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Beyond the aesthetics and glossy marketing, a medical spa and a traditional spa are entirely different past the storefront. Legally, one is a medical practice, while the other is a retail business. Employees at a med spa administer medical treatments, and as such must adhere to certain laws and guidelines set forth by state and regulatory agencies. Often these regulations, particularly in areas of employee compensation, go overlooked, and can have costly consequences. While it is common practice for retail spas to pay employees commission, this fee model for med spas is illegal in many states.
Danger Zone: Fee-Splitting and Kickbacks
Medical practices in most states operate under a doctrine called the “corporate practice of medicine.” Simply put, this law says doctors can practice medicine, lay people cannot. In terms of compensation that means that services provided at a medical spa require patients to provide payment to a physician or physician-owned company. In these states, percentage-based commission to a med spa employee is often called “fee splitting,” and is illegal. Basically, in the states that prohibit fee splitting, physicians cannot split the fees from medical revenue with a non-physician.
Under the same umbrella, kickbacks, or compensation in exchange for a referral is often illegal. The law varies from state to state. In several states, the regulatory boards have published opinions and rules specifically addressing fee-splitting and the types of conduct prohibited by such rules. Unknowingly or not, med spa owners who participate in fee splitting in state where it is prohibited are breaking the law. Ignorance of the law is not an defense in an investigation.
In the Zone: Risks and Consequences
Risks associated with offering commissions, where deemed illegal, include suspension, revocation of licensures and fines. Consequences will not only have lasting and potentially door-closing impact on your practice, but could also impact your employees, who are subject to monetary fines as well. In states such as California, fines have been as large as $50,000 if a licensed health practitioner pays or receives any commission or consideration to compensate or induce the referral of patients. Compounding these penalties is the potential for criminal investigation if a competitor, former employee or disgruntled patient report the issue.
Playing It Safe: What to Offer Instead of Commission?
Often these consequences are the result of being uninformed. Usually physicians in violation were simply trying to reward their employees, and were unaware that these laws existed. It is understandable that physician owners want to reward employees who generate business in their med spa. According to a 2017 AmSpa Report, payroll and benefits amount to the largest expense for a med spa. The success and income of a medical spa rely on high employee retention, happiness and expertise. Competitive compensation structures are necessary to attract talented employees. While commission seems like a great incentive, it is not the only way.
Med Spas may alternatively establish bonus structures to incentivize employees as opposed to paying commission. 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. Alternative medical spa compensation plans, which provide discretionary bonuses in addition to an hourly wage or annual salary, significantly reduce the risk associated with paying employees on a commission basis.
Spa or Medicine? Avoid Confusion
Med spas must play by a different set of rules than the traditional spa, especially in regard to employee compensation. It is important med spa owners are aware of the dangers and risks involved with commission-based fees and know that the law varies from state to state. Unfortunately, paying med spa employees commission is one of the most common, yet unintentional and risky mistakes we see.
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