By Patrick O’Brien, J.D., Legal Coordinator for the American Med Spa Association
Finding customers is the biggest challenge for any business. You can offer the finest product or the best service, but none of it will matter unless you can find people willing to walk in the door and buy from you. Therefore, marketing and advertising are critical to a business’s success. This is especially true for medical spas and others in the aesthetic health industry. There are many effective marketing strategies to use, each with its own legal issues. We’ve previously written about issues with email marketing and text message marketing.
The referral is one of the most effective marketing tools. Satisfied customers can be your best advocates and salespeople by simply going out into the world and telling their friends about how great you are. A recommendation from a friend or trusted acquaintance can be hugely credible, so incentivizing people to make more of these referrals for you might seem like a great idea. However, since medical spas offer medical procedures, they are subject to a slew of laws that make rewarding referrals very difficult to do. Many states prohibit physicians or licensed healthcare providers from paying or accepting money or other types of value for referring a patient.
Consider the ongoing saga of Forest Park Medical Center in Dallas, where doctors (allegedly) enacted an elaborate plan of paying other physicians for referrals to the center for elective surgeries and ran afoul of anti-bribery laws. Forest Park apparently was paying hundreds of thousands dollars per month to physicians for referrals and calling it “marketing.” Obviously, most medical spas are not able to pay millions a month in “marketing,” and very few seek reimbursement from insurance. So what do they have to worry about? Texas’ patient solicitation law prohibits paying “any remuneration in cash or in kind” for “securing or soliciting” a patient. (Confusingly, this particular law is not the one at play in the Forest Park case, but it does apply to other Texas medical practices). So while it might seem nice to give a gift card to someone for bringing a patient to you, it very likely is an offense under this section.
Texas isn’t the only state to look unkindly at paying for patient referrals. Many other states have similar “anti-kickback” laws or general prohibitions on physicians “fee-splitting” with others. New York, for example, clearly prohibits a licensee from offering, giving or receiving any fee or consideration to a third party for the referral of a patient. If you think this seems broadly written, you would be correct—and New York and Texas are far from the only states that have laws such as these on the books; most traditionally have viewed paying for referrals as subverting a patient’s interests. After all, the patient is relying on the person to provide a recommendation that is in his or her best interest, and the introduction of a financial motive may influence that recommendation.
You also may notice that payments for more traditional advertising could fall into this broad definition if the fee is based on results. Depending on the specific facts of the case and the state in which it occurs, this could be the case. California has accounted for this possibility by providing an exemption for certain advertising relationships in its anti-kickback statute. The California Business and Professions Code § 650 prohibits a licensee from offering or accepting any payment as compensation or to induce the referral of patients. However, it does allow for the payment of services (but not payment for referrals) based on gross revenue or a similar arrangement if it is consistent with the fair market value of those services. But even in states like California that explicitly carve out advertising from the anti-kickback rules, not all advertising relationships are permitted. Paying for advertising based on results or consumer response always will appear to be a paid referral and is certainly a risky arrangement. Before implementing any marketing strategy, it is always a good idea to review your state’s fee-splitting and anti-kickback laws, as well as your licensing board’s guidance on professional conduct.
If you would like to learn more about marketing that won’t land you in the same hot water as the physicians at Forest Park Medical Center, consider attending one of our Boot Camps this year. We also have a number of webinars that cover various issues and aspects of marketing that you may find helpful.