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Kickbacks in the Age of The Internet

By Akiva Newborn
Associate Attorney
Nelson Hardiman

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Original Publish Date: January 9, 2018

Historically, it has been common practice for businesses to enter into referral relationships to boost business and increase profits. These mutually beneficial relationships can be invaluable marketing tools for growing a business' customer base without having to expend large sums on direct advertising and marketing campaigns. But in the healthcare industry, referral relationships can come at a high cost. Consider the following scenario: Dr. A approaches a related specialist, Dr. B, and offers a cut of the profits for each patient Dr. B sends Dr. A's way. Most practicing healthcare professionals today are acutely aware of this type of kickback arrangement and the legal danger it poses. But in the age of the internet, kickbacks can take on new and more complicated forms that may escape the notice of healthcare professionals.

Passed in 1972, the federal Anti-Kickback Statute prohibits healthcare professionals from exchanging anything of value to induce or reward another healthcare professional or even lay person, to direct patients to their practice.1 This legislation was dually aimed at protecting patients and federal healthcare programs from fraud and abuse. A single violation of this law carries criminal liability, which includes up to $25,000 in fines and five years' imprisonment.2 A violator can also be excluded from participating in federal healthcare programs such as Medicare, which is often a profitable source of revenue for medical practices.3

Healthcare professionals who participate in kickback arrangements may likewise run afoul of state anti-kickback laws. Most states have similarly promulgated anti-fee-splitting laws, prohibiting healthcare professionals from splitting patient fees with lay people or other healthcare professionals not directly involved in the patient's care. Pursuant to California's Business & Professions Code Section 650(a), for example, a physician may not accept a commission for referring patients to any "person,"4 which is defined as "an individual, firm, partnership, association, corporation, a limited liability company or cooperative association."5 Significantly, there is no indication in the statute that the "person" must be associated with healthcare. Thus, according to state provisions like California's, healthcare providers may not apportion any part of a patient fee to, for example, the provider's commercial landlord or marketing agency.

The risks are significant enough to make healthcare professionals vigilant and balk at any business relationships that resemble kickbacks or fee-splitting. But the internet has broadened the universe of business relationships and marketing techniques, which, in turn, has created new forms of kickback and fee-splitting arrangements that may slip under the radar of the average healthcare professional.

One of the newer forms of kickback arrangements to be cautious of is website advertising. For instance, consider a company proposing an agreement with a healthcare provider in which the provider would include an advertisement link on its website for the company's naturopathic products. In exchange for the ad space, the company would pay the provider a percentage of revenue from products sold to visitors brought to the company's website through the provider's advertisement link. Most healthcare providers would find this an attractive arrangement. For minimal effort, the provider could passively accrue advertising revenue, which could then be used to, among other things, fund its website. However, even this arrangement would constitute a paid referral.

Indeed this very scenario was posed to the California Attorney General, who duly found that it violated California's anti-fee-splitting law.6 He reasoned that in such an arrangement, the percentage of profits would be directly tied to the quantity of products purchased by the patients. Thus the provider would essentially be promoting a separate company's naturopathic products due to a hidden financial incentive, instead of promoting the patients' wellbeing.

The implication of the California Attorney General's opinion was significant as it expanded the scope of kickback arrangements dramatically. Now the mere act of passively hosting an advertisement on one's website could be problematic even absent any direct communication with the individual visiting the provider's website.

Another potentially illegal arrangement to be watchful of concerns online medical directories. Over the past several years, online medical directories have popped up to provide consumers with names of healthcare professionals located near them. Surprisingly, while this arrangement is far more prevalent now, it is not an entirely new phenomenon. A 1988 New York State Department of Health opinion addressed a similar situation involving a pre-internet electronic directory. In this case, a company wanted to offer healthcare professionals the opportunity to be listed in a geographically-based electronic directory in exchange for a fee. Concerned that this might constitute an illegal kickback, the company sought the New York Department of Health General Counsel's advice. The General Counsel opined that if the company listed only healthcare professionals who paid the directory fee, then it could potentially constitute an illegal referral.7 Specifically, if consumers were required to pay to access the directory, which only listed healthcare professionals who paid to be listed, then this would be a kickback, as consumers would unwittingly be paying to be directed to certain healthcare providers but not others.

However, the General Counsel noted two ways in which the directory would not run afoul of anti-kickback or fee-splitting laws. First, the company could charge consumers for access to a directory that listed all relevant healthcare providers in the area. Second, the company could list only those healthcare providers who paid to be listed but provide the directory to consumers free of charge. Thus, the inference to be drawn from the General Counsel's opinion is that as long as money is not flowing in both directions—from the patient and the provider to the directory service–there should be no fee-splitting or kickback issues.

A final and growing area of concern for kickbacks and fee-splitting is social media. It is becoming increasingly common for companies to post promotions on their social media pages offering rewards to consumers who "refer a friend." Here too, the company is not directly communicating with anyone in particular to provide a referral. Nevertheless, in the healthcare industry, any type of request for referral in exchange for value could be considered a kickback.

The added danger of an internet or social media kickback/fee-splitting arrangement is that the internet is not limited to any specific state or jurisdiction. Thus, an internet or social media referral promotion could potentially violate multiple states' anti-kickback laws simultaneously and result in significant liability.

Ultimately, the internet provides a wealth of new business and marketing opportunities for healthcare professionals to publicize their practice and attract new customers. But accompanying these new opportunities are some added legal risks that need to be carefully vetted before taking advantage. Healthcare professionals would be well-advised to exercise caution and do their due diligence before entering into any type of arrangement, whether on or offline, that involves advertising or referrals.

142 U.S.C. § 1320a-7b(b).
342 U.S.C. § 1320a-7(b)(7).
4B&P Code § 650(a)
5Id. at § 635.
6State of California Attorney General Opinion No. 00-1002 (February 01, 2001).
7State of New York Department of Health, Peter Millock Op. (October 25, 1988).

DISCLAIMER: This article is provided for educational purposes only and is not offered as, and should not be relied on as, legal advice. Any individual or entity reading this information should consult an attorney for their particular situation.

Michael "Akiva" Newborn is an attorney with Nelson Hardiman, a healthcare specialty law firm. He can be reached at 310-203-2800 and mnewborn@nelsonhardiman.com.