123s of Paying Commissions in a Med Spa

June 6, 2020

As you join the ranks of businesses that are reopening across the country, you may be reconsidering how to compensate your employees in this post-pandemic environment. It is essential to keep in mind that every state still expects medical practices to compensate employees in compliance with state rules and regulations. And when it comes to compensation, a medical spa must play by a different set of rules than a traditional spa.

A medical spa is considered a medical practice, while a spa can operate as a retail enterprise. Compensating med spa employees on a commission basis is quite common but can be a risky mistake in a state with fee-splitting statutes. Some states have strict rules that prohibit a physician from dividing compensation with a non-physician, called “fee-splitting” and the practice is considered illegal. Other states do not have express fee-splitting rules but may still consider commissions to be unethical or unprofessional conduct.

Here are three key takeaways to know when considering how to compensate employees for providing medical services in your med spa.

1. Commission Can = Fee Splitting, Kickback, or Unethical Conduct

In most states, medical practices operate under a doctrine called the “corporate practice of medicine.” Simply put, this doctrine dictates that doctors can practice medicine and laypeople cannot. In terms of compensation, this means when a patient comes in and receives medical services at a medical spa, the payment must be made to a physician or physician-owned medical practice.

In each state, there are three legal areas to examine to determine if the state prohibits commission-based compensation:

  1. Fee-splitting statutes
  2. Anti-kickback laws
  3. Medical board opinions

Some states regulate this idea by prohibiting physicians or a physician-owned practice from paying a percentage of medical revenue to non-physicians as compensation, which is considered “fee splitting” and deemed illegal. Basically, in states with fee-splitting statutes, physicians cannot split the fees from medical services with a non-physician.

In a state with anti-kickback laws, paying a commission for upselling a patient to a different provider for a different treatment can be considered a kickback and is illegal. If a state has no express rules on fee-splitting or kickbacks, the medical board could still use unprofessional and unethical conduct as a catch-all for discipline against a physician, which can be found in published opinions of the medical board.

2. Risks + Consequences

Potential consequences associated with offering commissions where the practice is prohibited include suspension, revocation of the physician’s license, and costly fines. Consequences will not only have lasting and potentially door-closing impact on a medical spa, but could also impact the medial spa’s employees, who are subject to monetary fines as well.

For instance, California prohibits a licensed health practitioner from paying or receiving a commission or consideration to compensate or induce the referral of patients and the penalty for violating this law is up to one year imprisonment and/or a fine of up to $50,000.

3. Alternative Compensation Structures

Often these consequences are the result of being uninformed. Usually physicians in violation of fee-splitting laws were simply trying to reward their employees and unaware that these laws existed.

To ensure a medical spa is fully compliant with the laws in states that prohibit fee-splitting, we recommend that med spas establish bonus structures to incentivize employees. Bonuses can be structured to reward employees based on both employee performance and the overall performance of the med spa. Further, employees can be paid commissions on the sale of retail products and non-medical services as this is legal.

If you have questions about how to legally and compliantly structure your med spa’s compensation model, or for more information, schedule a consult with us at info@byrdadatto.com.

ByrdAdatto Founding Partner Bradford E. Adatto

Bradford E. Adatto

Brad decided to become a lawyer during sixth-grade Career Day, when he promised to represent his best friend, a future doctor. A few decades later, he started his own law firm that focused on representing health care and corporate clients.