Advertising on Groupon allowed under new law

Legislation signed in September by Gov. Brown resolves a longstanding conflict concerning whether health care providers' use of online marketing companies to advertise health care services constitutes fee splitting or payment for referrals, both of which are prohibited under state law.

Assembly Bill 2744 (Gordon, D-Menlo Park) permits health care providers to advertise online via vouchers for specific services through Groupon, Living Social and other similarly structured social coupon companies. Under the new law, the sale of such a voucher for health care services is not considered a payment for referral of patients as long as the third-party advertiser does not recommend, endorse or select the health care provider. Payment for referral of patients is a violation of California's Business and Professions code, Section 650, as well as CDA's code of ethics.

Groupon and its direct competitors operate by contracting with businesses, including health care providers, to promote discounted products and services to potential customers. In order to take advantage of the discounted service, the customer must provide advance payment directly to the online company, which typically deducts a percentage as its contracted fee and remits the balance of the payment to the business.

Questions had been raised in California and other states about the use of these online marketing companies because, unlike with traditional advertising where a flat fee is paid irrespective of how successful the advertisement is, the third party (or online marketing company) receives a share of the purchase price of each voucher sold. CDA's previous guidance urged dentists to avoid using these online coupon programs, or to negotiate a flat-fee structure to avoid engaging in what has been construed as the noncompliant "per-referral fee."

CDA worked with the author's office to ensure that any gray area surrounding payment for referral of patients and fee splitting was eliminated for dentists.

Three amendments CDA requested were folded into AB 2744, allowing CDA to move from an "oppose unless amended" to a neutral position on the Groupon-sponsored bill. These amendments protect a dentist's authority to diagnose and better inform consumers. Specifically, they require that offers of discounted health care services through social coupons include:

  • Disclosure of the discounted price of the advertised service in comparison with the actual cost of the service. Furthermore, the bill states, "The fee paid to the third-party advertiser must be commensurate with the services provided by the third-party advertiser."
  • Disclosure that not all purchasers may be eligible for the advertised health care service and that "a consultation is required" to determine the patient's appropriate care.
  • Disclosure that if the purchaser is not a candidate for the purchased health care service, or does not claim the service for any reason, the purchaser will receive a refund of the full purchase price as determined by the terms of the advertising service agreement.

To align the bill with covered benefits required under the Affordable Care Act, "basic health care services" and "essential health benefits" are excluded from services that may be offered through online advertising vouchers. Therefore, under the new law, advertising for cosmetic and adult dental services is allowable but advertising for pediatric dental services is not.

While the new law exempts marketing some health care services through social couponing from the restrictions imposed by Section 650, it maintains the ban on payment for referrals and fee splitting in all other circumstances.

The bill goes into effect Jan. 1, 2017.

For resources on compliance with this new law, please visit cda.org/practicesupport.

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