As interest in psychedelic-assisted care swells like a tidal wave, legal and regulatory understanding has yet to catch up. The result is non-compliant business practices and legal blind spots that put practitioners’ licenses and the community’s trust at huge risk.
Rudick Law Group (RLG) Attorney Jessica F. Gonzalez moderated a Psychedelics Law 101 webinar, with RLG Of Counsel Victoria Cvitanovic as speaker and presenter, to highlight key risk areas, compliance needs, and further learning opportunities.
Catch the full replay above, and read through the main takeaways here.
1. Understanding The Legal Status of Psychedelics: Federal vs. State
Federally Illegal Psychedelics
Schedule I of the federal Controlled Substances Act currently includes psilocybin, LSD, DMT, ibogaine, mescalin, and MDMA. Ketamine is classified as Schedule III. The federal government views Schedule I substances as having no legitimate medical usage and a high potential for abuse, whereas Schedule III substances are approved for medical use.
Cvitanovic noted that the FDA contradicts itself on psilocybin and MDMA. Despite their Schedule 1 status, the FDA has given them breakthrough therapy designations, approving the study of their potential use in treatment-resistant depression.
“[This] is really confusing,” she said, “when you consider the fact that the definition of a Schedule I substance is that there is no medical use for that substance. … There may not be the level of support necessary to keep something in Schedule I, but that does not inhibit the fact that they're still there.”
State-Legal Psychedelics
In Colorado, a 2022 ballot initiative decriminalized growing, sharing, using, and possessing psilocybin, psilocin, DMT, ibogaine, and mescaline among people 21 and older. In New Mexico, the state legislature has legalized psilocybin for medical purposes, marking the first passing of such a program without a ballot initiative. In many other states, ballot initiatives that could eventually legalize psychedelics are ongoing.
Some states’ legal psychedelic programs, Cvitanovic said, “are best qualified as adult-use because they have provisions for things like gifting as well as things like healing centers, whereas others are more strictly medical. That divide is something we're going to continue to see as the states figure out how they want to engage with these compounds.”
Other Legal Psychedelics
In all states except Louisiana, Amanita muscaria is fully legal for psychedelic-assisted therapy, as this mushroom has never been federally regulated.
Similarly, given ketamine’s Schedule III classification, ketamine-assisted therapy (KAT) clinics have exploded in popularity. These clinics typically prescribe ketamine off-label (for a different reason than originally approved by the FDA), although some use the FDA-approved treatment SPRAVATO®.
“Thanks to the research of so many dedicated providers,” Cvitanovic said, “[we’ve learned] that sub-anesthetic doses [of ketamine] can induce psychedelic experiences [that] can be incredibly meaningful and helpful for people processing things like major depressive disorder, post-traumatic stress disorder, or…chronic pain.”
Importantly, the FDA has approved SPRAVATO® nasal spray, made with ketamine’s main compound esketamine, to treat adults with treatment-resistant depression. Its FDA-approved status introduces requirements for tracking how healthcare practitioners use it and how patients respond to it. There are also ketamine take-home kits that anyone can order online after going through a telehealth assessment.
“Between Amanita and ketamine, we have to accept the fact that… legal psychedelic therapy in the United States is not new,” Cvitanovic summarized.
2. Informed Consent Is A Must In Psychedelic-Assisted Therapy
Healthcare practitioners often use standard consent forms that protect them from general forms of liability and some forms of medical malpractice liability. Cvitanovic said that psychedelic-assisted therapy requires different paperwork since patients may not be aware of all the possible effects, including some negative (but temporary) experiences.
“Once that person has a challenging experience…[they may be] concerned that what happened to them was not within the medical standard of care or was somehow negligent,” Cvitanovic said.
Cvitanovic said that telling patients in advance about requirements, such as drug and pregnancy testing, serves as “a form of patient screening where you can see, is this person really ready for the kind of experience that ketamine, or that regulated psilocybin or something else, is going to offer?” She encouraged the use of co-provider agreements through which a patient’s ketamine provider and therapist, if not the same person, can communicate confidentially to ensure the patient’s safety.
3. Psychedelics Businesses Must Understand Their Data Protection and Liability Responsibilities
Data Collection Limits
Although data protection may seem like an abstract consideration, Cvitanovic noted that, according to some studies, 93% of consumer trust in a business is lost after a major cybersecurity breach. She said that protecting the data of patients pursuing psychedelic-assisted treatment starts with limiting the data collected to only necessary information. Data aggregation, generalization, and anonymization, alongside limits on behavioral data, access control, and how granular the detail gets, are important as well.
There are also regulatory guardrails to consider.
“Most states, if not all states, have some form of cybersecurity protection,” Cvitanovic said, noting that these laws can be piecemeal. “Those state laws also exist in an environment where there are federal laws happening,” such as HIPAA and HITECH.
It’s not just your state’s laws that apply, Cvitanovic noted — any laws in the states where your patients live may also apply, depending on several factors. Adding to the challenge is that, sometimes, these regulations can cross-cut or oppose each other.
AI and Patient Data
HIPAA too presents challenges, in particular when it comes to AI usage in medical settings.
“People think when they hear the words ‘HIPAA-compliant AI,’ that means that every way that you use it is HIPAA compliant,” Cvitanovic said, “That is not the case. You can use a HIPAA-compliant AI product in a non-HIPAA-compliant way.” As an example, she noted that using HIPAA-compliant AI without a business associate agreement in place with the vendor can violate HIPAA and HITECH.
Signing such an agreement with your vendor is among the simplest compliance boxes to check.
Cybersecurity Protocols and Cyber Insurance
Any psychedelic business that takes in a significant amount of data should establish cybersecurity protocol and obtain cyber insurance. Both these business considerations, Cvitanovic said, “are one way to show that you really care that the people that come to you are safe.”
Establishing clear patient consent procedures for data usage further builds trust between healthcare practitioners and patients. This is especially important given the history of unwelcome requests for data from vulnerable populations — requests that have led to real harm. As part of your consent procedures, she said, you should allow patients to opt out of data collection amid changes in how their data will be used.
Protecting Your Business With Insurance Policies
Your clinic will need several types of insurance policies to maximize its protection. These include, among others, medical malpractice insurance and premises liability plans. The latter policy should account for what your facility looks like and who uses it. If your business uses any vehicles as part of its services, you should obtain commercial auto insurance for these vehicles.
Notably, the premiums you’re quoted or charged for these policies may initially be what surgery centers, not IV clinics, would receive.
“Your premiums, right now, might not be the best rate that you could get,” Cvitanovic said.
You may also find that your coverage is inadequate.
“I have seen numerous providers offering psychedelic-assisted therapy,” she continued, “that are either specifically excluded from their malpractice coverage or are not included in the scope of services in their malpractice coverage. … When you're filling out these forms and binding coverage, [be] clear about what it is that you're actually doing, because when you need to call on that policy, they're going to be extremely clear on whether or not the policy covers it, and you might as well get that understanding in advance.”
Cvitanovic also pointed to emerging insurance structures that may offer more robust protection.
4. Insurance Coverage In Psychedelics Is Complicated
Your clinic may accept insurance for some aspect of its practice, but this doesn’t mean that your patients’ insurance plans will automatically cover your services. In fact, stories of clinics offering services through insurance, then later realizing they can’t do so, are common. Instead of informing patients after treatment that their insurance won’t cover it, practitioners should encourage patients to speak to their insurer first.
“Even if [patients are] in a program that looks a lot like a medical program, [psychedelic-assisted care] may not be covered by insurance,” Cvitanovic said about what patients should do before treatment. “[Patients] may need to call multiple providers or talk to insurance first to determine what's going to be covered before [they] show up on infusion day and get a bill [they] weren't expecting.”
5. Protect Yourself Legally
Consider Your Entity Formation
Providers with DEA licenses often use solely ketamine and Amanita muscaria in their psychedelic-assisted practices to minimize risk. At the same time, these providers may simultaneously prepare themselves for working with psychedelics that may eventually become FDA-approved.
“There's a real risk here,” Cvitanovic said. “If you have a business entity in which you're using this DEA license, you may want to form a separate entity for your natural medicine work. [It’s] not some kind of magical, perfect protection, but it will increase the level of protection that you have and lower the level of risk.”
Contracts, Trademarks, and Treatment Protocols
Compliance planning in psychedelics requires industry-specific contracts and disclaimers. The latter, Cvitanovic said, can reduce the likelihood that the content you create is censored.
Areas in which industry-specific contracts often prove important are within your supply chain (especially as novel compounds emerge), ancillary services, and intellectual property (IP).
“If what you're selling is the therapeutic aspect of what you're doing, then your business may have intellectual property that you could trademark,” Cvitanovic said, “because what you're selling, the thing that is the object of the commerce is not [a] prohibited substance, but is instead this service that you're providing.” On the other hand, if you’re selling Schedule I substances, you may have limited protection possibilities.
Your services themselves also require protection, and treatment protocols may ensure that you’re meeting the standard of care required by all regulations governing your practice.
“Standard of care is the standard by which, if you deviate below it, you are negligent and therefore responsible for medical malpractice,” Cvitanovic explained. “When you have clinics in the same town all doing something vastly different, whether or not you are following [the] standard of care [is] a very complicated question. I spend a lot of time with my clients helping them formulate…their treatment protocol and the way that they think about their standard of care such that if they ever need to defend it, they're prepared to do so.”
Ensure Ongoing Psychedelic Business Compliance with Rudick Law Group
Tailored legal solutions spanning regulatory compliance, strategic planning, and operations safeguard your psychedelic business’s interests while unlocking transformative growth. Rudick Law Group, an industry-leading, all-women firm, boasts a track record of success protecting and empowering businesses from initial licensure through continued regulatory compliance. Contact RLG for strategic counsel and legal review today, tomorrow, and long after.
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