A Comparison of Independent Contractor and MSO Arrangements for Texas Med Spas

In Texas, med spas can be organized under various business models, with independent contractor arrangements being the most common and Management Services Organizations (MSOs) being another alternative. This article provides a comparison of the two, with an overview of each and of their key differences.

Independent Contractor Arrangement

Structure and Function:

In an independent contractor arrangement, the med spa is owned by a non-physician and retains a licensed physician as an independent contractor. The independent contractor has no ownership interest and provides the medical oversight and supervision. Supervision can either be direct or through mid-levels under physician delegation agreements.

Ownership and Control:

The med spa owner, a non-physician, retains ownership and control over the business, while the independent contractor (the medical director) retains complete control over the provision of medical services. This arrangement allows non-physicians to own the med spa and offer medical services without employing medical professionals.

Revenue and Compensation:

Independent contractors are typically compensated on a per-service or flat-fee basis. This model is crucial. Percentage or commission arrangements between a spa and a medical director can raise issues of improper influence over a doctor’s independent medical judgment. The med spa owner retains all revenue from the overall operations of the spa, and the contractor is paid a defined fee for the medical director services without any incentive based on the number of patients they approve for care.

Compliance and Legal Considerations:

It is crucial to ensure that the independent contractor arrangement actually vests control over all aspects of medicine in the medical director. The agreement alone will not suffice if in fact the medical director does not maintain control over the medicine.  Like so many other areas of the law, it is not what is said, but what is done that matters.

Management Services Organization (MSO)

Structure and Function:

An MSO is a business entity that provides management and administrative services to a medical practice or med spa. This can include marketing, accounting, human resources, facilities management, and other non-clinical functions. The MSO does not provide any medical services.  Instead, it supports the professionals who own and operate the medical side of the business. The owner of the MSO provides support but has no ownership interest in the spa nor does the MSO owner share in any spa profits.

Ownership and Control:

The medical professionals (usually physicians) have ownership of the spa and control over the medical aspects of the practice. The MSO manages the non-medical aspects.

Revenue and Compensation:

The MSO typically charges a fee for its services, which can be a flat fee, a percentage of revenue, or based on specific services provided. But it can create issues of fee splitting and must be approached with caution.

Compliance and Legal Considerations:

MSOs are an option for addressing state regulations regarding the corporate practice of medicine. They must be carefully structured to ensure they do not interfere with medical decision-making, which must remain under the control of licensed professionals. In addition, for non-physicians looking to be entrepreneurs in the med spa industry, this is not a viable option. An MSO provides administrative support, but no ownership in the aesthetic practice.

Key Differences

Business Model:

An MSO handles the non-medical aspects of the business and works alongside a physician-owned entity, while an independent contractor arrangement involves ownership by a non-physician hiring a medical director on a contract basis to provide services and supervision.

Control:

In an MSO and independent contractor settings, medical control remains with the physician owners and medical directors respectively. They key difference in control lies with the non-medical operations of the med spa, which in an MSO setting is controlled by the MSO and in an independent contractor arrangement by the non-physician owner of the med spa.

Compliance:

MSOs are specifically structured to comply with regulations on the corporate practice of medicine where a physician owns the spa. Independent contractor arrangements comply completely with the corporate practice of medicine doctrine as well in that the physician medical director and the non-licensed individual do not jointly own the med spa and the medical director has complete authority over any medical services offered.

Weitz Morgan is a leading law firm in Texas in providing comprehensive advice and guidance to med spas. With a deep understanding of the unique challenges and complexities faced by this rapidly growing industry, our team of experienced attorneys is dedicated to helping med spas navigate the legal landscape successfully.

We recognize that med spas operate at the intersection of healthcare and beauty, which necessitates a multifaceted approach to representation. Our firm offers a range of services, including a flat-fee med spa formation package, tailored to meet the specific needs of med spas, ensuring compliance, mitigating risks, protecting licenses, and fostering a legally sound business environment.