Negotiating Laser Contracts

Alex R. Thiersch, JD, is a Chicago healthcare attorney who represents medical spas, plastic surgeons, and aesthetic medical professionals. He is the founder and director of the American Med Spa Association (AmSpa), which was created for the express purpose of providing comprehensive, relevant and timely legal and business resources for medical spas and medical aesthetic physicians throughout the United States. Thiersch is also a partner at ByrdAdatto Law Firm. For more information Americanmedspa.org. alex@americanmedspa.org.

Selling laser treatments can be extremely lucrative. According to the American Med Spa Association's 2017 State of the Medical Spa Industry Report, 70 percent of medical spas provide laser hair removal services and 54 percent provide laser skin resurfacing. The report also reveals that laser hair removal ranks as the third most important revenue-contributor for medical spas. According to the American Society for Aesthetic Plastic Surgery (ASAPS), full-field ablative laser skin resurfacing earned practices more than $849 million in 2016, and other laser-based procedures—including hair removal, nonsurgical fat reduction, and tattoo removal—are extremely popular, as well.

Given the amount of money these treatments can bring into medical aesthetic practices, it stands to reason that many—if not most—practices would be interested in offering them. However, acquiring a laser can be a great deal more complicated than simply going down to a store and picking one out. Here is how best to navigate the labyrinthine world of laser contracts.

The Hard Sell

In recent years, a number of newly formed companies have begun to offer laser equipment designed for use by medical aesthetic practices, which has created unprecedented competition in the marketplace. This equipment can be extremely expensive, costing as much as $250,000, so the stakes for both manufacturer and customer are very high.

The representatives who sell laser equipment are generally compensated, at least partially, on commission and, given the cost of the machines, the commissions they stand to earn are substantial. Therefore, the reps are motivated—often very motivated—to sell. Potential clients often forget this when they are evaluating a laser purchase. Savvy consumers always keep in mind that sales reps, even at the most reputable companies, are paid most of their money when they actually sell a machine, so they can be very aggressive.

Many reputable laser companies employ very knowledgeable, very considerate reps—my company, AmSpa, works with quite a few—but because of the potential for lucrative commissions, some laser sales reps act in an unscrupulous manner. This is one reason a prospective customer should attempt to work with reputable companies with established track records.

Unscrupulous sales reps often pressure potential customers to make decisions immediately, without taking the time to truly evaluate their options. Some will tell these customers that they are on a tight deadline or that they have limited-time discounts that expire almost immediately. Instead of succumbing to this pressure, however, interested parties should take a step back and evaluate their options. These purchases are significant and should be treated with a great deal of care. Good sales reps will understand the gravity of the decision, and provide customers with the time, information, and references they need to be confident about their purchase.

Knowledge is Power

Prospective customers should also keep in mind that they only have leverage before the contract is signed, so they need to do everything they can to look out for their best interest at this time. When a representative presents a customer with a contract to purchase a laser, the customer must fully understand that contract, because this likely is the only time it can be negotiated. If there are provisions in the contract you don't understand, ask the sales representative to explain them as thoroughly as possible. A good sales rep will always take the time to make sure the customer understands the contract.

If your practice's attorney is familiar with negotiating laser contracts, you should definitely employ his or her expertise when evaluating or negotiating a laser purchase; if he or she doesn't, you should consider hiring a lawyer with knowledge and experience in this area. Laser contracts are different from contracts for other types of equipment in the medical aesthetic field—they include unique provisions, and the language they contain is different from the other types of contracts you may have negotiated, so enlisting the aid of someone with experience with these pacts can be tremendously helpful.

The amount of marketing support the manufacturer is offering is one aspect in a laser contract that should be carefully considered. Some laser companies offer excellent support, while others might say they will but guarantee nothing in writing. Guaranteed support in the form of a well-developed marketing assistance program will often increase the price; however, such a program is generally well worth the expense. Once again, it's up to the customer to make sure that the contract he or she signs includes language that guarantees sufficient manufacturer support.

It is also important to ask the representative to provide references from people who own and have extensively employed the laser that you are considering purchasing. These experienced users can share everything you need to know about the product. A prospective customer should ask about how the laser performs, its service record, return on investment, the support the manufacturer offers, and any additional relevant information. Conscientious reps have a large number of references from clients with whom they have worked throughout the years; if they don't, you should view it as a red flag.

Powerful Provisions

Prospective customers need to carefully consider some provisions that are typically found in laser contracts. Although it can take hours to review and analyze contracts, I often focus on the following three provisions when representing clients in laser purchases.

Recertification fees. The most hotly contested provision deals with recertification fees. If a contract calls for recertification before a used laser can be resold on the open market, the manufacturer must inspect the machine to “certify” that the laser is in working order and operating to the manufacturer's standards. The fee that the manufacturer charges for this service can be quite high—$50,000 or higher—and it must be paid before the equipment is supported at a new customer site, which can cut into the machine's resale value and make it difficult to re-sell on the open market. However, some manufacturers do provide a warranty and clinical training as part of this process, which may help to enhance the machine's resale value.

In order to understand how to address recertification fees, it's important to know why they exist in the first place. According to Marisa Trasatti, general counsel for Sciton, “Recertification ensures that the device is safe for use on your patients and returns the unit to manufacturer-safe specifications. There is a growing secondary market for used lasers that are potentially hazardous to patients and physicians alike. Given the current malpractice climate, using a laser that may not have been properly maintained or was never recertified to the manufacturer's original specifications puts a physician's license and reputation at serious risk should an adverse event occur.”

There are valid reasons for having this fee in place, but it is still a very significant cost. This is another reason why it's very important to make sure that the laser you're considering purchasing is right for your practice and can be supported by your market. If, after a few months, you decide that the laser isn't suitable for your business, you might be stuck with an extremely expensive laser you can't use or sell for close to the purchase price, since the secondary market for lasers tends to depend on the equipment that's being sold.

In some instances, you can negotiate recertification fees, and some laser manufacturers are even willing to waive them altogether in certain cases—typically when a practice is attempting to introduce laser treatments in markets where they have yet to prove to be successful. In fact, if customers can show that their market is not responding to the product offerings after a period of time, some laser manufacturers will even offer to repurchase the machine. These are all elements of the contract that must be negotiated into the contract before the sale, however; if the contract is signed and these stipulations aren't included, they typically cannot be added.

Re-sale restriction. A re-sale restriction states that the customer cannot re-sell a laser without manufacturer approval, or that the laser must be sold back to the manufacturer at a discounted price. As is the case with the recertification fee, there are valid reasons manufacturers include re-sale provisions in their contracts; however, these provisions can limit a practice's options when purchasing new technology. You may have heard horror stories about medical spas being stuck with perfectly functional laser equipment that they don't use anymore because a newer model was released. I've seen a practice with more than $1 million worth of laser technology gathering dust. This tends to be because the practices simply can't do anything with the lasers due to contractual restrictions and the weak secondary market, which tends to be controlled by buyer demand rather than supply.

However, as is the case with recertification fees, a re-sale restriction can be negotiated. Once again, it is vital that a prospective customer recognizes and deals with these provisions prior to signing the contract in order to maintain leverage. Reputable laser companies stand behind their products and typically will work with new clients to ensure they are satisfied. At the very least, this provision should be thoroughly explained so that the customer understands why it is there and how it could help the customer.

Service clauses and warranties. Finally, customers must make sure that the service clauses and warranties in the contract offer sufficient protection for their practices. Although these machines are commonly found in medical spas, it's important to remember that they actually fire lasers. This technology used to be confined to science fiction, not reality. These are sophisticated, fragile pieces of machinery, and no matter how reputable the manufacturer, they will need to be repaired and serviced. Good companies ensure that there is little downtime and expense when servicing their laser equipment, but the customer must make sure that everything that needs to be covered is covered for a fair period, and that service is guaranteed to occur in a timely manner. Every day that the machine is down is a day that it is not generating revenue for the practice.

Savvy customers will learn about exactly what happens when the equipment needs service, what is covered (and what is not) under the warranty, and what the customer support entails. Moreover, you need to get as much as possible in writing so that you are contractually guaranteed efficient, cost-effective service.

Protect Yourself

If you know of a lawyer who has experience negotiating laser contracts, you should definitely hire him or her to help negotiate any transaction involving laser equipment. (Author's note: The American Med Spa Association [AmSpa] works with a national law firm that focuses on medical aesthetic legalities and, as a member, along with a number of other great benefits, you receive a discount off of your initial consultation. To learn more, log on to americanmedspa.org.) Some practices might be able to afford having hundreds of thousands of dollars worth of dusty, unused laser equipment, but most definitely cannot.