Crisis: A Physician Employee Becomes a Ketamine Clinic’s Medical Director

April 25, 2024

In this episode, hosts Brad and Michael are joined by series regular and ByrdAdatto partner, Jay Reyero. Jay shares a story of a doctor whose medical practice faced uncertainty when one of their employed physicians started moonlighting as a medical director for a ketamine clinic. Discover the significance of robust employment agreements, essential compliance considerations for ketamine clinics, and the evolving landscape of telemedicine regulations post-COVID-19. Tune in to learn how you can protect your practice from unforeseen challenges.

Listen to the full episode using the player below, or by visiting one of the links below. If you have any questions or would like to learn more, email us at


*The below transcript has been edited for readability.

Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real-world experiences, creating simplicity in 3, 2, 1.

Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd.

Michael: As a business and health care law firm, we meet a lot of interesting people and learn their amazing stories. This season, we are riding the emotional rollercoaster of the different types of crisis that can arise in the operating season of a business. Our theme this season, Brad, is Running a Business.

Brad: Yeah, Michael, and as we’ve talked about before, running a business is just one of the several business seasons. What are the other ones again?

Michael: Yeah, there’s four seasons of a business and we’re dedicating an entire podcast season for each of the seasons of a business. We have the building season, which we’ve already covered, and that’s starting a business. We have the operating season where we are right now running a business growing a [00:01:00] business in the scaling season, and then the buying and selling season.

Brad: Yeah. Well, Michael, before we really get started let’s welcome back our series, regular and partner, Jay Reyero, who’s here for this first podcast of this season.

Jay: Yes, very excited to be here again. Looking forward to it.

Michael: Alright, Jay, so this season during our opening, we are covering stories that did not quite have enough to make a full episode and we gave you a little bit of a heads up. Do you have a mini story for us today?

Jay: I do. So you guys recently did some medical testing for insurance purposes, right?

Michael: I did, yes. It was a better experience than I thought because the person actually came to my house to do the testing. We formed a connection and he was pretty personable. But don’t get me wrong, I would prefer not to have had the testing done.

Jay: Alright. Well, did either of you test positive for cocaine?

Brad: Jay, my lawyer, Miguel told me not to answer that question.

Michael: [00:02:00] And my lawyer Brett, told me not to answer that question.

Jay: Ah, yes. I’ve heard of them. They work at the firm BeardAbotto, I think. I heard their partner Ray, though is a stud. So the character in our story today did test positive for cocaine. Why don’t we call him Dr. Peru?

Brad: Oh, Jay, I can’t believe you actually remember the story. Oh, audience members, this is a good one.

Michael: Well, it is not every day that we have a story involving cocaine at our health care firm, so I’m very interested to hear how this happened.

Jay: All right. So it all started with a phone call from Dr. Peru. He was in the process of getting some term life and long-term disability insurance coverage for the benefits of his practice.

Brad: Yeah. And you know, just like us, for most professionals acquiring disability insurance can be a lifeline if something obviously catastrophic does happen, if you’re unable to work, the disability insurance will help pay for part of your income and some plans will actually cover your overhead. And every [00:03:00] professional should at least consider having their own professional disability insurance, even if your employer provides you with some coverage.

Michael: And I’ll just add too, life insurance is often used for buyouts when you have partnerships and planning for the unplanned circumstances, and so it can be an important planning mechanism for many small businesses.

Jay: Yeah. And so he was going through this planning process and as is sometimes the case as it was for you guys, Dr. Peru had to do some very basic medical testing for the underwriting purposes, and one of the tests required was a simple urinalysis. And about a week after that test, he got a response letter that declined his coverage because it tested positive for presence of cocaine.

Michael: I’m going to assume since Dr. Peru called us that this came as a surprise to him.

Jay: Very, very much a surprise. He was adamant that he had never used the drug. [00:04:00] He was starting to line up character witnesses to back up kind of his reputation and his history. And he reached out to us because he wanted help crafting a response to have the decline coverage reconsidered.

Brad: And what did he say or explain why he believed he tested positive?

Jay: So there were two very interesting potential sources; one was his line of work. Now, I’m not clinical in nature and I don’t have any clinical experience although I did say at a Holiday Inn once. What we were told was that aerosolized cocaine has some applications in the anesthesia world, and this may have been a particular issue.

Michael: Okay. Well, how so?

Jay: All right, so what we are told is when a procedure is happening in and around the mouth and the patient has to be incubated, the tube actually goes through the nose, and so they have to prepare that nasal cavity for [00:05:00] that tube. And you administer some type of medication into the cavity, and one option is cocaine. And so, Dr. Peru theorized that his exposure on a regular basis because of his job may have contributed to this positive test.

Brad: I didn’t stay at that Holiday Inn like you did Jay, so it’s starting to really sound Greek to me. But you said he had other character witnesses who said this is kind of normal, and you said he had two potential theories how he tested positive. So, what was the other one?

Jay: South American Tea Products.

Michael: Okay. Jay, I’ve raised five kids and I have a hard time actually believing either of these. It sounds like the dog ate my homework, but maybe I’m just getting jaded from having too many kids pass through the teenage years.

Jay: No, I know, right. A few months before his test Dr. Peru had been down in South America for medical mission work, and during this time, he drank on a daily basis, mate de coca, its coca tea, to help with altitude symptoms. [00:06:00]

Michael: Okay, Brad, I’ll just make a note. You need to slow down your tea intake over there. And for both of you, did you ever think that a vocabulary word for our audience would be mate de coca?

Brad: No, but we did learn that mate de coca is an herbal tea made of the leaves of the cocoa plant. While the cocoa plant does have priorities that when chemically extracted can be utilized to produce cocaina, but the mate de coca is not cocaina product, it’s consumption is comparable to coffee.

Michael: Okay. Now, Jay, you said it had been a few months since he returned. So how did Dr. Peru explain cocaine being in his system still?

Jay: Well, as he was leaving South America to come home, he couldn’t have gotten enough of the cocoa tea, so he decided that he would go ahead and just buy an inventory supply on his way out. And so when he came back to the States, he continued to drink it on a regular basis.

Brad: Yes, audience members, we have learned that he [00:07:00] did have an addiction and it was tea. Hey Jay, how did this all end?

Jay: Well, to prove his theories correct. We had Dr. Peru eliminate all the potential sources. So he’d laid off the coca tea, stayed away from the use of cocaine in his work, the aerosolized cocaine. Two weeks later he went, did another test, came back totally clean. So, we gathered all of that along with the affidavits, character witnesses, scientific papers to back up our position, and we submitted it for reconsideration.

Michael: Amazing. So, I guess moral of the story, did Dr. Peru stop snorting tea on a go forward basis?

Brad: Oh, my goal! You’re completely missing the point of the story. For all our audience members who was hoping the story would be ending from like the TV show, “The Wire”, sometimes things happen. But Jay, let’s get to today’s real story.

Jay: All right. So, our real story and our client, today’s story is Dr. Collateral, sole owner and operator of a very successful plastic [00:08:00] surgery practice.

Michael: Jay, why is Dr. Collateral his name.

Jay: Well, as you will see, sometimes a business can be impacted by unrelated circumstances. And so, our story begins when Dr. Collateral sent a high urgency email on a Thursday afternoon saying he had to speak with us as soon as possible about an issue about one of his employed physicians, Dr. Moonlighting.

Brad: Yeah, and these emails always make me a little nervous as to what we’re going to learn, but we also know that’s why we have to actually respond as soon as possible. So, Jay, but before we go into the email, why Dr. Moonlighting?

Jay: Brad, I know what you’re thinking right now. You’re picturing mid 1980’s Bruce Willis, aren’t you?

Brad: Of course. I mean, “Moonlighting” is a television series that aired in the eighties with Sybil Shepherd and Bruce Willis as private detectives. This is all before Bruce became a mega movie star.

Jay: Well, Brad, unfortunately, Michael made me promise not to do movie or TV talk today.

Brad: That’s wrong, Michael.

Jay: [00:09:00] So moonlighting usually refers to when a person holds a second job outside their normal job. And so when I called Dr. Collateral, as soon as I got free that day, he told me he had just learned that for the last few months, Dr. Moonlighting was the medical director for a ketamine clinic.

Brad: Now, Michael, before Jay continues the story, I think we kind of have to give the audience some insight as to what is Ketamine just in general?

Michael: Well, so for some of our culturally aware, or maybe even some of our wild audience members, yes, ketamine is a popular drug of choice used at raves and other wild outings.

Brad: I’m sorry, I’m starting to look at you, Michael.

Michael: I heard that.

Brad: Okay.

Michael: Yeah, you saw me at a rave last week. Well, believe it or not, ketamine’s been around forever. It’s an old school medicine. It’s a Schedule III controlled substance by the DEA. It’s FDA approved for short-term sedation and anesthesia, and historically it’s been used as injections for general [00:10:00] anesthetic when performing surgery. And there’s been a movement towards using ketamine in lower doses to deal with issues such as chronic pain or what we’re hearing more and more about lately, and where you see these popup ketamine clinics everywhere for depression.

Brad: Yeah. And these low dose ketamine clinics, they’re using it via IV infusion or even some tablets. And of course, none of this is FDA approved, so this is an all off-label use of it, and there’s even a spray version out there to help try to treat depression too.

Michael: All right. So, Jay, back to your conversation with Dr. Collateral. Why the urgency about this discovery about Dr. Moonlighting?

Jay: Well, sadly, the reason Dr. Moonlighting had informed Dr. Collateral was because one of the Ketamine clinic patients had died by suicide. And so, as you can imagine and expect, the patient’s family started looking into the care that was given, and they had actually had hired an attorney.

Brad: That’s a bad start. but just to be clear, Dr. Moonlighting’s role [00:11:00] as a medical director for this clinic was not related to Dr. Collateral and his practice. And I’m saying that more of a question.

Jay: Correct. The medical director role was completely independent and separate from Dr. Moonlight’s employment responsibilities. However, Dr. Collateral was assessing what, if any, exposure the practice and he could face and what he needed to do as a result.

Michael: And this is tricky because legally speaking, if Dr. Moonlighting was doing something for an unrelated practice that there should not be legal blowback. However, because he’s an employee of this practice, any plaintiff’s attorney’s going to look up and find this connection. And so, the appropriately named Dr. Collateral, there was definite risk for collateral damage that he would be pulled into the fray because this is a doctor that he had hired. [00:12:00] And they would presumably allege that Dr. Moonlighting was kind of under him when he was doing these things. So in your discussion with Dr. Collateral, what were some of the things that you uncovered?

Jay: Well, first, I started with the obvious, and that was how was Dr. Moonlighting a plastic surgeon, qualified to be the medical director for this ketamine clinic?

Brad: That’s a good question there, and a lot of times with physicians, or especially with, I guess most people when they look at doctors, they say, “Oh, they must be a doctor. It must be okay because they’re a doctor.” And of course, as we’ve talked about in other episodes, the qualifications and the skillset that the person has is really what you’re looking to. And in this case, if I’m going to use a comparison, an internist probably should be – they may be a doctor, but they’re probably not the same person who can do a facial surgery, right, and much less somebody who has aesthetic services background, are they really trained in dealing with depression. So, that’s probably something for us to think about. So what did you learn?

Jay: [00:13:00] Well, I actually learned a lot from kind of pulling on this thread. So from what Dr. Collateral had been told by Dr. Moonlighting, Dr. Moonlighting had agreed to become a medical director to help out a friend. It didn’t require much from him. He never worked at the clinic nor saw patients. He’d never actually visited as it was located in another city, so his only job really was to kind of check a few chart, periodically signed paperwork when needed, just kind of randomly be available.

Michael: So, yeah, we’ve talked, we actually had another podcast episode talking kind of about the absentee medical director. And thematically, when we talk about roles, if you’re going to be a supervising physician or a medical director or you’re a medical spa or some other sort of business, ketamine clinic, looking for that type of oversight; the single biggest risk that you take is to have someone who’s essentially just lending their license. And that’s medical [00:14:00] boards and other boards around the country when they see that you have a doctor who’s in-name only involved with a particular clinic, and that they’re not doing the steps that they’re supposed to be doing, you can expect the worst case scenario to happen, especially when you have a bad outcome, like in this case where the patient died. Even though the patient didn’t die at the clinic, there’s a lot to overcome when you’re treating for depression and then there’s a death by suicide. So Jay, I want to take a quick step back and kind of move to the employment angle. So this situation appeared to catch Dr. Collateral by surprise, so I’m assuming this role was not something that he endorsed, this moonlighting role.

Jay: Yeah, you’re absolutely right. So, outside of the question of how should the practice and [00:15:00] Dr. Collateral prepare itself for any potential claims from third parties; one of the issues that we address with Dr. Collateral’s rights was with respect to Dr. Moonlighting’s employment agreement. And as you expect, Dr. Moonlighting’s agreement contain a very clear no moonlighting clause.

Brad: Yeah. And audience members, Jay did mention this earlier, but moonlighting usually refers to when a person holds a second job outside the normal job. Most employment agreements will have some type of clause prohibiting a physician from working at other medical facilities while employed by that practice or hospital. And there’s a host of reasons, obviously, for these clauses, but it’s often referred to as the no moonlighting clause or no outside activities clause. This is different than your typical non-compete clause.

Michael: Yeah, and you’ll see the breadth of them show up in different ways. So in some respects, kind of adding onto what Brad was saying, sometimes they’ll just have a cautionary thing like no outside activities if it [00:16:00] interferes with your day job. But otherwise, we’re leaving it up to you. Or sometimes it’ll be as strong as you just mentioned, Brad, where it’s like, you are full-time here, this is all you’re going to do. And period end of sentence, no outside activities. And then sometimes it’ll kind of speak to no outside activities and say that you need practice approval. Kind of the double click beyond that is really defining what outside activities are. So you’re at a, in this case, plastic surgery practice, it would be common to say specifically no medical director role without approval of the practice. But there can be ER call that can come into play. There can be lecturing. I mean, you can get further and further removed from stuff that a practice may or may not have a problem with. And then for another time, you also want to deal with what happens [00:17:00] to the money collected when you’re doing that. Does the person get to the employee, Dr. Moonlighting in this case, get to keep that money straight to their pocket? Or does that have to go back through the practice? So Brad, you talked a little bit about insurance in the opening, but here we’re dealing with malpractice insurance. Talk a little bit about coverage issues if outside activities are allowed.

Brad: Well, the answer is, it depends. And so, audience members, thinking about it from this way sometimes. You have a very limiting coverage, meaning that you’re only limited for your particular specialty. Heck, we’ve seen hospital situations where if you do anything outside of their system, you’re not covered – so that could be limiting. Other times it’s just broad, meaning that the physician is, wherever they go, provide any services, they’re generally covered. However, you got to double click on that and say, generally covered for their types of spells, specialties, and skills as [00:18:00] a medical provider. So, just because again, going back to our discussion earlier about again, if you’re a plastic surgeon and now you jump into some type of field that you don’t have any formal training, that doesn’t mean that you always will have coverage.

Michael: Great points. Kennedy, strike that from the record. And I’ll add onto that too. We see malpractice insurance policies that will actually carve out medical director roles. And so, even had this been approved there’s a chance that it wouldn’t be covered. So Jay, after your conversation with Dr. Collateral, what ended up happening?

Jay: So based on everything we unpack, the risk was just too great for Dr. Collateral in the end. I think he knew the difficulty the Dr. Moonlighting faced going forward and how that could affect the practice, and so Dr. Collateral ended up terminating Dr. Moonlight’s employment.

Brad: What about Dr. Moonlighting?

Jay: Well, the road he faced certainly was difficult. Not only was there a malpractice lawsuit, but the medical board ended up [00:19:00] opening an investigation into the issue.

Michael: Yikes. Okay, well, let’s go into a commercial and when we return, we can dive more into ketamine clinics and just unpack this story a little bit further.

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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host Brad Adatto, my co-host, Michael Byrd and series regular, Jay Reyero. Now Michael, this season, our theme is Operating a Business. I think that’s right. [00:20:00] We feel good about that. We are talking about real stories of clients of ours, the problems that popped up while they’re running their business. And Jay, you just told us a story about Dr. Moonlighting became a medical director with the ketamine clinic.

Michael: Yeah. And this is another one of those terrible circumstances in our case, we have a client who’s Dr. Collateral, living his life, had an employed physician. And unbeknownst to him, Dr. Moonlighting is off being a medical director for a ketamine clinic. And as we learned in the story, there was a bad, unfortunate outcome with a patient, and then discovered that the doctor was not involved at all, Dr. Moonlighting, and it didn’t end well. So let’s pick up on some other issues. Let’s, Jay, first let’s touch on some of the compliance-related issues involved with Ketamine clinics. Where should you start?

Brad: Well, hold on. There was [00:21:00] compliance issues?

Jay: Well then why are we doing this podcast? So you have to start where we start. A lot of similar topics, and our audience who’s been with us. Well, this will all sound familiar because we’ve touched on all of these at different points and multiple points throughout all the various seasons. For the last several years, there have been numerous efforts to find solutions and resources to deal with the mental health crisis. And no matter how innovative or how distinct they try to be, especially with ketamine clinics, fundamentally we’re still talking about the practice of medicine. And so, because the administration of ketamine is the practice medicine, this brings in those foundational compliance issues and that we always have to talk about. So we’re talking about ownership, we’re dealing with the corporate practice of medicine issues in the states who can own these clinics. We’re talking about diagnosis and treatment, ensuring that the good faith exam is properly conducted by properly trained and qualified individuals. And this is probably one of the biggest areas is Michael, you [00:22:00] alluded to with ketamine. And then we talk about delegation supervision, making sure that there’s actually those who are properly trained and qualified administering these services, and they’re permitted to do so and they’re being properly supervised.

Brad: Yeah.

Michael: And there’s more to unpack here. I know, Brad, you’ve dealt with this a bunch. You have to focus on the foundational rules just as a starting point and then kind of wrap around this whole idea, what we talked about is that the doctor has to know what they’re supervising and they need to be engaged in the process. And so, you can’t just check the box on these kind of basic core principles that Jay just touched on. There are however more things that we need to explore when we’re dealing with something like ketamine than even the foundational issues.

Jay: Yeah. And what differentiates these ketamine clinics is the fact that we’re dealing with [00:23:00] Schedule III controlled substances, which brings in their own unique issues.

Brad: Yeah, exactly. As alluding to it, but Michael and Jay both brought up the fact that this is a Schedule III controlled substance, and as such, these rules govern the areas. It just all gets intensified when you’re using that type of drug. You know, facility dispensing ketamine must follow a whole laundry list of requirements with storage and inventory management, security and record keeping and prescription protocols, all because as a schedule three drug is involved. And additionally, any staff member involved in storing or administering the drug must be registered with the DEA because again, schedule three drug. Further, each state generally has some additional rules or registration and monitoring requirements again, when using these types of drugs. And finally last but certainly not least, because ketamine involved the use of anesthesia, there’s some states apply special rules when you’re delegating and using it. Meaning that the delegation supervision is also at a heightened level as to who [00:24:00] can actually then administer the ketamine.

Michael: And I know there’s a difference typically, if it’s a low dose, whatever that means versus a higher dose. But I want to step back just from a practical perspective and kind of, the goal of Ketamine clinics in the low doses, is to treat depression. However, you remembered at the beginning that this is a popular drug used at raves, and so it is something that many people are interested in partaking in regardless of how they present. And so, it really sets ketamine clinic up for abuse because they try to present themselves as kind of a retail place where people can come in for relief. Yet, even if you do the basics that Jay just talked about, like how can you possibly really know the history? And so, there are many clinics that will actually require a psychiatrist to prescribe going to [00:25:00] a clinic like this to make sure that you have someone that is a mental health physician signing off on that. And then not to – we haven’t even mentioned this yet, but there’s also nuances when it comes to telemedicine.

Jay: Yeah. And I won’t go too in depth, but just kind of give a quick summary of what’s happened across the landscape over the last several, several years. So on the books, there’s this federal law called the Ryan Haight Act which required physicians to have an in-person consultation with the patient prior to prescribing controlled substances. Well, then covid happened, and this public health emergency kicked in and relaxed a lot of rules, particularly when it came to telemedicine, because they wanted to make sure that people still had access to the same level of care beforehand. Well, when that happened, the in-person consultation wasn’t required, and so as a result, as you can imagine, the explosion of ketamine, telehealth providers [00:26:00] just popped up everywhere. It’s become a real big industry. Well, now that the public health emergency has ended, the expectation was, okay, everything’s going to go back including the Ryan Haight Act requirements of the in-person consultation. That didn’t happen. Even though it ended, the DEA has been extending these relaxed rules because there’s been such a push for more permanent rules that are more akin to these relaxed rules. So the DEA has been pushing out and pushing out and pushing out kind of the rules until everybody can figure out what are we going to do moving forward. And so, we’re kind of sitting in a limbo area of, are we going to go back to the old way? Are we going to have a new way? Are we going to have something in the middle? And until that happens, we’re kind of living in this unknown where telehealth is a permitted and permissible and good business way. It just, we don’t know where things [00:27:00] may happen.

Brad: Yeah. And I want to go back to something – the telehealth is an important element, but something Michael kind of alluded to earlier, which is, in this industry, and we’re talking about ketamine clinics right now, but there’s this abuse issue where someone’s like, well, I don’t want to get this done and I’m going to just go do it faster. And I’m just going to – this is my route to get drugs. This is my route to get steroids, or whatever it is. And so there are some bad actors that get in there just on the patient side because they’re getting into the wrong reason. But there are also some bad actors who get into the, I want to accelerate some cash in my pocket, and I’m going to cut a whole bunch of corners, and I’m going to have some unknown telehealth company that doesn’t really know what they’re getting themselves into. I’m going to have my buddy who’s an ER doctor or a plastic surgeon, or someone that doesn’t really understand this area, jump in with me as to be like the medical director who’s not really overseeing it.

And my gosh, look how much money we can make. And they’re not doing this correctly. And you said this earlier, we do work with clinics in this space, and often the case there [00:28:00] is somebody with a health background on, your psychiatrist who’s actually overseeing it. There may be anesthesiologist who then overseeing the supervision delegation of it because the doctors who are involved in those, want to make sure that the outcome is something that’s treatable, meaning that this is going to help. And secondarily to that, then the people who are administering it, even though it’s a low dose, they’re doing it in such a way that it can’t harm the patient. And obviously the tablets are changing a little bit, I’m sure the spray will change some of that too. But again, going back to j start off the good faith exam, is this person a good candidate for the services? Who’s making that determination that they’re a good candidate? And do they have the skill set to then oversee and supervise that? And now we’re getting close to the final parts of this, so Michael, some final thoughts.

Michael: Yeah, I would just agree, Brad, that we have to acknowledge that there is a mental health crisis that from all that we’ve heard, this actually can be helpful. But like you said, [00:29:00] there’s going to be bad actors that come in and this is going to be ripe for abuse on both sides, and so maybe some would be better off getting a little bit of that cocoa tea.

Brad: All right. Well, Jay, thanks for joining us today and Michael, next Wednesday we have a new crisis, a nurse that steals Botox from the practice. Thanks again for joining us today. And remember, if you like this episode, please subscribe, make sure to give us a five star rating and share with your friends.

Michael: You can also sign up for the ByrdAdatto newsletter by going to our website at

Outro: ByrdAdatto is providing this podcast as a public service. This podcast is for educational purposes only. This podcast does not constitute legal advice, nor does it establish an attorney-client relationship. Reference to any specific product or entity does not constitute an endorsement or recommendation by ByrdAdatto. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. [00:30:00] Please consult with an attorney on your legal issues.

ByrdAdatto attorney Jay Reyero

Jay D. Reyero

Jay has mastered the art of communication, leaving clients with both an understanding of their business risk and the path to solution.