Behind the Facade: Six Legal Considerations for Med Spa Transactions

With increased demand for cosmetic procedures and wellness treatments among both the older and younger generations, the med spa industry is booming. The global med spa market is expected to grow from $14.4 billion in 2022 to $25.9 billion by 2026, and some estimates indicate this sector will continue expanding at a compound annual growth rate of 14.97% annually until 2030. Given its high profit margins, lack of exposure to commercial or government payors, and opportunities for expansive service line growth, investor appetite in the space is increasing; however, it is important to consider the unique legal challenges that impact this industry and transaction structuring.

Read on for six key considerations investors should know about the med spa landscape, particularly when structuring transactions and new med spa enterprises.

1. Transactions and de novo clinics must be structured to comply with state corporate-practice-of-medicine (CPOM) doctrines. Given the wide array of services med spas offer, the legal landscape for structuring med spa transactions is complex. One of the most significant considerations in terms of structuring med spa transactions is state CPOM doctrines. A majority of states have implemented some sort of CPOM prohibition, which generally prohibits non-licensed individuals from practicing medicine and owning medical practices. Given that many states consider certain med spa services such as injectables (e.g., Botox and fillers) and lasers to constitute the practice of medicine or nursing, med spa businesses must be structured to comply with applicable CPOM restrictions, which generally means nonphysicians cannot directly own the entity rendering medical services but may be able to otherwise participate in certain aspects of the business. In limited states that do allow direct investment in medical practices, investors still must be cognizant not to encroach on the clinical aspects of the business and rely on licensed providers to make certain decisions.
   
   
2. Supervision of midlevel providers is often required, to varying degrees, across states. As mentioned above, med spas offer a wide variety of treatments and procedures, many of which must be performed by licensed medical professionals; however, the level of required supervision varies, state by state. For example, some states require a physician to be on-site and available throughout the course of certain services. Other states allow a physician assistant or nurse practitioner to perform services with remote supervision or, in some cases, no supervision, if the midlevel provider is acting within the scope of his or her license. Notably, several states, including Texas, have introduced legislation that would require greater supervision by physicians (e.g., attesting to meetings between physicians and midlevel providers and submitting such attestations to the applicable state licensing boards) and limit the ability of physicians to delegate certain aesthetic services and procedures to nonphysicians. Accordingly, med spas must carefully evaluate supervision requirements in each state in which the entity operates and carefully consider whether all services rendered comply with applicable state laws and regulations.
   
   
3. Navigating physician-to-midlevel delegation is not always clear-cut. Just as some states require direct physician supervision for certain med spa services, most states have laws and regulations regarding the scope of practice for each category of licensed professional. While some states permit midlevel providers to perform injections and laser treatments, in some states, such as Georgia and New York, the provision of certain injectables is considered the practice of medicine and may be done only by a physician or another medical professional with specialized training. Additionally, it is critical for med spas to implement appropriate training to ensure midlevel providers are appropriately trained, qualified and competent to perform services that have been delegated.
   
   
4. A med spa’s advertisements and websites should comply with state laws. While an aesthetically pleasing marketing campaign may be of great importance in this sector, med spas must ensure their marketing materials do not run afoul of various laws and regulations. For example, med spas must be especially careful to avoid making false or misleading claims regarding the safety or efficacy of services. Further, while before and after photos and testimonials from current clients often are utilized to attract and retain customers, med spas often are required to include disclosures regarding results and must obtain appropriate patient consents and releases to share client-specific information such as pictures and scope of services. Lastly, to the extent a med spa sells various beauty or wellness products such as lotions, creams or supplements, understanding rules around relabeling and other U.S. Food and Drug Administration requirements will become important.
   
   
5. Med spas need to assess whether entity-level licenses and registrations are required for services rendered. In addition to ensuring healthcare providers are properly licensed to provide the services rendered at med spas, some states require med spa businesses to obtain entity-level licenses and permits in addition to business certificates or occupancy certificates, depending on the services rendered. For example, Georgia requires businesses to obtain laser registrations and certain classes of lasers (e.g., Class IV lasers) require registration in Florida, Illinois and Texas, among others.
   
   
6. State laws still must be considered when compensating providers and marketing staff. Compensation paid to healthcare providers or marketing staff within a med spa must be carefully structured to comply with applicable state laws. Although the federal Anti-Kickback Statute and physician self-referral law will largely be inapplicable for most med spas, given the lack of federal healthcare program reimbursement, many states have implemented similar laws that apply regardless of payor, with some state laws even expanding to cash pay. Additionally, many states have rules and regulations that prohibit fee-splitting among providers, which can impact compensation structuring considerations. Lastly, med spas must consider ramifications around compensation tied to advertising and marketing that could run afoul of state laws.

The med spa industry remains highly fragmented and diverse, making it a compelling investment opportunity likely to see a flurry of activity in the coming years. Notwithstanding, this sector also presents important aspects investors should be aware of, such as vast variability in state regulatory landscapes, an increased interest in regulatory oversight and intermittent guidance from state licensure boards. Accordingly, compliantly operating a med spa requires continual analysis of applicable laws, regulations and guidance. Investors should carefully diligence the above areas and consult experienced legal counsel to avoid fines, penalties and licensure actions.

For more information regarding the med spa space or any other healthcare sectors, please contact one of the authors.