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
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          |Author:   |Gordon                                                |
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          |Version:  |June 6, 2016                                          |
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          |Urgency:  |No                     |Fiscal:    |Yes              |
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          |Consultant|Sarah Huchel                                          |
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                         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  







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             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  








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             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  








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             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  








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             "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  








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             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  








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             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:








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               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


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