consumer products companies to hospital/health system affiliates to life sciences companies, can venture with physicians in the medical spa services market. Because the menu of medical spa services is designed to fall outside the coverage of federal and commercial heath care plans, most entities need only consider the implications of state laws (as opposed to federal laws) affecting the venture. While some entities, like hospitals and health systems, must also consider whether other relationships they have with physician participants are influenced by the medical spa venture, generally, so long as their participation in the medical spa venture is not intended to induce or reward referrals that are covered by the federal health care programs outside the medical spa, the venture should be feasible. 

Ideally, an entity, such as a health system, would use an existing structure or business, such as a wellness center or a fitness center, as the location for the provision of medical spa services. The existing structure or business would likely cater to individuals who are healthy, fit and have minor impairments, such as sun damage and muscle soreness, arising as a result of their normal healthy activities. The entity would arrange with a physician group to offer medical spa services catering to these impairments at the entity’s facility. The entity would provide nonclinical management services (like budgeting and marketing advice and accounts payable/collections services) to the physician group in exchange for a management fee. The entity would also collect rent for the space used by the physician group. To maximize revenues, the entity could develop its own line of skin care products and/or sun resistant and muscle supportive apparel and accessories to promote in conjunction with the medical spa services.

Essentially two trends have created a demand for medical spa services: one has its roots in the luxury goods industry and the other in the health care industry. As media outlets continue to expand, people who would otherwise have no awareness of the luxury market now do. People traditionally identified as "middle class" now feel entitled to certain luxuries, such as a $5 cup of coffee; a $12 gourmet sandwich; and a $250 collagen injection. This trend in the luxury goods market has been coined the "democratization of luxury." A parallel trend in the health care industry indicates that people now feel entitled to particularized attention and a pleasing environment when they seek out medical services. Specifically, consumers have cited among medical service provision shortcomings: rigid scheduling, sterile atmosphere and having to wait for services with "sick" people. As medical spa services address both of these trends, those entities with an understanding of the emerging luxury market and access to capital stand to seize this opportunity.

Apart from business considerations, any entity entering the medical spa services industry should know that, as health care services, medical spa services are highly regulated by law. In most states, the medical spa services themselves can only be performed by a physician or under a physician’s supervision. Licensed heath care personnel must be organized in accordance with state law, and, in most states, physicians and other licensed health care professionals, such as physicians’ assistants and nurses, cannot be employed by general business corporations or entities that are not licensed by the state departments of health. Finally, most states have restrictions on the splitting of physician fees and the exchange of anything of value to induce or reward a referral. However, these regulatory considerations can often be addressed without compromising the economic attractiveness of the endeavor. Specifically, the use of a well-crafted management services agreement can result in an attractive return on investment for an entity participating in a medical spa venture. This, coupled with ancillary revenues that can be derived from complementary product placement, make medical spa services a line of business to consider.

This article is presented for informational purposes only and is not intended to constitute legal advice.