Do online coupons for discounts to physician and other clinician services violates Stark, anti-kickback and fee-splitting laws?

Many online ventures want to know whether Stark, anti-kickback, and fee-splitting laws are violated by business arrangements that offer online coupons or Web-based coupons to customers. Let’s break this question down a bit for analysis.

First, Stark self-referral law is on the federal level. We are only interested in federal law if Medicare, Medicare (Medi-Cal in California) or another federally funded health care reimbursement program is involved. If the services offered are, for example, most medical spa or telemedicine healthcare services, then usually Medicare and Stark are not involved.

Second, self-referral laws (including Stark and in California, the Physician Ownership Referral Act (PORA)) only come into play where there are designated health services (also known as “DHS”). Again, most medical spa or telemedicine healthcare services do not involve DHS. This isn’t always the case, so check with a lawyer familiar with anti-kickback, fee-splitting, and self-referral laws.

Third, even if we assume that Stark and self-referral laws are not involved, questions about coupons or discounts can trigger anti-kickback and fee-splitting laws–and sometimes corporate practice of medicine questions too. (The corporate practice of medicine (“CPM”) rule prohibits corporations from practicing medicine.)

Every state has its own anti-kickback and fee-splitting law. Let’s take a look at California’s, as an example:

California Business & Professions (“B&P”) Code, Section 650(a) prohibits “the offer, delivery, receipt, or acceptance” by any licensed person of “of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise, as compensation or inducement for referring patients, clients, or customers to any person.”

So we have to ask whether the Web-based coupon or discount for physician or other clinical services involves:

  • offer, delivery, receipt, or acceptance
  • by any licensed person
  • of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise
  • as compensation or inducement for referring patients, clients, or customers to any person

A coupon or discount clearly fits into the third bullet, and it would seem the intent is to offer the coupon or discount to the prospective patient as an inducement for the patient to visit the physician or other licensed healthcare professional.

Now California Business & Professions Code, Section 650(b) contains a carve-out for arrangements at fair market value (“FMV”).

One popular promoter of discount coupons for clinician visits, Groupon, faced some legal challenges with online advertising of coupons for visits to healthcare providers. In a statement dated April 10, 2013 from the Illinois Department of Financial and Professional Regulation, entitled, Voucher Advertising and Fee-Splitting, the Department advised that “vouchers” (i.e., for healthcare services) should:

Ensure that the negotiated fee between the advertising company and the licensee “represents reasonable compensation for the cost of advertising;” and

Incorporate “in a clear and conspicuous manner in all advertisements: (1) A description of the discounted price in comparison to the actual cost of the service. (2) A disclosure that all patients may not be eligible for the advertised health service; that decisions about health care should not be made in haste; and, that medical decisions must follow standard of care. (3) A disclosure to prospective patients that, if the provider decides the patient is not a candidate for the previously purchased health service, or, the patient does not claim the service, the patient’s purchase price will be refunded in its entirety. If the advertising company does not refund the entire purchase price, then the licensee must do so.”

There was also an Update on Fee-Splitting Rule & Online Advertising by the Oregon Board of Chiropractic Examiners dated May 2, 2012. The Update states that “where the fee is split on a per patient basis between a chiropractic clinic and the advertising company,” this violates the prohibition on fee-splitting. The Update further states that Groupon and Living Social “now offer flat-fee advertising contracts” and that these do not violate fee-splitting prohibitions. Such contracts have provisions “in which the advertiser holds the revenues in trust until the promotion has concluded and then deducts their flat fee from the total.”

This seems to provide some leeway to style an arrangement as receives one in which the venture receives an administrative or advertising fee for its online service, from the healthcare licensee or professional healthcare corporation. However, the arrangement still must be carefully structured, to avoid the appearance of an illegal joint venture, or otherwise as one violative of fee-splitting and CPM rules. (See Quick Summary of Federal “Stark” Self-Referral & Anti-Kickback Law and California Self-Referral and Fee-Splitting Prohibitions.)

On the federal side, in OIG Advisory Opinion No. 12-02, the OIG scrutinized the following arrangement for kickback issues under federal law:

An S-corporation operates a website that includes coupons for health care items and services and advertising on behalf of health care practitioners and entities. The corporation would contract with physicians and other healthcare providers and suppliers to post coupons for healthcare items or services on the website. The Terms of Use would specify requirements related to the coupons, which would include discounts on items and services that are reimbursable by federal healthcare monies. The coupons would not offer “free” services, but only a discount.

The healthcare entities and practitioners would have to give the same discount to any third-party payor or insurance carrier that the healthcare entity or practitioner offers to patient — i.e., the practitioner would not be allowed to offer a coupon directed only at the patient’s cost-sharing amount. The website would clarify this requirement.

The corporation would not be in a position to make any referrals to any practitioner who posts coupons on the website.

Healthcare entities and practitioners would have a profile listing on the website, and be charged a flat monthly fee for membership; and they would specify the start and end date for coupons and the percentage or dollar-off amount. The healthcare entities and practitioners could also advertise on the site.

The corporation’s aggregate compensation for this arrangement would be set in advance, consistent with fair market value in an arms-length transaction, and not take into account the volume or value of referrals. The Terms of Use would require that providers and advertisers comply with the discount safe harbor to the anti-kickback statute.

Healthcare consumers or potential customers would pay no fee to access the website, and could access anonymously, and would not pay anything for the coupons.

The OIG analyzed this arrangement as involving selling advertising space on the website to health care providers and suppliers, and posting providers’ coupons for healthcare items or services.

The OIG then went into a discussion of anti-kickback implications of marketing healthcare services:

In evaluating marketing or advertising, we consider a number of factors, such as: the identity of the party engaged in the marketing activity and the party’s relationship with its target audience; the nature of the marketing activity; the item or service being marketed; the target population; and any safeguards to prevent fraud and abuse.

Based on these factors, the OIG found that the proposed arrangement is “sufficiently low-risk under the anti-kickback statute.” The OIG noted that:

(1) the corporation is not a healthcare provider or supplier, but simply operates a website that hosts advertising and coupons; unlike marketing by healthcare providers and suppliers who “are in a position of trust and may exert undue influence when recommending health care-related items or services;”

(2) payments from providers and advertisers do not depend in any way on customers using the coupons or obtaining services from providers or advertisers;

(3) no customer account is necessary to access the site;

(4) the nature of the coupons does not raise the risk of over-utilization of medical services (the coupons are “akin to those that come to consumer by mail”); (5) there are safeguards in the arrangements, including: (a) that the discount benefits payor as well as patient; (b) Terms of Use require providers to comply with the AKS discount safe harbor.

Stark, self-referral, and anti-kickback rules are complex. The safe harbor provided by federal law, or by legal rules such as, in California, Business & Professions Code Section 650(b), may or may not be available to a particular business arrangement. If you plan to offer coupons or discounts for any healthcare service, check with an anti-kickback lawyer who is familiar with all aspects of fee-splitting issues.

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Michael H Cohen Healthcare & FDA Lawyers

Contact our healthcare law and FDA attorneys for legal advice relevant to your healthcare venture.

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