Buying a Ketamine Clinic: Why, How, and Risks to Understand
May 11, 2023
This article is part of a continuing series of articles regarding transactional legal issues in the emerging psychedelic space. With ketamine being the only approved psychedelic drug for medical use, ketamine clinics offer a unique opportunity for investors and entrepreneurs looking to enter the expanding market of innovative mental health therapies. In this article, we will explore the reasons behind the growing demand for ketamine clinics and the unique regulatory considerations involved in transactions involving these businesses.
Why Buy a Ketamine Clinic?
The growing interest in alternative treatments for mental health conditions has led to the emergence of ketamine therapy as a promising option. As a dissociative anesthetic, ketamine has demonstrated significant potential in treating depression, anxiety, post-traumatic stress disorder (PTSD), and chronic pain. Consequently, ketamine clinics have rapidly sprung up nationwide, providing an alternative to traditional mental health treatment methods.
One reason to invest in or purchase a ketamine clinic is the increasing demand for alternative mental health treatments. As conventional approaches like antidepressants and therapy do not always provide sufficient relief for patients, ketamine therapy has shown promising results in treating treatment-resistant depression and other mental health disorders. This makes owning a ketamine clinic an attractive prospect for those seeking to capitalize on this growing market.
Ketamine's unique status as the only legally approved psychedelic drug for medical use in the United States offers ketamine clinics a distinct advantage in the market. They can provide a treatment option that is both innovative and compliant with current regulations, which can be a strong selling point for potential clients seeking innovative yet legal treatments for their mental health conditions. Furthermore, ketamine clinics operate in a niche market with limited competition, leading to the potential for high profitability. As the demand for ketamine treatments increases, this industry has the potential for significant financial growth. However, it is essential to note that some high-profile ketamine clinic companies have faced economic challenges.
Owning a ketamine clinic also provides an opportunity to make a meaningful impact on patients' lives by offering them an alternative treatment with the potential to significantly improve their mental well-being.
How to Buy a Ketamine Clinic: Corporate Practice of Medicine
The most critical regulatory concept related to acquiring a ketamine clinic is the corporate practice of medicine doctrine (CPOM). This doctrine is a legal principle that aims to protect the integrity of medical practice by preventing non-medical professionals and business entities from interfering with or influencing the clinical judgment of healthcare providers. While the CPOM doctrine varies across states, it generally prohibits non-physicians from owning or controlling medical practices and influencing medical decisions regarding patients.
There are three categories of states concerning the CPOM doctrine. How you structure the acquisition of a ketamine clinic determines your compliance with CPOM restrictions.
States with a broad CPOM restriction: In states with a broad corporate practice of medicine, medical staff must be employed by a professional corporation owned by physicians. Therefore, arrangements are typically structured as long-term management services agreements between a management services organization (MSO) and the physician's professional entity. The MSO might acquire specific assets from the medical practice and lease them back while overseeing non-medical aspects of the practice via the MSA. Additionally, depending on the state, these transactions may include other measures to limit the medical practice's ability to withdraw from the arrangement (e.g., non-compete clauses and stock restrictions).
Besides direct ownership restrictions, two other significant limitations are the prohibition of MSOs from making medical decisions and constraints on fee-splitting. An important limitation is that the MSO cannot participate in medical decision-making. Furthermore, certain states may impose limitations on fee structures, such as permitting only predetermined fixed management fees or disallowing charging a percentage of revenue or profits
States with a CPOM restriction but including exceptions: Some states will also permit minority (i.e., 49% and below) stakes in physician practices to be directly held by non-physicians. These states allow the structuring of deals by combining an MSO model with a non-majority stake in the medical practice itself.
States without restrictions: Florida, for example, does not have a prohibition against the corporate practice of medicine, which means that non-physicians can own companies that employ physicians to treat patients. These states do not require a specific structure.
What Are the Risks of Buying a Ketamine Clinic?
Acquisitions in the medical space include several risks, most of which are not unique to ketamine, but should be at the forefront of any acquiror's mind.
In the early stages of due diligence, you will have to evaluate the current licenses held by the practice and assess the feasibility of transferring the license(s) to a new owner. During this phase, you should also ascertain if any practitioners or employees of the practice have received exclusions from participation in federal healthcare programs.
Telemedicine and the Ryan Haight Act
The Ryan Haight Online Pharmacy Consumer Protection Act is a United States federal law passed in 2008. It prohibits the delivery, distribution, or dispensing of controlled substances online without a valid prescription. Ryan Haight, an 18-year-old who purchased prescription drugs online without a valid prescription and died of an overdose, is the act's namesake.
After the COVID-19 pandemic was declared a public health emergency (PHE) in January 2020, the U.S. Drug Enforcement Administration (DEA) temporarily waived the requirement for some telemedicine visits, allowing healthcare providers to prescribe controlled substances without an in-person visit. The intent of this waiver was to provide patients with access to necessary medications while minimizing the risk of COVID-19 transmission.
But with the PHE ending on May 11, 2023, this waiver would have ended at the same time. This would have created turmoil in the ketamine telemedicine space. The waiver would have been replaced with new rules, draft versions of which were published by the DEA on March 1, 2023. These rules restricted telemedicine for certain controlled substances. The DEA received a record 38,000 comments in response to its draft rules and, instead, on May 3, 2023, the DEA announced it would temporarily extend the waiver. No one currently knows how the final telemedicine rules will work or when they will go into effect. Anyone interested in Ketamine should follow this story as it progresses.
HIPAA (Health Insurance Portability and Accountability Act) is a federal law that sets national standards to protect the privacy and security of individuals' medical information. While cannabis transactions arguably have ambiguity around HIPAA, clinics that offer ketamine treatments must comply with HIPAA to safeguard patient data from unauthorized access or disclosure.
Medicaid and Medicare
Currently, Medicare (an entirely federal program) covers ketamine when used as an anesthetic. However, it excludes coverage for ketamine use for mental health disorders.
Medicaid, however, is a joint federal and state program that helps cover medical costs for people with limited income and resources. The federal government sets general rules that all state Medicaid programs must follow, and each state runs its program. In some circumstances, this means ketamine clinics are finding success in supporting patients who use Medicaid. Access to Medicaid matters because it brings a range of federal laws, some of which can carry criminal penalties, into effect.
Comprehensive Compliance Programs
Health care providers that bill federal payers, such as Medicare and Medicaid, must have a comprehensive compliance program based on the Health & Human Services (HHS) Office of the Inspector General's 7 Elements of an Effective Compliance Program. Therefore, it is essential to acquire a practice with an active compliance program and minimal issues in the last 2-3 years.
In addition to the Inspector General’s guidelines, systems should be in place for including, but not limited to:
Document management systems, including ownership of medical records in structures complaint with CPOM.
Coding and billing decision-making.
Billing and reimbursement issues.
Arranging for the advertisement of medical services.
Comprehensive physician reporting for annual reports, paid dues, and taxes.
Federal Stark Law (42 USC § 1395nn) outlines fraud and abuse laws with civil penalties for medical practitioners. At a very high level, this strict liability statute prohibits a physician from referring Medicare or Medicaid patients for designated health services to an entity with whom the physician (or a family member) has a financial relationship. It also prohibits the entity from submitting claims to Medicare or Medicaid for services resulting from a prohibited referral. A handful of exceptions exist, but they must meet all elements of an exception or the statute is considered violated.
The Anti-Kickback Statute (42 USC § 1320a-7b(b)) is a criminal law that prohibits the knowing and willful offer or payment of "remuneration" to induce or reward patient referrals or the generation of business involving any item or service payable by federal health care programs, including drugs, supplies, or health care services for Medicare or Medicaid patients. There are certain "safe harbor" protections, but caution remains a good idea because penalties include criminal and civil penalties and False Claims Act (FCA) liability.
False Claims Act Liabilities Act
The False Claims Act, codified under 31 USC § 3729(b), holds individuals accountable for submitting fraudulent claims to the federal government when they are aware, or reasonably should be aware, of the claim's falsehood. An example might involve a physician billing Medicare or Medicaid for medical services that were not rendered. In this instance, the healthcare provider knowingly submitted a false claim, thus violating the False Claims Act. Penalties for violations can be severe, including treble damages claims, exclusion from federal healthcare programs, and potential criminal changes.
While the opportunity to buy or invest in a ketamine clinic is now a reality across the U.S., ownership and acquisitions in the medical space include several risks. But for business leaders who understand the risks and care to protect the integrity of medical practice, owning a ketamine clinic is an attractive prospect for those seeking to capitalize on a growing market.
Vicente LLP can help. Contact Charlie Alovisetti to get started.
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