The Fee-Splitting Conundrum: How to Compensate Client Referrals

At traditional spas and salons, rewarding clients for referrals is a common practice. So it makes sense that many medical spas have also adopted this technique to help bring people into their facilities. However, medical spas face certain restrictions that other businesses in the retail market sector do not. Because of this, it’s important for medical spa owners and operators to understand how they can and cannot compensate their clients for referring new customers.

The Gift of Crime

Medical spas and traditional spas and salons tend to bear a strong resemblance to each other, in both form and function. At regular spas and salons, owners and operators often reward referrals—and even general customer loyalty—with gift cards. Although this may seem like a harmless enough way for a medical spa to cultivate deeper relationships with clients, it’s actually a path that’s fraught with potential legal danger.

According to some interpretations of certain laws, providing anything of cash value to a client can represent splitting medical revenue with a non-physician. This is known as fee-splitting, and it is illegal in most states due to the “corporate practice of medicine,” which dictates that medical revenue must be paid in full to a physician or a physician-owned corporation. Fee-splitting violations can result in the suspension or revocation of a physician’s license, as well as a significant fine.

A potentially larger issue is that giving gift cards to clients in a medical setting can represent violations of state and federal anti-kickback laws, which prohibit physicians from paying for referrals. These laws are designed to ensure that physicians cannot simply buy patient referrals—rather, they are expected to provide exceptional care to all of their patients. Because gift cards have cash value, they can be viewed as representing a kickback and expose the physician to legal repercussions.

Creative Appreciation

Medical spa owners and operators can still express their appreciation for referrals—they just need to be a little craftier about it. Because medical spas are allowed to set their own prices, providing loyal clients a discount on a service instead of a gift card is a safer way to go. For example, if a client comes in for 10 treatments, provide the 11th for 50 percent off. (Some very conservative lawyers consider this to be fee splitting, as well, but there’s little evidence that this holds up in court.)

Another method that can be used to encourage patients to refer others is by establishing VIP programs, in which medical spas owners and operators can offer a VIP night where clients can receive free food, drinks, and treatments. Additionally, some medical spas offer points programs that allow patients to redeem points for treatments. Although such programs skirt the line of legality, it could conceivably be argued that such rewards represent monetary value.

In the real world, there’s really not much difference between handing clients a $500 gift card and giving them a $500 discount on a treatment. However, because there’s a difference in the eyes of the law, a medical spa could find itself in hot regulatory water by giving one rather than the other. Consult with your local healthcare attorney to find out about the laws governing fee splitting and kickbacks in your state to give yourself the gift of peace of mind.

This article originally appeared in the September issue of American Spa Magazine.

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