BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2744|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
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                                   THIRD READING 


          Bill No:  AB 2744
          Author:   Gordon (D), et al.
          Amended:  6/16/16 in Senate
          Vote:     21 

           SENATE BUS., PROF. & ECON. DEV. COMMITTEE:  6-0, 6/13/16
           AYES:  Hill, Block, Gaines, Galgiani, Mendoza, Wieckowski
           NO VOTE RECORDED:  Bates, Hernandez, Jackson

           SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           ASSEMBLY FLOOR:  78-0, 5/12/16 (Consent) - See last page for  
            vote

           SUBJECT:   Healing arts:  referrals


          SOURCE:    The Internet Association


          DIGEST:   This bill 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.   


          ANALYSIS:  


          Existing law:

          1) Declares it unlawful for any person, association, or  
             corporation to establish, conduct or maintain a referral  








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             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  
             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  







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             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  
             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.  







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          2) Requires the purchaser to receive a refund of the full  
             purchase price, as determined by the terms of the advertising  
             service agreement between the third-party advertiser and the  
             licensee, if 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, as  
             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  
             licensees then advertising through the third party advertiser  
             in the applicable geographic region. 

          Background
          
          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."  

          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  







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          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.  

          Advertising vs. Referral.  Critical to the inquiry as to the  
          legality of voucher advertising services is the issue 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  







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          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 third party advertisers were screening  
          licensees and 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.  
            


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified8/2/16)


          The Internet Association (source)
          Groupon


          OPPOSITION:   (Verified8/2/16)


          California Medical Association
          California Society of Plastic Surgeons

          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."








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          ARGUMENTS IN OPPOSITION:     The California Medical Association  
          (CMA) 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  
          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."

          ASSEMBLY FLOOR:  78-0, 5/12/16
          AYES:  Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Calderon,  
            Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper,  
            Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines,  
            Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger  
            Hernández, Holden, Irwin, Jones, Kim, Lackey, Levine, Linder,  
            Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,  
            Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,  
            Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Rendon
          NO VOTE RECORDED:  Burke, Jones-Sawyer

          Prepared by:Sarah Huchel / B., P. & E.D. / (916) 651-4104
          8/3/16 19:11:04


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