Loyalty programs can drive real value, but in health care, they also carry real risk. In this episode, hosts Brad and Michael, joined by partner Jay Reyero, share the story of a growing multi-location med spa working to strengthen patient engagement and retention. When the team considers adding a refer‑a‑friend program, they encounter a major obstacle: incentives can create compliance risk in health care. Tune in to learn why referral programs raise legal concerns and how med spas can structure a compliant loyalty program. Explore low-risk ways to reward advocates and implement strategies that drive growth, compliance, and long-term success.
Listen to the full episode using the player below, or by visiting one of the links below. Contact ByrdAdatto if you have any questions or would like to learn more.
Transcript
*The below transcript has been edited for readability.
Intro: [00:01] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real-world experiences, creating simplicity in three, two, one.
Brad: [00:13] Well, Welcome back to another episode of the Legal 123s with ByrdAdatto. I’m your host, Brad Adatto, my co-host, Michael Byrd
Michael: [00:20] As business attorneys for health care practices, we meet a lot of interesting people and learn their amazing stories. This season’s theme is The Business of Medicine Today. Gone are the days of grandpa’s medical practice, with paper charts and old-school treatments. Brad, we’re going to confront the business and health care issues faced by a modern medical practice.
Brad: [00:42] Awesome, and for those in TV land watching, as you can see, our series regular and our partner, Jay Reyero, is here with us today.
Michael: [00:52] Jay, are you with us?
Jay: [00:55] And time. Sorry, guys, just finishing up raw dogging boredom there. Ever heard of it?
Brad: [01:01] Michael, I think we referenced some new terms the youth are using on another show. Was this a term you quizzed me on by chance?
Michael: [01:09] No, and we just don’t have the maturity to handle this conversation. Context, y’all know I love context, right?
Brad: [01:19] It does matter to you.
Jay: [01:20] I’ve heard that once or twice.
Michael: [01:21] Well, context matters a lot right now on, on what our rating for this episode will be. Because you have to be careful using the word raw dogging. Depending on your audience, it can mean a completely different thing than what I think Jay’s referring to as he’s staring off into space.
Jay: [01:38] Yes, so for me as the resident social media expert in the firm, let me for those unaware, that is the trend where the challenge is to just sit idle. We’re talking no devices, no books, no music, not even food or sleep. You just simply stay free of distractions for a period of time, can be minutes, can be hours, and the videos show people just sitting there staring off into space, expressionless. Timer comes down and it can be as long as you want. I mean, this is what all the “yutes” are doing.
Michael: [02:13] You just said “yutes?”
Jay: [02:15] Yeah, “yutes.”
Michael: [02:17] Yeah, two “yutes.”
Brad: [02:18] For those that do not know what “yutes” is it’s from the movie “My Cousin Vinny,” when he talks about the two youths or “yutes.”
Michael: [02:25] And there it is. There’s the old movie reference. You guys took us from culturally relevant to sounding old in a flash.
Jay: [02:34] All right, well let’s bring relevance back then. Let’s go back to raw dogging, and, you know, it didn’t start with boredom. I’m pretty sure it started with raw dogging long flights.
Brad: [02:44] Yeah, another term that people might not be familiar with, but that’s spending the entire flight staring straight ahead, accompanied by nothing but your thoughts. No music, no book, no movies, just you and your brain.
Michael: [02:56] Actually, I don’t think it started with long flights, but we won’t go there. I did ask my kids years ago, when I had heard about raw dogging flights, if they planned to raw dog a flight on one of our trips, and I was met very quickly with, “Dad, you can’t say that.” This of course, made me say it more.
Jay: [03:15] Obviously.
Michael: [03:16] My oldest, Christopher, without trying to be culturally relevant, actually does and always has raw dogged flights since he was a kid. He will get on the plane and just sit there in his own world for hours. No phone, no sleep, he just stares straight ahead, lost in his own thoughts.
Brad: [03:35] I think that’s actually called a crisis. Me alone with my thoughts?
Jay: [03:38] Somehow, I feel like Brad, of all people, would be fine with that.
Michael: [03:43] Just talk to yourself.
Jay: [03:44] So, have you heard of the latest one? So this one I would just classify as a normal Sunday from my childhood, but it’s called raw dogging NFL Sunday. It’s one television, you watch one of the local televised NFL football games. You don’t check your phone, you don’t track any other games in any manner, and you don’t know what’s going on until the highlight halftime show.
Brad: [04:08] Nope. I mean, why would anyone deprive themselves of tons of other relevant or sometimes not so relevant, even irrelevant information? I mean, I’m out on this one.
Michael: [04:19] I actually agree with Jay. This sounds like college fall Sunday, and we would raw dog the entire day, all the way through Sunday Night Football, and, you know, we didn’t have internet.
Brad: [04:34] You also were drinking the entire time, too.
Michael: [04:37] Not necessarily. We might have been recovering.
Jay: [04:40] Yeah, the greatest invention, I think is Multiview for YouTube TV, I’m never going back.
Michael: [04:48] Okay, same here. Well, let’s get into today’s story, Jay.
Jay: [04:53] All right. Well, yeah, so today’s story is going to involve a multi-location med spa that’s been operating for a couple of years, and let’s call it Au Natural Med Spa.
Brad: [05:03] Okay, interesting name, and for those that don’t know, au natural in French is really in the natural state, meaning without anything added or artificial, and commonly translated to as naked or referring to people or plain, uncooked, referring to food, or it also implies a simple, unembellished style, like wearing no makeup or fitting in the raw concept of being genuine and unmodified. Which does seem like an odd name, actually, now that I’m thinking about it for a med spa, Jay.
Michael: [05:34] I guess it is a little more subtle than Raw Dog Med Spa.
Jay: [05:38] Yeah, imagine that on a giant sign out in front. So, Au Natural Med Spa was at an important point in their business life cycle. They had successfully navigated kind of that startup period, establishing themselves in the community, in the industry, as one of the top med spa options. And now they were in operations mode, where, look, they could keep doing what they’re doing and be just fine, but there is this opportunity now to kind of go to the next level, and that’s, “Let’s get a second location in a new community, and let’s try to capture some additional market share from our competitors.”
Brad: [06:13] The classic med spa dilemma: stay fabulous just where you are, or spread your glow all to these new zip codes.
Jay: [06:21] You should write their jingle for them.
Brad: [06:22] Yeah, I’m pretty good at this, though.
Jay: [06:23] So they had to start looking inward to see kind of who they were and, and how they were viewed within the community, to kind of start gathering and generating ideas on strategy. And what they found was that they really weren’t the best at keeping their patients engaged, and they really didn’t distinguish themselves yet from all their competitors in other areas. And so this kind of gave them the idea of, “Let’s start with a loyalty program.”
Brad: [06:50] Okay, so audience members, loyalty programs really have become a staple across many different industries, which, you know, retail or restaurants, airlines. And because they tap into the simple truth of keeping the existing customer is often much more cost-effective than having to go out and acquire new ones. Which is why word of mouth remains one of the most effective and affordable marketing tools that’s out there. And when patients are satisfied, they don’t just come back, they’ll obviously, by word of mouth, tell their friends about you. And these referrals and repeat visits help med spas, or really any industry, strengthen their reputation, growing their brand organically. To encourage this cycle, many practices will implement loyalty programs as a way to thank their most devoted customers, or in this case, patients. These programs typically offer rewards such as discounts, cash credits, complimentary treatments. The idea is to create a win-win for both the patient and practice. In short, loyalty programs are not just perks, they’re really strategic tools for growth.
Michael: [07:54] They also end up creating a barrier to keep the patient from leaving. When they have a quote, “bank of benefits” from the business, you know, they want to use those, those benefits. So, you know, we always hear about points, and I know that I would not be happy if I lost my airline points that I’ve accumulated from all the business travel we’ve had. So they are much less likely to take their business elsewhere when they have this, you know, kind of credit that’s sitting there.
Jay: [08:29] And, I mean, you see this in all other industries. Like you mentioned, the airlines, you got hotel points, almost every retailer has some version of this, so as you continue to buy products, you get, you know, cash back or points to use for future purchases. So it was a fairly common thing in all other industries, so it was a very natural extension into the med spa space. And so we kind of start first guiding Au Natural Med Spa through the design of a compliant loyalty program. And really, the key to any good program is you’ve got to make sure it’s clearly explained, it’s clearly documented, it’s consistently applied. And so we worked with them to kind of iron out all of those details on how they wanted the program to work and deal with the common what-if scenarios to be able to spell out what would happen. And these are all things that med spas face, and each med spa is different, and they handle them differently, so it’s a really a customized exercise. And so this allowed us to kind of gather all this, reduce it to writing some terms and conditions that would be easily understood by patients, so there’s not any surprises, there’s not any misaligned expectations. It’s very clear kind of how this program works.
Brad: [09:41] And you nailed it. A very important part that Jay just said, audience members, is the success of these loyalty programs really does hinge on the clarity and the consistency of it. If the program is not clearly explained or documented it’s not applied uniformly, it can actually lead to more confusion, frustration, and unfortunately, sometimes, as you know, you drift out of compliance or compliance issues.
Jay: [10:03] Yeah. So just as we were finish putting kind of the finishing touches on the terms and conditions that we kind of worked with them, they threw us a nice little curveball.
Brad: [10:12] They wanted to raw dog their membership program, which I’m not even sure what that really means.
Michael: [10:17] Yeah just clearly wanted a reason to say raw dog again.
Jay: [10:20] Just trying to earn that explicit rating. Yeah, well, they had one really loyal patient, and she was instrumental in spreading the word around the area and helping drive business. Let’s call her Rally Sally for today.
Brad: [10:36] I like that name, Jay.
Jay: [10:37] Yeah, so Rally Sally told all of her friends about Au Natural Med Spa and the great providers and service that they had. She signed authorizations to allow her before-and-after photos to be shared on social media and the website, which then she shared with her followers. She, more importantly, had owned a hair salon, a nail salon, in the area that had a ton of foot traffic and a ton of built-in customer base, and every person that came in and every person that she saw, she would take the opportunity to recommend Au Natural Med Spa.
Michael: [11:10] Well, I’ve seen this movie before. So if you’re going to tell me next that they wanted to ask you how they could pay Rally Sally for referring all this business, I think we can actually just raw dog the rest of the podcast, because the answer is no.
Jay: [11:28] Point for Michael, mark that off the bingo card, audience. No, so they had been working with us long enough. They know the type of strategy would not be an easy solution. They knew that it would be a little bit more discussion, and while that was on their mind, there was something bigger there with her, they left it for another day. We’ll leave it for another podcast. But no, Rally Sally got them thinking about how they could create more Sallys, meaning how can they get more people to recommend and be the voice and the cheerleaders for Au Natural Med Spa?
Brad: [12:05] Yeah, it should be something that med spas or any practice should consider, is, “How can I encourage or even amplify my customers, in this case, the patients, to want to spread it by word of mouth, which is nowadays, the digital platform of that is the Google reviews or Yelps. I mean, that’s critical for a med spa that have word of mouth, and now it’s critical for a good med spa or medical practice to have good patient testimonials.
Michael: [12:31] And it’s a new level recently. I’ve read, I’m not trying to take us back to the ’80s. But, do y’all remember Chili’s?
Jay: [12:40] Yes.
Brad: [12:41] Yes, I got my baby back, baby back, baby backs ribs.
Michael: [12:44] So, fascinating story. I mean, they were on the verge of irrelevance and closing down, and to talk about, that the next level from testimonials, randomly, a year ago or so, a influencer, a very powerful influencer-
Jay: [13:00] Was it Jay Reyero?
Michael: [13:02] No. It was not in the medical space. Happened to be eating there, and happened to order an app that she wanted, which, by the way, was the least popular app on the Chili’s menu. They were about to get rid of it, according to the story. And, so this influencer just did a post of, “I’m eating my, Chili’s appetizer,” and posted it and it went viral, like all of her posts did. And, all of a sudden, from that one thing, it became popular for the other influencers to go to Chili’s, and last year was, like, one of the record years for Chili’s. That appetizer was the driver of their revenues. Everyone wanted to get that same thing, and Chili’s capitalized on it. They brought in, kind of these discount lunches to meet that audience, new different happy hours. And so this takes a testimonial to a different level. This is the power of an influencer, and so bringing it back to someone like a Rally Sally, you get one Rally Sally, that can just expand, depending on how you can capitalize on it.
Jay: [14:19] And they definitely knew this, and they kicked around the idea of influencers, since that’s, becoming a much more popular thing with med spas. But really what they wanted to do, kind of in the initial stages, was really focus on people within the community, so people like Rally Sally. And a lot of times, when med spas start thinking about this, they go down this line of thinking that, “Well, we have to incentivize people to recommend. Like, they’re not just going to go out and do it on their own. There’s has to be something that they’re going to tell their friends, if there’s something in it for them.” And so they think, “Okay, well, how can I fund a way to encourage people to do something?” And by fund, I mean literally, like, give something of value and it’s not going to be enough just to sit back and say, “Hey, thanks,” when it does happen.
Michael: [15:02] Yeah, I get the thinking, right? I mean, that makes sense. Also, if you kind of dig a little bit deeper I don’t think that’s always the reason someone will shout your name out there. I mean, Rally Sally seemed to have different reasons than that for how it all started and there is a relationship component to it, so you want to be thoughtful with your business to understand where you know, if you already have a loyal following is adding something like this going to really have the impact that you want? I can see if you’re trying to get that following for the first time, where that could be a tool to use to try to accomplish it.
Jay: [15:54] Yeah, so we had all these general conversations and this brings us back to the curveball where, Au Naturale, asked us: “Can my med spa offer a refer-a-friend program?”
Michael: [16:06] There it is. All right, well, let’s go into commercial, and when we come back, we can talk about, Au Naturale Med Spa and whether they could have a refer-a-friend program.
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Brad: [16:51] Welcome back to Legal 123 with ByrdAdatto. I’m your host, Brad Adatto, with my co-host, Michael Byrd, and we’re still here with series regular, Jay Reyero, who is not raw dogging boredom anymore because he’s been sharing a fun story with us, Michael. And for those who don’t remember, this season’s theme is The Business of Medicine Today.
Michael: [17:10] Yeah, today we’ve been talking about Au Naturale Med Spa and their journey on trying to really create that stickiness with their patient base. And so, they had a loyalty program, and it started kind of really based on the results they were seeing with Rally Sally, one of their very loyal patients, who’s, had a powerful impact on the business, exploring, is there a way to incentivize financially this kind of referral of friends? And so I think that’s where we ended off, is, you know, their question: “Can we have a refer-a-friend program?”
Jay: [17:54] Yeah, and this is one of those questions that seems like it’s going to be a fairly simple answer but it becomes complex and a nuanced discussion because, again, we’re playing within the health care industry, and as we’ve said throughout the seasons and all the time, health care is highly regulated.
Michael: [18:12] So let’s expand on that, refer-a-friend programs are everywhere. So you know, we know people in their audience are thinking right now, “Well, I know so-and-so’s doing this,” or perhaps you’re doing it yourself. So, what’s the issue in this context?
Jay: [18:28] Yeah, so take it back from a really high level and from a context. The particular issue that we’re navigating is, well known by everyone in health care, and it’s called many things. So we call it anti-kickback or anti-referral or patient solicitation or commercial bribery. And essentially, the fundamental purpose in or the fundamental premise in health care with these, with these terminology is that you cannot pay people for referrals. And this is known at the federal level very well, but they’re also found throughout state laws. You’re found throughout medical board, nursing board, other licensing board rules, professional ethical opinions. And they’re all trying to combat the same thing, that we want to eliminate or prevent financial incentive or financial determinations or any kind of interference with what health care services are good for a particular patient.
Brad: [19:24] Yeah, and audience members, this is really important. I mean, Jay was spot on that there are just a tons of different rules and regulations, again, federal and state-wide. Your medical boards, your nursing boards, you know, there’s certain professional ethics that you have to consider that may prohibit these financial arrangements. Because basically, the idea is you’re influencing the patient’s care decision. These frameworks exist to actually protect the patients by ensuring the clinical judgment remains independent and free from improper incentives. The underlying principle, it’s the same: health care decisions should be based solely on what is best for the patient and not on a financial gain.
Jay: [20:05] And look, you know, you said it earlier, Michael, that everyone says, “Oh, I know everybody’s doing this. How are they doing it?” And, you know, we always get the same question, you know, “Well, why is this okay in other industries but not here?” And the federal government acknowledges this. I mean, they expressly state that in some industries, it is acceptable to reward those who refer business to you. But in the federal health care programs, paying for referrals is a crime, and that bleeds down to all these different levels with that same line of thinking. And so kind of on the federal level, we’re all familiar and see the news of kickback investigations and the takedowns, and we’re talking millions upon millions of dollars that are at issue here. It is, a lot of times, very clearly illegal behavior, the way that the press releases and opinions talk about. But when it comes to med spa, now we’re in this world where it’s cash-paying patients that patients are recommending. And so, I get, and I acknowledge to anybody that I talk to, that, I understand the pushback of why that is wildly different than what we’re talking about at the federal level.
Michael: [21:17] Yeah, I agree. I mean, it is tricky in aesthetics because the patient is making a choice to pay for those services. So, I mean, to your point, it intellectually does not make sense that you will have patients being taken advantage of, even going back to Brad’s point for services where they’re paying cash. But despite all of this the law doesn’t always follow nuance. They’re broadly written, and most state laws would prohibit these types of programs because they’re cash-based. And so they’re, at a minimum, you have to acknowledge, in almost every state, there’s risk here. And, now it gets sent down into the nitty-gritty of quantifying that risk based on the program, you know, that’s in place. But to that point, Jay, let’s talk about what an ideal program looks like for a med spa.
Jay: [22:13] Yeah. Well, let’s start with the first kind of non-negotiable, and that’s any program that’s going to try to reward patients for getting their friends in the door, you can’t give away cash, cash equivalents, gift cards to the med spa-
Michael: [22:27] Did you hear that, Brad?
Jay: [22:29] You just can’t do anything on that direct level, a one-for-one, a cash, cash equivalent, or gift card. That’s, that’s a non-negotiable non-starter, so that’s typically where I start.
Michael: [22:40] And it’s important to understand that we, I said the word nuance, but our favorite word is that it’s grey, right? It’s a grey area. We’re diving into that world of grey, where the only, really the only way you could truly eliminate risk is to just not have any form of a refer-a-friend program.
Brad: [22:59] All right. Yeah, I mean, I hear you guys, but just hear me out here. What if I tape a manila envelope of cash on a, a park bench, and I signal by marking X with a black Sharpie, maybe on a FedEx mailbox around the corner, that just happens to go to Rally Sally?
Michael: [23:18] Clearly, he’s not listening.
Jay: [23:19] Yeah, clearly.
Brad: [23:20] Is that what you were asking earlier?
Jay: [23:22] The famous what if questions we get. Brad, I think when the law says, “directly or indirectly, or overtly or covertly” they’re covering all scenarios.
Brad: [23:32] The covertly one.
Jay: [23:33] Yeah.
Michael: [23:33] Brad doesn’t know the meaning of those words.
Jay: [23:36] Yes, we’ll define them after the show.
Brad: [23:38] Thank you.
Jay: [23:39] So I think the, that movie situation probably isn’t going to work, but, we could try. But from a practical perspective, we don’t really see a lot of standalone refer-a-friend programs, where the sole purpose of the program we’re trying to build is to reward this word-of-mouth or give back to Rally Sallys out there. In most of my untrained marketing experience with med spas the patient loyalty programs are going to have the best chance of success, and then it’s within that, that they’re trying to add the component of the refer-a-friend.
Brad: [24:13] Yeah and audience members, you’re probably like, “Okay, this is not helping us very much,” because we do want to help. And so a lot of times, what we talk about is, and Jay just hit it, that is coming up with some type of loyalty program based on some type of point system. And this particular one can be flexible, but it needs to be compliant. You can assign different types of treatments or different type of purchases with different kind of points. So, for example, maybe if someone comes in and they get a Botox injection or a filler that’s 10 points, or they have some type of laser of, maybe that’s another 20 points. And again, you could keep messing with this, or the number of visits that you have, or a time frame, or whatever it is, each time you can add points to it. And maybe even have points, but points on a much lower scale, so maybe 10 points for Botox or 20 points for laser, but two points for referring a new patient, meaning that you’re not putting a lot of weight in on that refer a patient program, and it’s all cumulative, so that once an award is issued, it’s not, again, flat per patient, I get this.
Michael: [25:18] And let’s be clear, there’s still risk. These laws are written to say, if you give something of value for referring that patient, then you’re going to fall within it. And so what we’re trying to do when we talk through this is manage risk. And again, as I said earlier, the only way to eliminate risk is just don’t do it. But the theory with your idea, Brad, which I agree with, is, okay, now we’re talking about points, and we’re talking about it being baked into a loyalty program where there’s a lot of other stuff that goes into it, and it doesn’t have a lot of value to it. And, again, from a practical perspective, we’re talking about elective medicine, where the patients still has a choice in how they get their care. The risk is, though technically there on the lower end, is you manage it that way. But I’m curious, Jay, what did Au Natural Med Spa decide when it comes to the refer-a-friend program?
Jay: [26:29] Yeah, so they ultimately went the route that Brad described, to design that program with the point system and everything that Brad walked through. Because look, they recognized that Rally Sally was probably more the exception than the norm, that this refer-a-friend concept or program was not going to be significant enough to move the needle, for most people, to justify the risk that you’re talking about, that they would be taking of doing something even, you know, trying to be more aggressive to incentivize more. So they just, at least in the beginning, they wanted to take more of a lower-risk route, and so they designed it like, like Brad talked about. And there’s always the ability to reshape things down the road if you actually experience a real opportunity from the refer-a-friend program.
Brad: [27:16] Yeah, and that makes sense. It, reflects a thoughtful risk-reward approach, starting with a loyalty program with that aligns with compliance principles, is a smart way actually to build your patient engagement without introducing all these unnecessary exposures that we keep talking about from the state and federal perspective. You know, it’s also important to recognize that aggressive referral incentives often do not deliver enough value to justify the amount of risk that you may be taking against, especially even in a med spa space, with your boards. Keeping this program flexible, balancing, actually helps because you can always change it and shift if you have to. And but ultimately, what you’re really trying to do is trying to find the best health care model, that will meet where you are and your, and where your patients are.
Jay: [28:03] And look, they didn’t put all their eggs in one basket, in the refer-a-friend basket. They continued with other marketing branding ideas, with the influencers, and, and different, ventures with, with Rally Sally.
Michael: [28:14] They start selling appetizers like Chili’s?
Brad: [28:17] Well, we’re getting close to the end, guys. Jay, what are some final thoughts you have?
Jay: [28:22] Yeah, so going back, this is a nuanced conversation that, does take a little bit of discussion to understand. So I think for any med spa out there thinking about a refer-a-friend program, don’t raw dog compliance.
Brad: [28:35] Well, compliance is an area that is critical. Obviously, you have heard us talk about that before. Not only to avoid legal and regulatory exposure, but also to uphold the integrity, trust of the patients and, that they place in their providers. Michael, final thoughts?
Michael: [28:48] Yeah, somewhat similar to Jay’s, but different. You know, if you go Brad’s route and, like, give cash for a referral to Rally Sally-
Brad: [28:56] What?
Michael: [28:59] You asked that question. Yes, you did. And so if you go that route, you might have an orange jumpsuit on and learn what the other meaning of raw dogging is.
Brad: [29:12] Oh, no. All right, audience members, on that note, next Wednesday’s show, we’ll be back, and we continue with the business of medicine, when we actually address, business minute today, when we look at, are non-competes still enforceable?
Brad: [29:25] Thanks again for joining us today, and remember, if you liked this episode, please subscribe, make sure to give us a five-star rating, and share with your friends.
Michael: [29:33] You can also sign up for the ByrdAdatto newsletter by going to our website at byrdadatto.com.
Outro: [29:39] 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.
