Should physicians, chiropractors, and other healthcare practitioners worry when they offer coupons for discounts to patients?

Naturally, like any other business model, augmenting one’s clientele may be a priority for medical and other healthcare practitioners. Is it legal to offer coupons and discounts?

Coupon-Based Healthcare Marketing Gets Regulatory Flack & Attack

Legal, illegal, or otherwise, coupon-based healthcare marketing has raised enforcement hackles in the past.

In 2012, many dentists were using online marketing programs like Groupon and/or offering to incentivize new patient referrals through discount coupons, and this practice came to regulatory attention.

In response to this growing trend, the American Dental Association’s Legal Division (ADA) issued a strong note of caution to the ADA’s constituent state dental associations (Legal Issues in Marketing a Dental Practice: Referral Gifts and Groupon Discounts).

See our prior blog post:

There we discussed how a coupon or discount may fall into the criteria of any rebate, refund, commission, preference, patronage dividend, discount, or other consideration, whether in the form of money or otherwise 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.

We had also highlighted that 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.”

The memo mentioned above also looked into the legality or otherwise of offering and awarding Groupon discounts to new or existing patients, advertising Groupon or other discounts in connection with dental services, and offering and awarding gifts to existing patients in exchange for new patient referrals. The legality depending on (a) the state in which the dentist practices and (b) whether the dentist provides services payable under a federal health care program such as Medicare or Medicaid.

 Caveats about Online Healthcare Services Marketing

As we understand it, the way it would work is that health practitioners using Groupon to offer discounts to new patients would have to give Groupon a portion of the revenue generated from the Groupon promotion. When a promotional discount is offered, customers pay the fees directly to Groupon. The practitioner is then paid a percentage of the fees collected. Splitting the revenues with Groupon may pose a legal problem for practitioners who practice in states that have laws prohibiting fee splitting of fees.

Following these events, Living Social, another online marketing platform,  changed its model for healthcare professionals to a flat fee marketing program. A letter was posted on the Oregon Board of Dentistry’s website from Braatz to Seth Brown, Assistant General Counsel of Living Social, acknowledging its new flat fee marketing program for healthcare providers. Braatz asserted that, “The Oregon Department of Justice, the Oregon Dental Board (ODB) is not approving a specific contract but is approving a model, which includes an agreement between the practitioner and Living Social that all fees paid by the customer will be passed through to the practitioner and the practitioner will pay an advertising fee directly to Living Social.”

The ADA’s memo highlighted several other states that also have laws prohibiting fee splitting, which could conflict with Groupon-type marketing. These include the following:

The Michigan Public Health Code prohibits, “dividing fees for referral of patients.” Under the Texas Board Rules, a dentist may not offer or give cash to a third party for securing or soliciting patients. The Texas Board Rules include a “safe harbor” for remuneration for advertising, marketing, or other services but only if the remuneration “is set in advance, is consistent with the fair market value of the services, and is not based on the volume or value of any patient referrals.”

New Jersey law states that services advertised as complementary, free of charge, or for a discounted fee must be offered equally to all patients identified as eligible in the advertisement. For example, if the free service or discounted service is offered to new patients, it must be offered to all new patients – even those with dental reimbursement plans. While the Illinois Dental Practice Act provides that dentists may advertise or offer free examinations/evaluations or free dental services, it also states, “it shall be unlawful, however, for any dentist to charge a fee to any new patient for any dental service provided at the time that such free examination or free dental services are provided.”

Note that we are not trying to single out Groupon here, nor do we opine one way or another with respect to compliance by any company we discuss.  This is just a blog post, an informational piece seeking to explore and educate as to potential compliance hot spots and where promoters of coupons and discounts in healthcare have faced regulatory fire.  Every state has its own laws, and sometimes it’s also what’s unwritten and implied that can bring the enforcement arrows down on a healthcare practice or company.

Online healthcare marketing may also raise issues  for practitioners who treat patients covered by Medicare or Medicaid.

The federal anti-kickback statute (AKS) prohibits any person from knowingly and willfully offering or paying cash to any person to induce the person to refer a patient for services for which payment may be made under a federal healthcare program.

Ethical Concerns

The ADA memo emphasizes the possible violation to certain ADA ethical rules which are prescribed in the ADA Code of Ethics, including the rule prohibiting dentists from giving rebates and splitting fees. According to Amy Chase, ADA Associate General Counsel, “While a determination as to whether any of these practices are illegal or unethical has not yet been made, there is clearly a risk in each instance. Dentists are strongly advised to consult a local attorney familiar with such issues prior to offering and rewarding social coupons to new patients.” (ADA News, November 21, 2011)

Other Referral Incentives

The ADA states:

The Illinois Dental Practice Act makes it unlawful for any dentist to “offer gifts as an inducement to secure dental patronage.” The Texas State Board of Dental Examiners has declared it illegal for a dentist to “offer, give, dispense, distribute, or make available to any third party any cash, gift, premium, chance, reward, ticket, item, or thing of value for securing or soliciting patients.” Under these regulations, even nominal gifts made to existing patients may be prohibited. Under the Arizona Dental Practice Act, “unprofessional conduct” includes “giving or receiving rebates, either directly or indirectly.” The ADA cautions that referral gifts such as movie tickets or gift cards may be seen as an indirect way of splitting fees or offsetting fees for a referring patient.

“Your Guide to California Dental Practice Act Compliance” was updated in January 2017 to reflect new laws concerning adverse event reporting, scope of practice, required language in the anesthesia informed consent form, online advertising through Groupon, notice of licensure, consulting the Controlled Substance Utilization Review and Evaluation System (CURES), prescriber dispensing of controlled substances and several other areas of practice.

American Society of Plastic Surgeons (ASPS) has also explored the legality or otherwise of online marketing platforms such as Groupon. Physicians who offer discounts through Groupon – or comparable services such as Living Social, Tippr and Facebook’s “Deals”could be in breach of state laws related to patient referrals and/or the Federal Anti-Kickback Statute. Provisions in the Society’s Code of Ethics could be implicated as well on the same grounds which we highlighted above.

Online based marketing platforms have been used by ASPS members to offer deals on Botox® and Restylane® injections, SmartLipo™ laser liposuction, Endermolift™ noninvasive “facelifts,” endermological lipomassage, 3-D breast analysis and modeling, laser hair removal, cellulite treatments, microdermabrasion, glycolic peels and consultations.

Offers to perform invasive procedures such as breast augmentations or facelifts have not been offered as a part of Groupon or any comparable program, as far as we know, although specific facts, circumstances, and offerings can always change while we’re writing a post.

Section 650(a) of the California Business and Professions Code prohibits physicians from offering 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, irrespective of any membership, proprietary interest, or co-ownership in or with any person to whom these patients, clients, or customers are referred…”

Title VIII, Article 131 of New York Education Law under Article 131-a Section 6531 (and the more generally applicable Article 130, Section 6509), a physician who has “directly or indirectly requested, received or participated in the division, transference, assignment, rebate, splitting or refunding of a fee for, or has directly requested, received or profited by means of a credit or other valuable consideration as a commission, discount or gratuity, in connection with the furnishing of professional care or service,” may be found to have engaged in professional misconduct and subject to licensure revocation, suspension, annulment or other penalties. Section 6521 of Article 131 defines the practice of medicine as “diagnosing, treating, operating or prescribing for any human disease, pain, injury, deformity or physical condition.”

The Rules of the New York Board of Regents in Section 29.1(b)(3)-(4), prohibiting professional misconduct provide in relevant part, that a physician may be disciplined for:

• Directly or indirectly offering, giving, soliciting, or receiving or agreeing to receive, any fee or other consideration to or from a third party for the referral of a patient or client or in connection with the performance of professional services;
• Permitting any person to share in the fees for professional services, other than: a partner, employee, associate in a professional firm or corporation, professional subcontractor or consultant authorized to practice the same profession, or a legally authorized trainee practicing under the supervision of a licensed practitioner.

Because of the nature of a coupon/discount arrangement, which is both dependent upon referrals and could be seen as requiring the splitting of the professional fee, the arrangement conceivably could be viewed as professional misconduct under New York law in violation of the ant kickback and fee-splitting prohibitions of the Rules of the Board of Regents as well as Section 6531 of Article 131 discussed above.

Before implementing any marketing plan, healthcare practitioners (including physicians, dentists, chiropractors, and others) need to ensure that their marketing programs do not violate state and federal anti-kickback laws, third party payer contracts, and the relevant professional codes of Ethics. Stark, self-referral, and anti-kickback rules are complex. If you plan to offer coupons or discounts for any healthcare service, contact a healthcare attorney familiar with relevant laws and regulations.