Best Practices: Understanding Licensing Requirements for Opening and Operating a Medical Spa

Driven by technological advancements and societal trends towards self-care and holistic well-being, the medical spa industry has been experiencing significant growth. For lenders offering financing to aid these businesses, understanding the licensing requirements for owning and operating a medical spa is crucial.

Like any business, a medical spa must obtain the necessary local business licenses and permits. This includes registering the business, obtaining a tax identification number, and complying with zoning laws. Many states also require site inspections be completed prior to such licenses to be issued. As such, all parties should be aware of timeframes for compliance prior to scheduling closing dates.

In addition to business licenses, medical spas may be subject to medical licensing requirements based on state law requirements. Every state has distinct regulations outlining what constitutes “the corporate practice of medicine,” which directly impacts who can perform specific procedures and who can own and operate a business engaged in those activities.

For instance, Pennsylvania classifies cosmetic injections, dermaplaning, hair transplants, chemical peels and laser skin resurfacing treatments as cosmetic medical procedures.  A business performing such cosmetic medical procedures is considered to be a medical practice that must be owned by a physician or physician group, and only a physician or a medical professional with specialized training may perform such cosmetic medical procedures.

If the borrower on the loan is not a licensed physician then state law must be reviewed to determine whether the borrower may directly or indirectly own and operate the medical spa. In many situations, the medical and non-medical procedures can be separated and a medical director agreement or medical services agreement put into place to meet state licensing requirements. However, what exact documentation is best practice, depends on the specific state and services offered by the small business.

Ultimately, the definition of “the practice of medicine” affects not only the operational and licensing structure but also the hiring and overseeing of staff. Many states require specific training to operate certain medical equipment, such as lasers, and also require physician oversight.  In some cases oversight  may be done remotely, where in other states, a physician must be on site. Consequently, understanding a state’s specific definition of medical practice is crucial for compliance and the successful operation of a medical spa.

Compensation is another factor that must be considered in determining compliance with state law.  Many states have enacted laws that mimic federal laws against self-referring clients, fee-splitting and anti-kickback regulations that extend to cosmetic medical procedures. Borrowers must be careful to structure compensation to employees or with third party providers to avoid violating state law.

Failing to do an analysis of state law requirements around operating a medical spa can have serious consequences. Non-compliance can lead to business interruptions and financial instability thereby jeopardizing loan repayment. Conversely, ensuring that potential borrowers are aware of and adhere to these regulations can mitigate risks and contribute to the success of the borrower. For information concerning licensing and SBA compliance, contact us at 215.542.7070 or info@starfieldsmith.com.