Navigating the Legal Landscape of Health Spas and IV Infusion Centers in California: Regulatory Compliance, Liability Concerns, and the Managed Service Organization (MSO) Friendly PC Model

Intravenous (IV) infusion therapy and health spas are surging in popularity in California, raising a host of legal issues across the state. Not only must businesses ensure that they and their employees are properly licensed, they must carefully structure their business relationships to avoid running afoul of California’s prohibitions on the corporate practice of medicine. Unfortunately, this area can be a minefield, exposing business owners and medical professionals alike to a range of potential liabilities, including restitution, civil penalties, injunctions, and in some cases criminal prosecution.[i] And while compliance with California’s regulatory regime has traditionally been enforced by state agencies and attorneys general, in at least one recent case a competitor was allowed to sue a rival firm for allegedly engaging in the corporate practice of medicine.[ii] These developments mean that medical practices must be vigilant to ensure they are operating in compliance with California’s complex regulatory regime. To address these concerns, this article explores the legal landscape surrounding IV therapy—and potential solutions such as the so-called Managed Service Organization (MSO) Friendly PC model.

The appeal of IV therapy is easy to recognize, as infusions promise an efficient means of supplying the body with nutrients, vitamins, and medications. By infusing supplements directly into a patient’s bloodstream—rather than administering them orally so that they must traverse the patient’s digestive system—IV therapy helps the body better absorb them. Thus, IV therapy promises both faster results, and superior uptake. Unsurprisingly, health centers throughout the state are offering a rapidly expanding menu of IV infusions, tailor-made for everything from fighting “jet lag” to anti-aging.

What must health spas and IV infusion centers do to operate within the bounds of California’s regulatory requirements? Initially, they must ensure that they are properly licensed, as section 2502 of the Bus. & Prof. Code holds that “[a]ny person who practices or attempts to practice, or who holds himself or herself out as practicing…[medicine] without having at the time of so doing a valid, unrevoked, or unsuspended certificate…is guilty of a public offense.”[iii] As a general matter, therefore, a health center may not allow unlicensed personnel to administer IV therapy, even under the direct clinical supervision of a registered nurse.[iv] This includes administering intravenous medication—raising potential issues for IV infusion centers, which often market their treatments as improving the “health” of their patients.

The Board of Registered Nursing interprets the relevant provisions of the Nursing Act to permit registered nurses (“RN’s”) to delegate and supervise IV therapy to certified licensed vocational nurses (“LVN’s”), so long as the IV solution being administered consists of electrolytes, nutrients, vitamins, and/or blood and blood products.[v] However, the Board requires LVN’s to first complete a Board-approved course in IV therapy.[vi] California law also allows LVN’s to perform IV therapy when directed by a physician or naturopathic doctor, but again requires the LVN complete IV therapy coursework.[vii] Notably, when IV therapy involves administering “medicine,” it must be supervised by a physician or naturopath.[viii]

Given these requirements, it is important that health spas and IV infusion centers collaborate with licensed healthcare professionals—RN’s, LVN’s, physicians and naturopaths—to ensure that the personnel responsible for the administration of IV therapy are in full compliance. Although the majority of IV infusion treatments consist of nutrients and vitamins rather than “medicine,” even these require RN-level supervision at a minimum.[ix] Likewise, it is important that businesses clearly define the boundaries between “wellness” services, and medical services that require supervision by a licensed physician or naturopath. Implementing policies to distinguish between the two is a best practice that will ensure compliance with applicable regulations.

Health spas and IV centers also face regulatory issues in how their businesses are structured. California law generally prohibits the corporate practice of medicine, with important exceptions. Physicians are permitted to practice through so-called medical corporations, subject to restrictions on ownership.[x] “For-profit corporations—other than licensed medical corporations” may not provide “medical care through either salaried employees or independent contractors.”[xi] The majority of stock (i.e., 51%) in a medical corporation must be owned by licensed physicians, and a maximum of 49% may be owned by other licensed health care professionals, such as nurses, physician assistants, nurse practitioners, etc. No interest in a medical corporation, however, may be held by an unlicensed individual or entity outside these specifically allowed categories.[xii]

While these restrictions may seem onerous, they exist for important public policy reasons. Chief among them is the aim of preventing interference in a physician’s professional judgment by competing, profit-oriented incentives. The corporate practice of medicine doctrine, embodied in California precedent as well as statutory law, ensures that unlicensed persons—e.g., those motivated solely by financial incentives rather than the wellbeing of the patient, or those without the requisite medical knowledge and credentials—will not influence a physician’s professional medical judgment.

These restrictions create complexities for health spas and IV centers seeking to structure their business relationships, however. For example, hiring a doctor as a “Medical Director” at an IV center to supervise nurses administering medical treatment would still be prohibited, if the center operates under the auspices of a general stock corporation.[xiii] Likewise, for a general stock corporation to merely partner with a doctor, or for a general stock corporation to partner with a professional corporation, is likewise prohibited. A physician who knowingly allows their license to be used by an unlicensed individual, or enters into a partnership with a non-physician to provide medical services, may be aiding and abetting the unlicensed practice of medicine, a misdemeanor punishable by fines and potential license suspension.[xiv]

Health spas and IV centers likewise face restrictions on the employment relationships with physicians. Thus, a general stock corporation may not avoid the prohibition on the corporate practice of medicine merely by treating physicians as independent contractors. For example, in People ex rel. State Board of Medical Examiners v. Pacific Health Corp.,[xv] the court rejected the argument of a corporation that engaged physicians as independent contractors rather than as employees, and found that the corporation was nonetheless engaging the unlawful practice of medicine. It did not agree that the policy of the law could be circumvented by “technical distinctions in the manner in which the doctors were engaged, designated or compensated …”[xvi] The same public policy enunciated in that decision was affirmed in Conrad v. Medical Bd.,[xvii] which reaffirmed that physicians may only be treated as independent contractors in certain limited contexts, for example when working for statutory entities like the “hospital district” in Conrad.

However, these prohibitions do not mean that health spas and IV infusion centers have no flexibility in structuring their businesses. “Although non-physicians may not own corporations that engage in the practice of medicine, they may manage some non-medical/business aspects of a physician’s practice without violating” Bus. & Prof. Code § 2000 et seq.[xviii]  A violation typically occurs when a non-physician exercises “control or discretion” over a medical practice, for then the medical judgment of a physician is potentially jeopardized.[xix]

Enter the Managed Service Organization (“MSO”) Friendly PC Model. According to this model, a management company may contract with a health spa, IV fusion center, or another medical service provider to handle certain non-medical aspects of the practice, such as billing, collections, accounting and other aspects of administration. While a professional corporation is not allowed to partner with a general stock corporation, it can still hire a vendor (e.g., an MSO) to handle administrative and other non-medical functions. Whether the MSO is actually engaged in the unlicensed practice of medicine “turns on whether the non-licensee exercises or has retained the right to exercise control or discretion over the physician’s practice”[xx] of medicine.

If the MSO offers a basket of services, this is permitted, so long as the MSO Friendly PC safe harbor requirements are met. For example, the PC and MSO will generally need to enter a written agreement (e.g., a “management services agreement” or “MSA”) ensuring that the transaction is at arms-length. The MSO may exercise control over the administrative and management side of the Friendly PC, and take a management fee for its services. However, the MSO’s control over certain administrative matters may not interfere with a clinician’s medical judgment. Further, there are prohibitions on the manner in which the MSO may receive payment. For example, California law prohibits MSO’s from receiving compensation for referral of patients—so-called “kickbacks” and “fee-splitting.”[xxi] However, the MSO may be paid in other ways. Indeed, California law explicitly states that the MSO may be entitled to compensation as a percentage of the PC’s gross revenue, as long as consideration is commensurate with the value of the services furnished (rather than for the referral of patients).[xxii] Other permissible payment structures include paying a fixed monthly cost to the MSO per month, or a cost-plus reimbursement model. Thus, while a health spa or IV fusion center must be majority physician-owned, that does not mean it cannot outsource the non-medical aspects of its business to an MSO.

The benefits of the MSO model are still readily available in California, but it behooves physicians and operators of MSOs alike to be mindful of legislative developments. A recent legislative proposal, Senate Bill 642 (SB-642), contained ambiguous language mandating that owners of professional medical corporations must “exercise direct control and hold final authority over the assets and business activities of the corporation.”[xxiii] Some interpreted this language to preclude the hiring of an MSO to handle administrative or other non-clinical tasks. SB-642 did not gain much traction, but the proposal may resurface in future sessions.

Some MSOs have been willing to challenge the meaning of “retaining the right to exercise control or discretion over the physician’s practice.” For example, an MSO may seek to push the envelope of what has been traditionally held permissible under the model by, e.g., by requiring MSO approval for amendment to PC charter documents, sale of the PC, or requiring the sale of the professional corporation to another physician upon demand by MSO. All medical services and the sole authority to practice medicine would still be vested in the professional corporation, which might compensate the MSO with a substantial portion of its revenues (e.g., 30% of the professional corporation’s gross revenue). While this setup technically fits within the MSO Friendly PC Model, it tiptoes close to a legal gray area in terms of corporate practice of medicine.

IV infusion centers would also be well-advised to implement robust informed consent procedures in order to provide clients with comprehensive information about the nature of IV therapy, potential risks, and alternative treatments. Generally, a physician “has a fiduciary-like duty to obtain his patient’s informed consent regarding” a particular course of treatment.[xxiv] To comply with the duty, the physician must “disclose to the patient all material information—that is, information which the physician knows or should know would be regarded as significant by a reasonable person in the patient’s position when deciding to accept or reject a recommended medical procedure.”[xxv] Importantly, the duty goes beyond “whatever ‘custom’ physicians in the relevant medical community follow when making disclosures,” but focuses on what a “reasonable prudent person in the patient’s shoes would want to know.”[xxvi]

In the context of health spas and IV infusion centers, where many treatments are marketed as improving the “health” of patients without necessarily having been subject to peer-reviewed, clinical scrutiny, an important aspect of informed consent is noting that a particular infusion may not have been evaluated by the U.S. Food and Drug Administration (FDA). Alternative treatments should likewise be highlighted, which may include medication taken orally, nutritional supplements, or more general dietary and lifestyle changes. The risks of IV therapy should be noted, which may range from mild discomfort at the injection site, to vascular inflammation or trauma, or infections and allergic reactions to the infusion, which may lead to severe outcomes such as cardiac arrest or death. Likewise, patients should be fully informed about the qualifications of the individuals administering IV treatments. In accordance with the Bus. & Prof. Code prohibiting the unauthorized practice of medicine and requiring LVN’s to complete certain board-certified coursework in IV therapy, it is a best practice to provide patients with information on the educational background, professional certifications, and licensure status of all practitioners involved in their care.[xxvii]

In the realm of marketing, health spas and infusion centers must take care to adhere to established guidelines and regulations to avoid misleading consumers and potential legal consequences. One primary concern in the scrutiny of IV therapy-related advertising claims is the potential for IV therapy services to be portrayed as a substitute for medical treatments, leading accusations of engaging in the unauthorized practice of medicine. For that reason, IV therapy should be positioned as a complementary wellness service rather than a substitute for traditional medical interventions. Until regulatory bodies set clearer guidelines (and enforce them) to ensure that marketing materials accurately represent the nature of IV therapy and its limitations, it behooves those operating in this field to advertise with a degree of caution.

The Consumer Legal Remedies Act (“CLRA”) protects consumers from unfair and deceptive practices, providing them with legal remedies in case of misleading advertisements or false claims.[xxviii] Generally, the CLRA prohibits the “the furnishing of goods or services through misrepresentations.”[xxix] In particular, it prohibits “[r]epresenting that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities that they do not have….,”[xxx] and “[r]epresenting that a transaction confers or involves rights, remedies, or obligations that it does not have or involve, or that are prohibited by law.”[xxxi] Thus, businesses offering IV therapy services must strictly adhere to the requirements of the CLRA, including by making accurate representations about IV therapy, clear disclosure of any potential risks or side effects, and transparent pricing information.

As just one conceivable example in which imprecise marketing practices might invite liability, recall that LVN’s are permitted to provide IV therapy as supervised by an RN, so long as the IV solution being administered consists of electrolytes, nutrients, vitamins, and/or blood and blood products.[xxxii] If, however, the solution consists of “medicine,” the LVN must be supervised by a physician or naturopath.[xxxiii] If an infusion center employing only nurses were to advertise IV therapies as “medical” treatments, the center might be accused of engaging in the unauthorized practice of medicine and providing IV therapy without proper supervision by a physician. Even if the center were only providing infusions with nutritional supplements (rather than “medicine”), and hence were technically compliant with supervisory requirements for IV therapy, it might still be accused of misrepresenting the “characteristics, ingredients, uses, [or] benefits” of its infusions under the CLRA.[xxxiv] This is just one of many thorny scenarios that IV infusion centers may encounter. It is important, therefore, to tailor all marketing to the specific IV therapy’s being offered, and to ensure that all staff are properly licensed to administer them.

As the legal landscape surrounding health spas and IV infusion centers in California continues to evolve, stakeholders must be attuned to the nuances of practicing medicine without a license, navigate restrictions on the corporate practice of medicine, and explore innovative solutions like the MSO friendly PC model. A proactive and adaptable approach is essential for the continued success, compliance, and ethical operation of health spas and IV infusion centers in California.

 

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