Boom in the Medical Spa Industry Amid Regulatory Uncertainty Creates Perfect Storm

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How should booming medical spa businesses proceed with little to no guidance from state medical boards?

TAKEAWAYS

  • The American medspa industry, dominated by small, single-location, single-owned businesses, is booming in the wake of rapid technological advancement.
  • State authorities have not kept up with this explosive growth, leaving American medspas in a regulatory gray area, as many of the services they provide seem to fall between the performance of traditional esthetic services, e.g., hairstyling and manicures, on the one hand, and traditional medical practice, e.g., the diagnosis of disease and surgery, on the other.
  • To avoid liability, medspa owners (and their medical device suppliers) must stay abreast of current state laws concerning topics such as the corporate practice of medicine, physician latitude in delegating responsibility, and, increasingly, the limitations of telemedicine.

The medical spa (medspa) industry in the United States is booming. In 2010, there were about 1,600 medspas operating in the United States generating about $1.1 billion in revenue (about $700,000 per medspa on average). By 2018, these numbers increased to over 5,000 medspas generating about $7 billion-$8 billion in revenue (about $1.4 million per medspa on average). The number is expected to grow to over 10,000 medspas by 2023 with about $18 billion-$20.7 billion in revenue. Since 2010, year over year revenue growth has consistently been in the double digits, with 2011 registering nearly 40 percent growth and 2017 registering nearly 50 percent growth. The 2018 profit margin for medspas was 29 percent.

Medspas offer various traditional cosmetic services alongside the application of newer medical devices intended for aesthetic use. They are generally small, privately held businesses operating at a single location with a single owner. In many instances, the owner is neither a licensed physician nor a mid-level practitioner (MLP), examples of which are advanced practice registered nurses, registered nurses, nurse practitioners, or physician’s assistants. Indeed, over a third of medspas are owned by estheticians, general entrepreneurs, business managers, or other non-medically trained individuals. The most common employee of medpsas is neither a physician nor an MLP—it is an esthetician.

Despite the ubiquity of medspas, especially in large urban areas, the legal landscape has not yet caught up to this hybrid business model. Due to ambiguities in the laws and regulations of most states, medspas face regulatory compliance and enforcement uncertainty. Among other things, medspa owners must determine whether the services they offer constitute “medical treatment,” who can perform those services, and under what conditions. Regarding the last point, since medspas most commonly employ estheticians, medspas are often faced with the issue of whether estheticians may perform certain services at all, and, if so, whether they may do so independently or under physician supervision. Also relevant in the age of telemedicine is whether such supervision must be provided by a physician present onsite. By allowing such questions to go unanswered, the industry is in a difficult situation. In fact, many of these small, independent business might face potentially significant enforcement risks given their current staffing.

Does the service constitute medical treatment?

Among the threshold questions that medspa owners must ask is whether the services they provide constitute the “practice of medicine.” The answer to this question is typically, if not always, established by state laws or medical board decisions. However, state legislatures and medical boards are often reactive to technological developments. As a result, the legal guidance for industry tends to lag behind changes in technology (and society) and is sometimes decades behind. For example, the first documented cosmetic use of botulinium toxin (known by the brand name Botox) was in 1989 and the United States Food and Drug Administration approved “Botox” for cosmetic use in 2002. Yet, the medical boards for California, Florida, and New York did not establish licensure requirements for Botox until 2017. For more recent technology, such CoolSculpting, there is virtually no directly relevant guidance in the states containing the largest medspa markets (i.e., California, Florida, Texas, and New York).

In theory, the best way for businesses to receive guidance is to seek and obtain a ruling from the state’s medical board. However, this process may be frustrating in practice, as state medical boards typically take at least several months to respond, if they decide to reply at all, and questions must be carefully framed to avoid inapposite, and potentially, detrimental responses.

It is therefore incumbent upon medical spa owners to carefully assess their actual or proposed operations against available legal requirements and guidance to determine if the treatments they provide constitute medical practice. If the treatments do qualify as such, then medspa owners may find themselves in a quandary. The corporate practice of medicine doctrine generally prohibits non-physicians from hiring physicians, on the premise that medical determinations must be divorced from profit-generating interests. (See, e.g. Cal. Bus. Prof Code §§ 2052, 2400.) In some states, such as Texas, the law would require that a medspa providing a medical treatment be owned by a physician. (Texas Occupations Code §§ 155.001, 155.003, 157.001.) Other states, however, may allow a non-physician medspa owner to enter into independent contracting relationships with physicians or physician groups; however, even the costs of such arrangements may be too much for medspa owners to bear.

Given the stakes, determining the regulatory status of a medspa is not an option. In the absence of clearly applicable laws and guidance regarding a given technology or treatment, medspa owners must make determinations based on the status of other technologies and treatments that are clearly addressed from a legal standpoint, as well as general regulatory principles. Factors to consider in identifying analogous technologies and treatments includes the uses for which they have been cleared or approved by the FDA, as well as the degree of intrusiveness. Likewise, a “guidepost” regulatory principle is that technologies and services that adversely affect living tissue are more likely to be deemed medical treatment.

Who can perform the service and under what circumstances?

Even if the medspa offers services that constitute medical treatment, a physician does not necessarily have to perform the service or even supervise it in person. Certain technologies may be performed by various types of MLPs, with or without direct physician supervision.

Moreover, even in instances where direct physician supervision is required, the physician may not have to be physically present onsite. (See Tex. Occupations Code Title 3, Sec. 111.001, et seq.) Remote medical supervision is rapidly becoming the norm with respect to various medical treatments due to advances in audiovisual technology. Especially in the wake of the COVID-19 crisis, many states allow some form of telemedicine, but the exact parameters are not always specified. This lack of certainty stands to be accentuated as the COVID-19 crisis subsides, inasmuch as, in certain states, the most detailed guidance on telemedicine was issued as an interim measure to cope with the limitations of social distancing.

What risks are imposed by the current uncertain regulatory landscape?

The potential risks to medspa owners and their device suppliers under the present situation are serious. For example, employees and business owners could be criminally prosecuted for unauthorized and/or unlicensed practice of medicine. Substantial civil liability could be imposed for regulatory violations, false claims, false advertising, and negligence. Similarly, medical device manufacturers who sell their technologies to medspas that are engaged in the unauthorized practice of medicine may face tort liability. Elkins et al. v. AbbVie, Inc. f/k/a Allergan, Inc. et al., Case No.: 6:20-cv-01562, Middle District of Florida (August 27, 2020).

Even if a non-compliant medspa escapes civil or criminal enforcement, the costs of coming into compliance for medspa owners currently operating out of compliance may be crippling. As with other small businesses, many medspas subsist on relatively narrow profit margins, which may be further marginalized if a need arises to retain a physician or MLP.

What to do?

It is critical that medspa owners and the companies that supply them with medical devices stay abreast of legal developments and operate their businesses in a legally compliant manner.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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