BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 2744 Hearing Date: June 13, 2016 ----------------------------------------------------------------- |Author: |Gordon | |----------+------------------------------------------------------| |Version: |June 6, 2016 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Sarah Huchel | |: | | ----------------------------------------------------------------- Subject: Healing arts: referrals SUMMARY: Clarifies that certain types of advertising do not constitute a referral when the third party advertiser does not recommend, endorse, or otherwise select a healing arts licensee, as specified. Existing law: 1) Declares it unlawful for any person, association, or corporation to establish, conduct or maintain a referral agency or to refer any person for remuneration to any extended care, skilled nursing home or intermediate care facility or a distinct part of a facility providing extended care, skilled nursing home care, or intermediate care, without first having obtained a written license from the State Director of Health Services or from an inspection service as specified. (Health and Safety Code (HSC) Section 1400) 2) Defines "referral agency" for purposes of the HSC to mean a private, profit or nonprofit agency engaged in the business of referring persons for remuneration to any extended care, skilled nursing home or intermediate care facility or a distinct part of a facility providing extended care, skilled nursing home care, or intermediate care. (HSC § 1401) 3) Declares unlawful, except as allowed for referral agencies AB 2744 (Gordon) Page 2 of ? licensed under HSC, the offer, delivery, receipt, or acceptance by any healing arts licensee 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, irrespective of any membership, proprietary interest, or coownership in or with any person to whom these patients, clients, or customers are referred. (Business and Professions Code (BPC) § 650 (a)) 4) States that the payment or receipt of consideration for services other than the referral of patients which is based on a percentage of gross revenue or similar type of contractual arrangement shall not be unlawful if the consideration is commensurate with the value of the services furnished or with the fair rental value of any premises or equipment leased or provided by the recipient to the payer. (BPC § 650 (b)) 5) Establishes parameters for group advertising and referral services for dentists, chiropractors, and marriage and family therapists, as specified. (BPC §§ 650.2, 650.3, 650.4) 6) Declares it unlawful for any healing arts licensee disseminate or cause to be disseminated any form of public communication containing a false, fraudulent, misleading, or deceptive statement, claim, or image for the purpose of or likely to induce, directly or indirectly, the rendering of professional services or furnishing of products in connection with the professional practice or business for which he or she is licensed. A "public communication" as used in this section includes, but is not limited to, communication by means of mail, television, radio, motion picture, newspaper, book, list or directory of healing arts practitioners, Internet, or other electronic communication. (BPC § 651(a)) 7) Requires any price advertisement to be exact, without the use of phrases, including, but not limited to, "as low as," "and up," "lowest prices," or words or phrases of similar import. Any advertisement that refers to services, or costs for services, and that uses words of comparison shall be based on verifiable data substantiating the comparison. Any person so advertising shall be prepared to provide information AB 2744 (Gordon) Page 3 of ? sufficient to establish the accuracy of that comparison. Price advertising shall not be fraudulent, deceitful, or misleading, including statements or advertisements of bait, discount, premiums, gifts, or any statements of a similar nature. In connection with price advertising, the price for each product or service shall be clearly identifiable. The price advertised for products shall include charges for any related professional services, including dispensing and fitting services, unless the advertisement specifically and clearly indicates otherwise. (BPC § 651 (c)) 8) Defines basic health care services as physician services, including consultation and referral; hospital inpatient services and ambulatory care services; diagnostic laboratory and diagnostic and therapeutic radiologic services; home health services; preventive health services; emergency health care services, including ambulance and ambulance transport services and out-of-area coverage; and hospice care. (HSC § 1345 (b)) This bill: 1)Clarifies that the payment or receipt of consideration for advertising, wherein a licensee offers or sells services through a third party advertiser, shall not constitute a referral of patients when the third party advertiser does not itself recommend, endorse, or otherwise select a licensee. 2) Requires the purchaser to receive a refund of the full purchase price to the extent that the licensee determines, after consultation with the purchaser of the service, that the service is not appropriate for the purchaser. 3) States that this bill shall not apply to basic health care services, as specified, or essential health benefits, specified. 4) Requires the entity providing the advertising to be able to demonstrate that the licensee consented in writing to the requirements of this bill. 5) Requires a third party advertiser to make available to prospective purchasers advertisements for services of all AB 2744 (Gordon) Page 4 of ? licensees advertising through the third party advertiser in the applicable geographic region. FISCAL EFFECT: This bill is keyed "fiscal" by Legislative Counsel. According to the Assembly Committee on Appropriations analysis dated May 4, 2016, any costs to healing arts boards within the Department of Consumer Affairs are expected to be minor and absorbable. COMMENTS: 1. Purpose. This bill is sponsored by The Internet Association . According to the Author's office, "AB 2744 would recognize that online advertising involving the purchase of vouchers for services offered by a healthcare professional is just another form of advertising. Specifically, this bill would expressly provide that payment or receipt of consideration for advertising, wherein a healthcare professional offers or sells a voucher for services, is not a referral of patients." 2. Background. Current law authorizes and establishes parameters for healing arts professionals to advertise their services and, in a separate provision of law, prohibits rebates for patient referrals. Current law does not appear to anticipate new forms of advertising which offer prepaid services in the form of vouchers. In this model, a healing arts licensee contracts with a third party advertiser to establish a voucher for the licensee's services at a certain price and for a certain time period, which is then marketed by the advertiser. For each voucher sold, the third party advertiser takes a portion of the cost of the voucher as its advertising and marketing fee. The third party advertiser is not paid upon redemption, nor does it recommend, endorse, or otherwise select a licensee. Once a consumer purchases a voucher, the consumer contacts the licensee to set an appointment, just as they would if responding to any other form of advertisement. 3. Advertising vs. Referral. Critical to the inquiry as to the legality of voucher advertising services is the issue of AB 2744 (Gordon) Page 5 of ? "referral." A 1994 Attorney General opinion (93-807) stated the following about the nature of referrals, in regards to a question about whether a for-profit podiatry telephone referral service may direct callers to podiatrists based on the amount a participating podiatrist pays: The referral plan about which inquiry is made [a dental referral plan] fits squarely within the section's broad prohibition. The verb `refer' is defined as `to send or direct for treatment, aid, information, decision' (Webster's Third New Internat. Dict. (1971 ed.) at p. 1907, def. (2a)) and a `referral' as `the process of directing . . . a patient . . . to an appropriate specialist or agency for definitive treatment' (id., at p. 1908, def. (1b)). The phrase `referral of patients' used in section 650 may thus be thought of as the process whereby a third party independent entity who initially has contact with a person in need of health care first selects a professional to render the same and then in turn places the prospective patient in contact with that professional for the receipt of treatment. In other words it is the selection of a dentist to provide professional services for a patient by someone other than the patient or dentist (or their employees or agents on their behalf) that constitutes the `referring of patients' under section 650. ? As we have seen section 650 was designed to ensure that that selection and subsequent reference would not be tainted by the receipt of a fee and that the patient would not pay more for the ultimate services he receives because of it. . . . Inasmuch as in the process described herein consideration is paid to obtain the advantage of being selected by the referral service to be the treating professional, a violation of section 650 occurs. This bill specifies that a referral does not occur if a third party advertiser does not itself recommend, endorse, or otherwise select a licensee, and that the third party advertiser makes available all licensees advertising within an applicable geographic region. Also significant to the distinction between referral services and advertising is the notion that consumers were being intentionally or unintentionally misled about the nature of referral services - that they were screening licensees and AB 2744 (Gordon) Page 6 of ? endorsing those recommended, or selected only certain practitioners over others for quality reasons, rather than because a licensee paid the service. To the extent that it is obvious that the voucher is a solicitation and the third party advertiser does not discriminate between licensees based on advertising fees paid within a reasonable geographic region, these forms of advertising should not trigger referral concerns. 4. Prior Legislation. SB 994 (Kelle, Chapter 648, Statutes of 1993) required dental referral services to disclose in advertisements that dentists have paid for referrals by the service. 5. Arguments in Support. The Internet Association writes, "Current law generally prohibits a licensed healing arts professional from paying or receiving compensation for the referral of a patient. This law was designed to prevent patient referrals based on financial motives - which were frequently undisclosed - rather than the patient's best interests. Internet advertising is not a patient referral, any more than is traditional advertising, such as an ad in the Yellow Pages or Penny Saver. Nor does Internet advertising implicate the policy concerns underlying California's prohibition on paid patient referrals." Groupon writes, "This legislation is important to the many California healing arts professionals who use Internet platforms such as Groupon to advertise their services and expand their businesses. It is also important for California consumers for whom the Internet has become a valuable resource to comparison shop for elective/non-reimbursable health care services. On Groupon, for example, consumers can compare prices and services from dozens of providers in their communities for teeth whitening, braces, or laser skin resurfacing, to name a few. This offers consumers greater transparency about pricing for these types of healthcare services, which has historically been difficult to find." 6. Arguments in Opposition. The California Medical Association writes, "In the last decade, new companies often referred to as 'daily deal sites' have been created that advertise discounted services on behalf of another. The arrangement is simply [that] a provider offers their services and a company AB 2744 (Gordon) Page 7 of ? like Groupon or LivingSocial handles the advertising and selling of those services. While this model is completely appropriate for the vast amounts of market activity, it is not appropriate to sell medical services in this manner. Physicians are prohibited from providing any form of consideration in return for the referral of patients. Because Groupon bases it business model by tying its advertising fee to the total number of services sold, CMA fears this model runs afoul of current fraud and abuse protections centered around self-referral and anti-kickback schemes." The California Society of Plastic Surgeons (CSPS) writes, "CSPS is opposed to the proliferation of medical offerings online which are touting significant discounts as a means to obtain patients via online websites." 7. Recommended Amendments. The Author may wish to consider clarifying how and under what circumstances a customer gets a refund. The bill states that "To the extent the licensee determines ? that the service is not appropriate for the purchaser, the purchaser shall receive a refund of the full purchase price." This language confuses whether a purchaser may only get a refund "to the extent that the licensee determines the service was inappropriate" or the actual, complete purchase price. The following would clarify that the consumer would get a full refund if the licensee determines the service is inappropriate: On page 3, line 38, delete "To the extent" and add " If " This bill language is also unclear who the purchaser receives the refund from, be it the licensee or the third party advertiser. The following will clarify how the terms of reimbursement will be determined: On page 4, line 1, after "price" insert " as determined by the terms of the advertising service agreement between the third-party advertiser and the licensee " The following restatement will clarify that the third party advertiser is required to offer advertising from all licensees who want to advertise with the third party advertiser in a certain geographic area: AB 2744 (Gordon) Page 8 of ? On page 4, delete " for purchase services advertised by all licensees" and delete line 10. Insert "to prospective purchasers advertisements for services of all licensees then advertising through the third party advertiser in the applicable geographic region. " SUPPORT AND OPPOSITION: Support: The Internet Association (Sponsor) Groupon Opposition: California Medical Association California Society of Plastic Surgeons -- END --