Groupon & Other Daily Deal Sites: Old Regulations and New Problems

by Jeffrey Segal, MD, JD and Michael J. Sacopulos, JD

Last week, I receive a Groupon alert for a local restaurant I like. For those of you living under a rock, Groupon is a social networking group discount program. Here’s how it works. A local merchant, like a restaurant or hair salon, offers a discount - often 50% off or more. This gets a lot of attention. But, the discount isn’t activated until a critical mass of Groupon subscribers “tip” the deal. Enough people must commit to “paying” for the discount. That’s how Groupon gets paid.

For the restaurant, the deal was $60 off. But, you had to pay Groupon $30 for the $60 off coupon. If you’re good at math, you recognize the deal is really $30 off – still a nice discount. The deal didn’t activate until it tipped with 20 people. Over 1,100 people ultimately took advantage of the deal. You now see the power of a rip-roaring discount. The restaurant will have to deliver. For all I know, they might “eat it” on this deal. But, if the restaurant’s goal was to turn-on a large number of people to their restaurant to try it out – and potentially become repeat customers, this Groupon deal might be a smashing success.

Groupon and health care

Onward to health care. Some physicians and dentists have jumped in – offering Groupon discounts to subscribers for services. Their goal is the same as the restaurants. Think of the discount as a loss leader. Introduce the patient to the office. If they are happy with the service and care provided, perhaps they will become loyal, long-term paying patients.

Some doctors are already reporting eye-popping results. More than 900 new patients for a cosmetic procedure in California. Over a hundred new patients for dental work. Are these doctors losing money on the heavily discounted procedures? Difficult to tell. Will these people become long-term patients? Who knows?

Here’s what we do know. Most medical and dental licensing boards have updated long-established policies that might create headaches for doctors embracing Groupon and other online daily deal discount websites as a marketing tool. A scant few are tackling the issues. Most are sitting on the sidelines. More on that in a minute.

Most licensing boards, if not all, have strict policies prohibiting fee-splitting. Fee splitting occurs when a patient is “induced” to visit a provider and the doctor “kicks back” a referral fee to the referrer. There are safe harbors which don’t trigger enforcement of fee-splitting penalties – such as when a doctor refers to another doctor in his multi-specialty practice – and they are both employees in the same facility. If they split profits at the end of the year, then, in a sense, the referral has generated extra fees split by all. Fortunately, as a safe harbor, this does not trigger any action.

But, if two unrelated doctors have a handshake agreement whereby referrals will be paid a cool $300 for every surgery – that’s likely against the law – and probably violates licensing board fee-splitting policies.

On its face, doctors who sponsor Groupon discount deals are cutting Groupon in on their professional fees for the referrals. And, since there is no safe harbor for Groupon deals, a doctor could be on the wrong side of a Board investigation.

In the earlier example, it’s easy to see how a doctor abuses the trust of his patient by getting paid for referring to a surgeon and receiving cash for the referral. The cash taints the doctor’s judgment – and it puts the doctor’s financial interest above the patient’s interest. But, do payments to Groupon promote that same type of abuse?


Groupon in the patients' perspective

With Groupon, the prospective patient is being given information and a discount. The patient is free to make their own decision as to whether or not to accept the advertised discount. There is no pre-existing doctor-patient relationship whereby misplaced trust can result in a bad outcome. The Groupon model is consumer directed healthcare in action.

The federal government has laws on its books which also prevent “kickbacks.” The Office of Inspector General for U.S. Dept. Health and Human Services (“OIG ”) issued an Advisory Opinion on an analogous program – pay per lead – or pay per call program. There, OIG concluded that a pay per lead program did indeed violate the plain language of the Anti-Kickback Statute. And, such a program did not qualify for any statutory safe harbor. That said, OIG concluded they would not enforce the statute against participants in those programs, because such programs did not promote the type of abuse the statute was meant to curtail.

While helpful in giving a doctor comfort, a doctor making a decision whether or not to participate in Groupon must also pay attention to policies of their state professional licensing board. And, as noted, most licensing boards have explicit prohibitions against “fee splitting.”

The Oregon Board of Chiropractic Examiners (“OBCE ”) appears to be the first out of the gate to tackle the issue. At a recent meeting, they formed a committee to draft language bringing their fee-splitting policy into the Internet age. Such language, if adopted, would narrowly allow doctor participation in Groupon like programs without opening the floodgates for other practices which abuse the doctor-patient relationship for personal financial gain.

It is unlikely professional licensing boards would take a strong stand against individual doctors for promoting Groupon deals. After all, the model voluntarily pushes down the cost of healthcare. But, Board investigations are often complaint-driven. So, if patients complain to the Board for any number of reasons, an investigation might broaden to include allegations fee-splitting.

Doctors who want to test the waters with social networking group discount programs would be well advised to proactively lobby their licensing bodies to update their decades-old fee-splitting policies. If a Board takes action against a doctor for fee-splitting, you can be sure that any assessed penalty would not be at a Groupon discount rate.