According to the most recent legal opinion of the Legal Division of the California State Department of Consumer Affairs (DCA), online marketing discount contracts for medical services violate state law. Internet marketing companies, such as Groupon and Living Social, contract with businesses to promote discounted products and services. These companies determine the customers to whom the offer is actually promoted and the customers must provide advanced payment directly to the companies. Then, the companies deduct a percentage as their contracted fee and remit the balance to the business. The law does not, per se, consider paying for advertising unlawful.  However, the DCA looked at this issue by analyzing the following two questions:

  • Who determines the referral of patients?
  • How is the payment for these services arranged?
  • Since the internet marketing companies determine the potential customers to whom the health care provider’s offer is actually promoted, the DCA determined that this method of selection of patients constitutes a “referral of patients” under Section 650. Furthermore, it should be noted that the main point of the law is to protect the best interests of the patients and, as such, referrals should not based on economic considerations. Since the contractual relationship between the online marketing firms and the health care providers is linked to the number of patients who purchase the coupon, the DCA has determined that this violates California’s anti-kickback statute. In addition, the fee deducted by these online marketing companies before paying the health care providers are considered “fee splitting”. Thus, if a health care provider pays for advertising or marketing services by sharing a specific portion of the fee, this is considered fee splitting. California’s anti-kickback statute, found in the Business & Professions Code Section 650, prohibits the payment or receipt of any compensation, direct or indirect, in return for referring patients to any person. Section 650 is typically used to prosecute doctors who form relationships with marketers, attorneys, and other referral sources and who have structured the compensation in such a way as to “pay for referrals”. The following are some examples of violations under Section 650:

    • A doctor hires a marketer, and pays that person an amount per person for each new patient referred to the office.
    • A doctor hires a marketer, and pays that person a percentage of the revenue generated from treatment provided to patients referred by the marketer to the doctor.
    • A lawyer seeks to be paid $300 for each new patient the lawyer refers to the doctor’s office.

    It is wise to pay close attention to your marketing program that involves the referral of patients to your practice. The arrangement must be structured carefully, paying close attention to the method of compensation. The penalties for violation of Section 650 are very severe, so exercise great caution in this area to avoid any arrangements which are questionable. Section 650 spells out the penalty for violation as follows:

    (g) A violation of this section is a public offense and is punishable upon a first conviction by imprisonment in a county jail for not more than one year, or by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by a fine not exceeding fifty thousand dollars ($50,000), or by both that imprisonment and fine. A second or subsequent conviction is punishable by imprisonment pursuant to subdivision (h) of Section 1170 of the Penal Code, or by that imprisonment and a fine of fifty thousand dollars ($50,000).

    Social media advertising continues to be a widely discussed topic in the medical and dental community with many providers. American Dental Association (ADA) Council on Ethics has now amended its Code of Ethics to address such advertisement arrangements. In 2012, the ADA Council on Ethics, Bylaws and Judicial Affairs issued an advisory opinion (4.E.1, Split Fees in Adverting and Marketing Services) that directly speaks to the issue of “social coupons.” The ADA’s Advisory Opinion provides that:

    The prohibition against a dentist’s accepting or tendering rebates or split fees applies to business dealings between dentists and any third party, not just other dentists. Thus, a dentist who pays for advertising or marketing services by sharing a specified portion of the professional fees collected from prospective or actual patients with the vendor providing the advertising or marketing services is engaged in fee splitting. The prohibition against fee splitting is also applicable to the marketing of dental treatments or procedures via “social coupons” if the business arrangement between the dentist and the concern providing the marketing services for that treatment or those procedures allows the issuing company to collect the fee from the prospective patient, retain a defined percentage or portion of the revenue collected as payment for the coupon marketing service provided to the dentist and remit to the dentist the remainder of the amount collected. Dentists should also be aware that the laws or regulations in their jurisdictions may contain provisions that impact the division of revenue collected from prospective patients between a dentist and a third party to pay for advertising or marketing services.

    If you are unsure of any aspect of your marketing arrangements, consult with an attorney experienced in these particular areas of the law. Reference:  

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