May 2020, Volume XXXIV, Number 2

  Professional Liability

Medical directorships

Due diligence prior to accepting an offer

he licensure requirement to practice medicine acts as an entry barrier to prevent individuals from performing tasks that our regulators deem to require a certain level of knowledge, skill, and medical training. While some business-minded individuals and entrepreneurs in nonclinical settings might see this requirement simply as a box that needs to be checked, it is more than that. This issue has been a serious one in the medical spa industry for some time, and it will take on added significance in the coming year within the assisted living space as the focus on clinical services in facilities expands.

The scenarios usually play out with an unlicensed business owner who seems very knowledgeable and experienced approaching a physician with an offer to become the medical director for an attractive salary and without a significant time commitment. Sometimes this medical director role will not result in negative consequences, but there are certainly times where these situations do not turn out well for physicians. Unfortunately, many physicians who have not yet experienced a compliance issue may find it hard to see the potential for negative consequences—including potential disciplinary actions. This article will provide physicians with a roadmap of the minimum fundamental inquiries they need to make prior to accepting a medical directorship with certain facilities.

What are the risks and why should you care?

The risks involved in a medical directorship derive from the duties that a physician takes on by assuming such a position. Some of those duties are set forth in the terms of the directorship agreement, some are required by law, and others can be implied. When there is a breach of those duties, the consequences can involve civil liability and discipline by the medical board and state and local regulators. Below are some of the common duties associated with a medical directorship:

  • Establishing proper clinical protocols for treatment and delegation of services;
  • Supervising clinicians and staff;
  • Establishing staffing requirements and the credentialing processes;
  • Ensuring compliance with Medicare, Medicaid, and commercial payor requirements; and
  • Establishing staff training programs.

When you agree to be a medical director for a noncompliant organization, you risk aiding and abetting.

Because these obligations are so common, they are often implied regardless of whether they are explicitly included within the services description in a medical director agreement. With respect to civil liability, it is hard to conceive of a negligent act at a facility that cannot be argued to have a causal connection with one of these obligations. With respect to regulatory enforcement, in my personal legal practice—however anecdotal—I have seen an uptick in enforcement activity from the Minnesota Attorney General’s Office, along with an increased focus by the Minnesota Board of Medical Practice on this issue.

Nursing homes and the Minnesota assisted living law

Nursing homes are specifically required to hire a medical director that is responsible for development and implementation of resident care policies and procedures, coordination of care, monitoring of staff health, and certain obligations on the quality assessment and assurance committee. The responsibility attendant to those duties is significant and not something that should be taken lightly.

The new Minnesota law requiring licensure for assisted living facilities will take effect Aug. 1, 2021, and, while it does not explicitly require assisted living facilities to hire medical directors, there are going to be many new requirements which will make it more common for facilities to do so. Many of the requirements will be similar to those applicable to the home care agencies that previously provided services at these facilities, but there will be differences, as the combination of requirements previously applicable to the facility and the home care provider agency converge. Because these Minnesota requirements are new, there is not a situation where an unlicensed individual can approach a physician about taking on a medical directorship and honestly claim that they have sufficient experience to allow minimal involvement from the physician. No individual in Minnesota has previously operated under these regulations, so compliance will require work for all facilities.

Further adding to the risk in this area is the fact that senior care facilities have been a major point of legislative action over recent years, and we can expect that there will be substantial enforcement in this area. The populations at these facilities are vulnerable, and small missteps can result in significant adverse health events.

The medical spa industry

While the patient population is quite different, contracting with medical spas—which may provide medical cosmetic services, including Botox injections—involves many of the same issues a physician should consider as when contracting with an assisted living facility (e.g., can the physician dedicate the necessary time, and does the physician have adequate expertise). However, there are some unique risks when contracting with medical spas that should be evaluated as part of the physician’s due diligence process prior to accepting a position as medical director.

Specifically, given the nature of medical spa services, it is quite common for estheticians or other individuals who do not have a medical license to be the driving force behind these businesses. The issue with that dynamic is that a significant portion of services provided at medical spas are considered to be the practice of medicine. As such, the legal entity that provides the medical service must be owned by a physician, and the medical procedures must all be performed within the scope of delegation and supervision permitted by the Minnesota Board of Medical Practice.

Entrepreneurs that recognize the need for a licensed individual to be associated with their medical spa will engage physicians to fill this role, but problems can arise if they don’t know the level of involvement required by physicians or if they don’t want to commit the required resources for the required level of physician involvement. When considering whether to accept a medical directorship for a medical spa, a physician should first inquire about how it is organized. As previously noted, a compliant structure requires that the actual medical spa be owned by a physician, while investors that are non-physicians will typically form a management company that will supply the medical spa with all non-medical services and administrative personnel. This is an important—yet not always obvious—distinction, as many times the investors consider themselves the “owner” and many in the industry do not have compliant structures. Notwithstanding that others may be noncompliant, when you agree to be a medical director for a noncompliant organization, you risk aiding and abetting the unlicensed practice of medicine in violation of the Minnesota Medical Practice Act.

A compliant structure requires that the actual medical spa be owned by a physician.

Even if the corporate structure is compliant, that is really only a foundational aspect of what should be considered. More importantly, from the patient care perspective, is the question of whether you have expertise in the areas sufficient to supervise and delegate operations to others and whether you will devote the required amount of time to ensuring proper operations and medical treatment. The fact that non-licensed proprietors have experience with the medical spa treatments often provides a false sense of security and increases the risk in these relationships.

Absolute minimum due diligence

Below are some recommendations that I would categorize as the minimum due diligence a physician should consider prior to accepting a medical directorship in either the senior care or medical spa industries:

  • Review the arrangement for compliance with corporate practice of medicine laws.
  • Ensure that the arrangement does not involve the illegal splitting of fees or aiding the unlicensed practice of medicine.
  • Assess whether you have the requisite skill and experience to be a medical director in the practice area.
  • Do you have the time to provide the necessary level of services?
  • Does the contract allow you to work enough hours to provide the appropriate level of services?
  • Is the facility properly staffed? If not, will you have the ability to change that?
  • Does your malpractice carrier cover your work as a medical director?
  • Does the arrangement comply with the state and federal fraud and abuse laws?

These considerations are high level, and there are numerous additional inquires that should be looked at depending on the nature of the arrangement. In some circumstances, a medical director agreement is relatively straightforward and standardized, but in other situations (such as in the senior care and medical spa industries), they present an increased level of risk and will benefit from review by a health care attorney. The good news is that most attorneys will review medical director agreements on an hourly basis, so the charge for review should correspond to the risk and complexity of issues involved.

Antonio “Tony” Fricano, JD, is a health care attorney at Lathrop GPM and has extensive experience advising physicians, health systems, and other health care organizations on physician employment and services agreements. Prior to starting with Lathrop GPM, Tony was an attorney at the largest health system in Illinois. 


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Antonio “Tony” Fricano, JD, is a health care attorney at Lathrop GPM and has extensive experience advising physicians, health systems, and other health care organizations on physician employment and services agreements. Prior to starting with Lathrop GPM, Tony was an attorney at the largest health system in Illinois.