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A Virtual Reality

Investors are flocking to veterinary telehealth through management services companies despite the legal hurdles.

A Virtual Reality
Veterinary telehealth is estimated to become a $346 million global market by 2027.

A recent National Public Radio podcast episode, “Vet Clinic Chow Down,” described why large corporations are acquiring veterinary practices. The segment reminded me why the corporatization of veterinary medicine is such a significant trend to watch, especially in light of the explosive growth of veterinary telehealth, which also is seeing significant corporate investment. Before I unpack why corporations invest in veterinary telehealth and the legal implications for them and veterinarians, I’ll explain how corporate veterinary medicine works.

In all but a handful of states, only licensed veterinarians can own a practice, and only veterinarians can be legally employed to provide hands-on care. Those two requirements are commonly referred to as the prohibition on the corporate practice of veterinary medicine. But there’s a loophole.

Essentially, a corporation forms a management services company as a wholly owned subsidiary. The subsidiary assumes the practice’s premises lease and purchases all the assets except for “professional assets” such as client lists and clinical records. The subsidiary then partners with a “friendly veterinarian,” who becomes the nominal owner of the professional entity, the assets of which are limited to the client lists and clinical records. The friendly veterinarian then enters into a long-term management services agreement with the subsidiary to provide the premises, facilities, goods, services, and administrative and management functions needed to operate the practice. The subsidiary also hires all the practice’s former employees and leases them back, except for the veterinarians, who continue as practice employees.

The subsidiary effectively owns, manages and operates the practice. Because this company is entitled to earn a profit in such a business arrangement, it technically owns the practice financially. Its ownership arises from the fact that the subsidiary can legally realize the veterinary practice’s profits through the fees charged under the management services agreement.

The Corporatization of Telehealth

Even before the pandemic, pet ownership rates were rising, and the trend has accelerated. Meanwhile, many of today’s pet owners demand the same levels of health care for their pets as people receive. Services such as magnetic resonance imaging, chemotherapy and advanced surgical procedures used to be unheard of in veterinary medicine but are now commonplace.

When you combine these trends with changes in consumer behavior stemming from the pandemic, you can see why veterinary telehealth is estimated to become a $346 million global market by 2027. As such, it’s a market that corporate investors are moving into in droves, and how they do it is similar to the brick-and-mortar model of corporate veterinary medicine. Instead of owning a physical practice as described earlier, the management services company establishes and operates a web-based platform that provides one of two types of veterinary telehealth services.

The General Advice Model

In the first model, the veterinarian is giving only general advice to the pet owner. The doctor isn’t virtually examining and treating patients. For that reason, such a model has the upside of significantly reduced legal implications, but the business downsides are significant.

The downsides are these:

  • More likely than not, a pet owner’s initial web inquiry will morph into a request for a consultation on a specific health issue. The veterinarian would have to decline a consultation to avoid legal snags — for example, not being licensed in the same state as the pet owner.
  • The pet owner most likely will search for another website where detailed consultations are available.

The Veterinary Medicine Business Model

In the second case, the website provides a full range of veterinary services, including examining the pet, taking vital signs, making a diagnosis, developing a treatment plan and prescribing medications. This model is far more inviting to pet owners because it is one-stop shopping for pet care. However, the legal implications are far more.

First, the management company’s web-based platform can act only as a conduit between the client and veterinarian. The management company cannot directly engage the veterinarians as employees or independent contractors precisely because they provide actual veterinary care for a specific patient.

Instead, the company enters into a service and licensing agreement with the veterinarians. They are permitted to market to potential clients and provide virtual clinical care for pet owners who retain their services. In this arrangement, the management company is just another veterinarian service provider, no different from an information technology consultant.

How Fees Are Handled

The management company charges the veterinarian a fixed monthly fee for the right to participate on the platform and additional fees when the veterinarian uses the platform to provide virtual clinical services for clients who retained them through the platform. In structuring such fee arrangements, the management company must take care not to violate a prohibition imposed by some states on veterinarians splitting professional fees with non-licensees. Consequently, in many situations, the management company cannot charge an additional use fee, which is calculated as a percentage of the fees the veterinarian charged for virtual clinical services. Some other method for calculating this use fee must be employed.

Because clients pay with credit cards through the website, the management company must comply with federal and state laws and industry standards on maintaining the cybersecurity of such commercial transactions. In addition, customers will transmit personally identifiable information on the website, so the company must comply with laws requiring commercial entities to maintain reasonable security.

Legal Concerns for Veterinarians Providing Telehealth

For veterinarians participating on a web-based platform, their primary legal concerns are licensing and professional liability. The veterinarian must be licensed in their physical state and the same state as the virtual client.

There is also the issue of whether the veterinarian can establish a veterinarian-client-patient relationship virtually. Even before the pandemic, the regulations on whether a VCPR could be established virtually were in a state of flux. With the pandemic has come heightened scrutiny. Given the continually rising demand for virtual services, state veterinary boards will be under increased pressure to relax the requirement of a hands-on examination to establish a VCPR if they have not already done so.

For veterinarians providing virtual care, the final legal concern is professional liability. Veterinarians must notify their malpractice carrier when they begin providing care virtually. I expect the number of malpractice claims to increase as more pet owners begin using veterinary telehealth.

The Takeaway

The era of veterinary telehealth services essentially owned and operated by corporations has arrived. The business model comes with legal issues, but they have been addressed and mostly overcome. As a result, the veterinary industry will likely see a proliferation of corporations involved with telehealth services.

Legal Lingo columnist Peter H. Tanella chairs Mandelbaum Salsburg’s National Veterinary Law Center. He has advised hundreds of veterinarians on practice acquisitions, sales, mergers, partnerships, joint ventures and associate buy-ins, the structuring of management service organizations, and the development of practice succession strategies. He can be emailed at [email protected]Dennis J. Alessi, the co-chair of Mandelbaum Salsburg’s health care and labor and employment practice groups, contributed to this report.