The astounding, initial success of daily deal site Groupon spawned numerous competitors, including Amazon Local, Living Social and LocalZoo. These sites bring together consumers and businesses in the form of deeply discounted services offered for a very limited time. They have become both popular and controversial within the medical aesthetics industry.
Medspas and practices that have taken part in these promotions question whether they ultimately benefit their businesses. In addition, some state medical boards claim that these types of programs violate anti-kickback laws and the ethical practice of medicine.
How Do Daily Coupon Sites Work?
When an individual signs up for a discount program, such as those mentioned above, she receives email offers from local businesses. These offers typically include a significant price discount for a specific product or service. The offer is available for a limited time and only if a predetermined number of users purchase the offer. The discount coupon website and the practice then share the revenue received.
Early on, businesses were often overwhelmed with the number of respondents and struggled to accommodate them. Now, most medspas or practices put a cap on how many coupons the business will accept.
Each of these daily deal sites has its own contractual provisions for different types of businesses, so it is important for practices to review the contract with the merchant prior to engaging their services.
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An initial financial and practical consideration for aesthetic medical providers is to determine the type of medical service to be promoted. Dermal fillers and neurotoxins typically have high material costs, so they may not be suitable for deep discounting.
Consideration should also be given to the providers who will deliver these services. Many providers receive an hourly wage plus commission. Therefore, their income will be affected by the discounted offer. It is prudent to discuss participation and get buy-in from providers before enrolling in the discount program.
Some practices have been overwhelmed by the demand generated by these deals and found themselves consequently unable to manage the influx of new patients. Other practices have determined that such programs are not financially viable because of the high cost of acquiring the new patient under the program and the high material costs of the medical products and services offered. Still others have realized that the new patients acquired under such a program are unlikely to return to the aesthetic practice or refer other potential patients.
Legal and Regulatory Considerations
Daily discount websites are a form of advertising. As such, medical professionals must ensure that their involvement in these programs does not violate state and federal regulations that relate to the practice of medicine and the marketing of medical procedures.
The two central issues related to online discount offers are fee splitting (and referrals) and ethical considerations. The fee-splitting argument centers on what is perceived as a physician sharing the medical fee with another entity (the discount site). I have successfully argued before state medical boards that the typical arrangement is not fee splitting because the money is tendered to the website, and the remaining funds—after the website fee—are forwarded to the medical practice. This arguably is not fee splitting since the aesthetic medical practice is not “splitting” the fee that it receives from the vendor. The argument in favor of the medical facility is that participation in such programs is a means of advertising, not fee splitting for referrals.
Oregon was the first state to regulate these programs. In 2011, the state determined (as it relates to chiropractors and dentists) that licensees are banned from participation in Groupon-like programs.
However, Groupon subsequently revamped its operations to create a scenario under which licensees can participate. Recently, Illinois determined that it is permissible for licensees to participate in such programs.
Still, there is a lot of confusing guidance. North Carolina, for example, has publicly stated that licensees are permitted to participate in daily discount programs. Yet, the state board of medicine has charged participating physicians with fee splitting for participation in such programs. Florida has similar issues. The state board has publicly stated that such programs are permissible, yet it too has charged licensees with fee splitting.
Accordingly, it remains unclear whether participation violates state or federal fee-splitting prohibitions. The aesthetic medical practice has a legally supportable position if they do participate, and it should protect itself as much as possible in the participation of such programs. This would include making participation part of the practice’s annual marketing plan and budget. The practice can also note in the fine print of the offer that, “This is an advertisement to introduce new patients to our services.” The more a practice can clarify that this is an advertising campaign, the better.
Risk Management and Ethics
One of the key ethical questions that arises when examining this issue is the lack of pre-screening. If a practice promotes a cosmetic medical procedure, it becomes available to all members of the discount program. Therefore, practices should consider whether the coupon or offer relates to a medical service or procedure that requires pre-screening for suitability. If pre-screening of a patient for a particular procedure is warranted, that should be stated as part of the “fine print” of the deal, and the practice should negotiate such restrictions into the offer. Practices should also determine how they will manage purchases from prospective patients for whom the procedure is not appropriate.
Another ethical consideration is return policies. The discount program vendors often require that participating businesses offer refunds to consumers in the event they are not able to accommodate the purchaser or in cases of dissatisfaction. This may violate state ethical opinions and rules.
At issue is the appearance of a guaranteed result. Advertisements for medical procedures that state “satisfaction guaranteed” are considered unethical by state medical boards. It is prudent to state clearly any refund policy in the fine print of the offer.
The fine print is the place where you can customize the offer, and I recommend that participating practices utilize this space to protect their businesses. Any limitation of time to redeem the offer or restriction on the number of treatments should be mentioned here. It should also be noted that a prospective patient cannot substitute the advertised procedure or product for another service. For example, if your offer is for dermal filler A, and you offer other dermal fillers, state that the offer is limited to dermal filler A only.
As mentioned above, to avoid fee-splitting allegations, the legal position is that participation in daily discount programs is advertising and not a source of referrals. However, many states have statutes that regulate the advertising of medical services. All states regulate fee splitting and referrals. Some state regulatory boards have also issued specific guidance related to the use of coupon sites. Accordingly, it is prudent to verify your state’s position on advertising, fee splitting and coupon program participation prior to enrolling in these programs.
On a final note, it would be wise for practices that work with medical patients as well as cosmetic patients to review third party payer or other insurance contracts to determine how the contract might affect participation in daily deal sites. These deals might implicate a most-favored nation clause in a payer contract that would require the practice to give all patients subscribed under that contract the same discount.
Padraic B. Deighan, JD, PhD, is president of Aston McLaren, a medical and spa consulting firm, and the former president and CEO of DermAmerica, the nation’s largest network of dermatology and plastic surgery centers. Contact him at 877.557.9669, www.medicalandspaconsulting.com