In this episode, we navigate the nuanced landscape of the corporate practice of medicine (CPOM). Join us as we delve into the implications of running a medical spa in a CPOM state and the implications on both physician and non-physician ownership. We discuss common misconceptions surrounding CPOM, the states with higher risks, and a common solution to CPOM – the management services organization (MSO) model.
Listen to the full episode using the player below, or by visiting one of the links below. Below is the episode’s transcript which has been edited for readability. If you have any questions or would like to learn more, email us at info@byrdadatto.com.
Transcript
Intro: [00:00:00] Welcome to Legal 123’s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences, creating simplicity in 3 2 1.
Brad: Welcome back to another episode of Legal 123’s with ByrdAdatto. I’m your host, Brad Adatto with my cohost, Michael Byrd.
Michael: As a business and health care law firm, we meet a lot of interesting people and learn their amazing stories. Our clients commonly come to us with the latest word on the street that they heard from a friend. Brad, this season, we will talk about stories with a common legal urban legend and seek to either prove or disprove the legend. This season’s theme is Fake or Real.
Brad: That’s awesome. Well, Michael, I’m kind of looking across from you today and you look really well rested. The summer seems to be, I know we’re almost done with it because we’re in August now, but it seems to be suiting you well.
Michael: Well, thank you for noticing Brad. I’m recently back from a quick family vacation [00:01:00] and I’m actually feeling pretty good. I was last weekend, driving home from Austin, Texas.
Brad: Nice.
Michael: And I noticed a pretty funny bumper sticker as we were passing through a particularly country portion of our state.
Brad: Michael, are you saying that there might have been some rednecks around?
Michael: Well, yeah, that word does definitely paint a vivid and maybe accurate picture of the area of Texas that we were in. Anyway, to carry on the visual that you’ve created with the redneck
Brad: Yes, my fault.
Michael: The bumper sticker was on the back of an old beat up pickup truck. And when I say bumper sticker, that’s really not doing it justice. It was massive. It took up the entire rear windshield. The first thing that caught my attention, other than the sheer size of it, was a massive silhouette of a cowboy riding a bull [00:02:00] which actually, isn’t that unusual for that area of our state, but underneath it in large letters, it said, no texting and bull riding.
Brad: Ah, okay. Well, that does remind me of some other ones when I’m driving either West Texas and sometimes even East Texas that I’ve seen. And I can’t remember which side of the great state of Texas I was on when I saw it, but one was rub some dirt on it. You know, that seems like a good classic. And of course the one that made me laugh and my wife gave me a stink eye, I love big bucks and I cannot lie.
Michael: Oh, well, that is like a double hit there. It’s both a dad joke and brings out your 13 year old humor.
Brad: Yes, it did.
Michael: All right. Well, I saw one that cracked me up because if you’ve ever had a friend that’s vegan or does CrossFit, you’ll get this one. The bumper sticker said, if you meet someone who is vegan and into CrossFit, which one do [00:03:00] they talk about first? How about you? Do you have any favorite bumper stickers besides the big bucks one?
Brad: You know, I don’t have a favorite bumper sticker, but I was driving behind a minivan once and on the bumper sticker, it made me laugh, it said, I used to be cool.
Michael: I bet you resonated with that one.
Brad: I’m still cool.
Michael: Well, all the ones I can think of really tap into my 13 year old boy humor. And even though Riley’s not here, I don’t want to disappoint her. We do have our podcast Sensei Rob here and he probably would get into our 13 year old boy humor talk, but I’ll pass for now.
Brad: Well, I won’t. I’m going back to my 13 year old humor. I actually remember the first time I saw this bumper sticker and I’m not sure if I can actually say the words so I’ll try to spell it. It said, something happens with an S H, some type of, maybe an I followed by maybe a T, you know, [00:04:00] maybe. And I remember driving with my dad laughing and it’s such a classic because I still thought it was perfect.
Michael: Well, that all makes sense and I probably would have laughed too. I saw another one, of course also in a rural part of Texas on the back of an old pickup truck that said, my son beat up your honor student.
Brad: Yeah. Speaking of kid ones, I did see one where it said, I childproofed my car, but they still got in.
Michael: Ah, okay, well, let’s get a little more personal, Brad.
Brad: Okay.
Michael: Do you have any bumper stickers on your car?
Brad: None. No, none right now.
Michael: Have you ever had bumper stickers on your car?
Brad: I have, and so I guess depending on the season of my life, I’ve had Saints bumper stickers. I’ve had Carry the Load bumper stickers, which, for those who don’t know, is a nonprofit that we do a lot of work with that helps bring back the true meaning of Memorial Day. And then at different points in different cars, I’ve had my [00:05:00] kids schools logos on it. Well, how about yourself?
Michael: I’m not a bumper sticker guy. And I actually have gotten more anti-bumper sticker over the years.
Brad: Yes, we’re talking about it now.
Michael: Well, anti-bumper sticker on my car.
Brad: Oh, okay.
Michael: I appreciate the bumper sticker, just not on my car. It’s too messy, and I think what really started getting me there is that I’ve got a huge amount of kids, as you know, five kids, and so you can’t keep up with all the different things that you could advertise. And no, I did not carry the stick figure family on the back of my car with the five kids and all my, at one point, seven pets.
Brad: Well, that’d probably be like that bull riding car you saw. It would just take up the entire back windshield with your kids and pets.
Michael: Exactly. Well, it did help me the fact that I’m anti-bumper sticker on my car because my daughter, Caroline, [00:06:00] gave me an Arkansas Razorback sticker for Christmas one year, and it’s still sitting in my closet.
Brad: Oh, okay. At least you didn’t throw it away.
Michael: And so I feel okay about it because she understands that I’m not a bumper sticker guy, so it’s not the fact that I don’t want to put her bumper sticker on. To be fair, it is an Arkansas Razorback sticker, and so I like having the reason to not to put it on there because a good UT Longhorn would never have an Arkansas Razorback sticker on the back of his car.
Brad: That makes sense. Now I know what to get you for Christmas, though. It sounds like I need to get a whole box of Texas A&M bumper stickers.
Michael: Oh, yeah. Yeah, I would put them to good use. Well, here’s a cousin to the bumper sticker, the personalized license plate. Just tell me you don’t have a personalized license plate, Brad.
Brad: Never have, but I guess it’s cousin, I have had a personalized holder of the license [00:07:00] plates and in shocking news one said Season Ticket Holder For The Saints and the other one said 2009 Super Bowl Champs with the Saints. So I guess it’s a cousin to it.
Michael: Yeah, it sounds like it. Well, I for the most part, I don’t like the attention that it calls to people, but I did laugh really hard, I saw a lady driving a a Porsche convertible that had personalized plates that said, Was His.
Brad: Ouch.
Michael: Yeah.
Brad: Yeah, that’s no bueno. Okay. Well, what does I guess bumper stickers slash personal license plates have to do with fake or real today?
Michael: Absolutely nothing.
Brad: Oh, okay.
Michael: Yeah, but we are going to be talking about the Corporate Practice of Medicine, or CPOM. And I feel like there’s a good bumper sticker or license plate that could be created for CPOM.
Brad: Yeah. And, as many of you know, Michael does have CPOM tattooed on his bicep so that’s probably why he thinks it’s a [00:08:00] good bumper sticker. For those who don’t know, the Corporate Practice of Medicine is a state doctrine. It basically limits corporations from providing medical services and or, employing physicians, and it is in every single state. We’ve talked about this in other shows, it’s a little bit different, but that’s kind of high level understanding of what CPOM is.
Michael: Yeah, and so our question that we will dispel today, Brad, is about CPOM, and the question is this, fake or real, CPOM may affect the business structure of my medical spa?
Brad: I think I know the answer, but let’s get started with today’s story.
Michael: Okay. The main character in today’s story is a prominent female facial plastic surgeon named Dr. Shirley Partridge.
Brad: Okay, I’m putting on my thinking cap here and you used to complain about my movie references, now I think you’re adopting that you like it, [00:09:00] because I’m thinking about a character from the 1970s TV show, The Partridge Family reference, and I like it.
Michael: Ding ding.
Brad: And I think only two people in this room, maybe a third person, I’m looking at Rob in the engineer seat, I betcha Rob knows it. Cynthia, who’s sitting in for Riley today, I don’t think you’ve ever seen The Partridge Family. She’s shaking her head no audience members.
Michael: Danny Bonaduce? Okay, alright.
Brad: Yeah. We got a thumbs up over there from Rob.
Michael: Well, for those that do not know, The Partridge Family was a TV show based on a family band. Shirley Partridge was the widowed mom, and she had a traveling band with her five children.
Brad: Yeah and I love that you’re finally starting to understand the relevance of old movies and old TV shows and the fact that you went back to the 70s, you make fun of me using the 80s, but let’s get back into our story. Does Dr. Partridge have a band with her family?
Michael: No, Brad, we don’t do a lot of band talk on our podcast.
Brad: Okay, yeah, makes sense.
Michael: So Dr. Partridge in [00:10:00] our story is widowed.
Brad: Okay. Sorry to hear that.
Michael: And, she has three children of her own that work at her practice. Lori is a physician assistant at the practice. Suzanne is a registered nurse. Keith is the CEO on the business side. He’s not a practitioner.
Brad: Alright, well, tell me there’s someone to fill the shoes of Reuben, who was the Partridge family band manager.
Michael: Yeah, you gotta have a band manager so you’ll be happy, Brad. Reuben, in our story today, actually, when Dr. Partridge first was widowed and needed help with the practice, had hired Reuben to help run the business. And had actually been there since Dr. Partridge first purchased the practice 25 years ago and he’s like family to them.
Brad: Yeah, and the more I’m sitting here, Michael, wondering, are you secretly hiding the fact that we know you don’t like bumper stickers, but maybe you’re a Partridge family groupie and you’re about to break [00:11:00] into your first ever favorite Partridge family song here on the podcast.
Michael: We know that someone on our team here is guilty of breaking into song and if someone were to go back and listen, they would discover that there is someone who has done that multiple times and it’s not me.
Brad: Oh, okay.
Michael: Yeah so please don’t.
Brad: All right. Well, back to the story then.
Michael: Okay so Reuben created the medical spa at the practice 20 years ago and side note, they didn’t call them medical spas 20 years ago.
Brad: No, they didn’t.
Michael: And actually today the medical spa side of this practice is making as much money as the surgical side.
Brad: Okay why did Dr. Partridge actually call you then?
Michael: So after all this time building a successful business, Dr. Partridge was ready to scale.
Brad: Okay. Well, Michael, you know how much I love context and fake news. I know you love context. Please let the [00:12:00] audience know, what does scaling mean?
Michael: Okay, Well, I like context so much, I gotta give you context to give you the context about what scaling is. So, we’ve talked on other episodes about the seasons of a business. Every practice, every business is in one of four seasons. Our terms, we call it the building season. That’s the beginning. You’re putting the infrastructure in place. And then you’re in the operating season. That’s the day to day grind of running your business and dealing with crises as they pop up. At some point, you may decide to go into the scaling season. And the scaling season is a time when there is a focus on accelerating the growth of the business. And that may be creating a new revenue stream, opening new locations, or adding to your existing revenue streams in some strategic way that is a focused effort to accelerate growth. And then [00:13:00] as we talked about all last season, the fourth season of a business is the selling season and it is directly impacted by all these other seasons.
Brad: Yeah. The buying and selling season is an important aspect for a lot of individuals. So what was Dr. Partridge’s vision for why she wanted to scale?
Michael: Great question. So, she was mostly thinking about creating flexibility and security for her eventual exit. She had family. She had three kids in her practice. She had Reuben, which was relevant. And she wasn’t getting any younger. She was the breadwinner for the practice. She was the surgeon with the skills. And so she really wanted to specifically grow the medical spa side and had a vision to open multiple new locations.
Brad: Okay. And so why did she share? Did she share, I guess, more importantly, what she wanted to do with this?
Michael: Yeah, I mean, she wanted [00:14:00] to reward Reuben for his loyalty and she wanted to create a place for Laurie, Suzanne, and Keith beyond her retirement. And she had also kind of coincidentally identified a young surgeon that she was ready to hire to help and eventually take over on the surgical side.
Brad: Got it. So basically what I heard was her office manager, the PA, the RN and the CEO, all who are not physicians or individuals that she was trying to figure out ways to be a part of it. And then more importantly, which I wanted to jump back into is, this happens a lot, especially with our surgeons, they want to find ways to tap into the non-surgical revenue because it’s more flexible, it’s more repeatable, and especially, for those who’ve heard us talk about this in the Med Spa world or we talked about it especially during the Hitchhiker’s Guide to M&A, it’s an ability for them to operate something that is not dependent on the surgeon, in [00:15:00] that case the physician, from actually physically having to be in the med spa every day. So it can be a win for them.
Michael: No, absolutely. And she kind of presented this to me as a footnote, but Dr. Partridge was also curious about private equity. And so it was appealing to her to have a strategy, the scaling strategy that would also leave open the possibility of a private equity exit if she decided to go that way, but if she did, she wanted to create it in a way that it would reward the family as well. And by family, we mean Reuben and the kids.
Brad: And I would say this, a lot of times when we’re talking with the clients, and we will take the health care regulatory aspect of this for a second, especially these key employees, they want to find a way to reward them when they exit because although might not be an owner of the entity at the time, they want them to share [00:16:00] in that. So that might be done through certain types of bonus pools or stock options or actually giving them direct equity, but as everyone has heard us in other episodes, that can get complicated because they’re in the health care world.
Michael: For sure. Well, so Dr. Partridge, actually, what she had communicated was that she wanted Reuben to have a 30% stake in all the new medical spas that were open. And she also wanted Laurie and Suzanne and Keith to each have 15% in these new locations, so you can see that she was going to be a minority owner in this scaled vision of all these new locations.
Brad: Yeah, and it’s starting to get a little complicated here. This seems like there’s some math involved. You still have this original practice, right?
Michael: Right. Yeah. So that’s the practice, The Partridge Family Facial Plastics Institute.
Brad: Okay. Was it [00:17:00] out of a bus by chance?
Michael: Maybe.
Brad: Okay. So, I’m assuming, you didn’t say it, but the original practice is still 100% owned by Dr. Partridge.
Michael: Yeah, I probably should have said that earlier. Yeah, she owns 100%.
Brad: And for context, for our audience and myself, what state are they currently living in?
Michael: Well, like all good entertainers, Brad, they’re in California.
Brad: Oh, that makes sense. Yeah. And now they want a different ownership for the expanded practice is what I heard.
Michael: Yes. And as would have happened with you, I’m sure when she was explaining the vision, you know, my legal brain was going wild. And, she needed to have a whiteboard meeting.
Brad: Yeah, and audience members, y’all probably have heard us talk about this before, but we love whiteboard meetings. It’s an opportunity to really hear the vision of our client or a client, and then be able to sketch out literally with pens and on a whiteboard of here’s your current structure. Here’s how the flow of funds [00:18:00] would work. Here is how you could see it and they can visualize the next entities and ownership and flow of patients. So it’s a great opportunity before you actually develop the actual documentation of mapping out the vision of this new corporate structure.
Michael: Yeah. And so Dr. Partridge had this critical moment in time where she had business reasons to revisit the corporate structure with the scaling of the business, but what she didn’t realize, and I was, of course, identifying, is that there’s also compliance reasons to consider with her scaling vision to look at the corporate structure.
Brad: And this brings us, I think, back to the myth that’s bursting out of this particular story with the Partridge family, Michael, is it fake or real? Corporate practice medicine may affect the business structure of my med spa.
Michael: It’s real, Brad. Yes. It is [00:19:00] real.
Brad: Okay. That was the answer I was going to give earlier when I said I think I knew the answer.
Michael: Oh, well good. I’m glad that you would have passed the test. Dr. Partridge is in the state of California and she had implemented a strategy where non-physicians, Reuben and can you remember who the other one was?
Brad: The bus.
Michael: Keith. They were the non-physicians and non-practitioners.
Brad: Non practitioners, yeah.
Michael: And they were going to be owners. And California is a strong corporate practice of medicine state.
Brad: It sure is. Well, Michael, that’s a great story. I think what we can do right now is we can go to commercial and on the other side, we can talk about the legal implications of their story and more importantly, dive deeper into, from a structuring perspective, how to address it with the corporate practice of medicine.[00:20:00]
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Brad: Welcome back to Legal 123’s with ByrdAdatto. I’m your host Brad Adatto. I’m still sitting here with my cohost, Michael Byrd. Now, Michael, this season’s theme is Fake or Real. And we talked today about Dr. Shirley Partridge and the whole Partridge Family Facial Plastic Institute, which is not in a bus. Maybe just for those who want after the commercials, a little quick recap of what happened.
Michael: Yeah. So, as a recap, Dr. Partridge approached us and she got on a call with me because she had a very successful facial [00:21:00] plastics practice for the past 25 years. She had med spas before med spas were a name and had this non-surgical side of the practice that had grown to the point where the non-surgical revenues were equal to the surgical revenues. And, you know, I think the biggest reason she called is she has family and Reuben, who had been with her the whole time. And she had this sense of loyalty of wanting to reward them and it was really more of a reward for what they were going to do as opposed to for what had been done. So she was looking at, okay, well, I want to go and I want to go open multiple new meds spas because I’m going to scale the business and that’s going to create security for my family. And so that’s where she came from and she had a vision to [00:22:00] have kind of new ownership for the new locations, yet she was going to preserve kind of her ownership stake in the practice. And maybe ultimately, we didn’t talk a lot about this, probably sell it, that side of things, to the young surgeon that she was bringing on.
Brad: Sure and I think the story, as we caught at the very end, this is based out of California. Audience members, as you know, every single state has a different way of looking at the rules and regulations, especially when it comes to CPOM, but California is a state that does have it. And by the way, for those who don’t know, they’re the probably the strongest state when it comes to enforcement of CPOM. For those who don’t know, non-physicians actually can co-own a medical entity in the state of California. The terminology they use is allied health professionals, which there’s a long list of different types of providers. And that could be [00:23:00] anywhere from your PAs all the way down to certain social workers. So the list is pretty robust if you have a particular license, but they’re limited, meaning that the physician still has to own the max or minimum 51%. And these other allied health professionals would own up to 49%, which, as to today’s story, will definitely impact our PA and RN, Laura and Suzanne, because they could own up to 49% of the actual med spas as they open them up, but Reuben and Keith could not. So, Michael, let’s talk about the current climate of CPOM in California and what’s going on there.
Michael: Yeah, and you alluded to it a moment ago, so Corporate Practice of Medicine in California is strong, but one of the things that we’ve always appreciated about it is it’s been really clear.
Brad: Yes, it gets very clear.
Michael: We know what you can and you can’t do according to the way the laws have been built and actually [00:24:00] the medical board’s issued a lot of information over the years. And so it’s been easier for us to guide our clients on what the boundaries are and how you set these up. You alluded to the enforcement side of it and that is chaos. That’s why California in many ways is one of the hardest states to go into from a risk perspective. And there’s just a lot of stuff bubbling under the surface in California. A couple of years ago, there was some legislation that didn’t get too far, but it got out there that would have effectively killed the MSOs, which we’ll talk a little bit more about here, but it would have had a significant impact on the solution to the Corporate Practice of Medicine. And then from an enforcement perspective, not only is [00:25:00] California’s kind of enforcement really strict about people doing things they shouldn’t be doing, they are starting to focus their attention on MSOs and there just is an enforcement theme of looking hard at the activities of non-doctors involved in the business of medicine and in the practice of medicine. And so it raises the risk profile even though the laws are clear. It’s not for the faint of heart. You have to understand kind of what you’re getting into.
Brad: Yeah. All good points. And the point that I think is the most important is how aggressive they are about enforcing it, and there is no leeway in that. So when you’re sitting there visiting with Dr. Shirley Partridge, you obviously had to help her accomplish her goals. So what did you utilize to make that happen?
Michael: Yeah, so we talked about the MSO, which I alluded to a moment ago. That’s the Management Services Organization. [00:26:00] And this is the most common solution to the Corporate Practice of Medicine and the idea is that you, in a Corporate Practice of Medicine state, you have to have a professional entity that’s either 100% owned by the doctor or this 51/49 with the allied health professionals. And so the way you deal with the Reubens and the Keiths is you create an MSO and that is called a management services organization. That entity can be owned by anyone. And in this particular case the idea was let’s create an MSO for all these new locations with this ownership table that I mentioned earlier. 30% to Reuben, 15% each to the kids, and then the rest to Dr. Partridge. And then we would have a medical practice that would still, in this case, be a hundred percent owned by Dr. Partridge. And we would bring those two [00:27:00] entities to life, bring the MSO model to life through a management services agreement. And so the idea here without getting too much into the weeds on the MSA is it really was a how do we create a structure that would effectuate what she’s wanting to accomplish. And so we ended up having the old practice that was owned by Dr. Partridge and then she had a new practice that was owned by Dr. Partridge and then we had this MSO that I just mentioned to you. And so in this particular case, all the patients that they’ve had historically at kind of the home location where the surgical practice is and the original med spa is, would still business as usual. They would come in, they’d go. When they opened the new locations, it from a branding perspective would look the same, but they were actually patients walking into a different medical practice entity. And that particular entity was being managed by this MSO owned by the band and the band manager.
Brad: Yes. And, for our audience members, we didn’t want to dive too deep today in this episode on the inside of the MSA. Couple quick takeaways for your thoughts, number one is a lot of times, especially in strong states, someone says, I just want my MSA and they get an MSA and they think that makes them compliant because they have an MSO and a professional entity. Those hearing this for the first time, sorry, those who have heard me say this a lot, it’s a form and substance issue, and especially in strong states like California, where you want to make sure that that MSO is showing up and rendering certain services. And then therefore the management fee and all costs associated, there is a process that goes with it. Those who want to dive deeper into this, obviously we’ve done other shows on this. We actually have an MSO field guide out there that you can read about the function [00:29:00] and why you need an MSO in specialty court practice of medicine states. And we will get back into the MSO world in another episode where we’re going to dive a lot deeper into how they can be utilized, but Michael, how about your final thoughts?
Michael: Well, I think I should get Dr. Partridge a bumper sticker that says, or for the kids, it says, My mom conquered CPOM. What do you think?
Brad: Yes.
Michael: Okay.
Brad: Okay, well, I’ll make sure that’s on her Christmas list. Well, audience members, that is all the time we have today. Next Wednesday, we will continue our quest to determine a legal myth when we bring on our returning guest, Dr. Jonathan Kaplan, to help us unpack, Fake or Real, it is legal to compound semaglutide.
Outro: 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. You can also sign up for the ByrdAdatto newsletter by going to our website at ByrdAdatto.com. 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. Please consult with an attorney on your legal issues.
