CAMLAW: Complementary and Alternative Medicine Law Blog

Major California Attorney General Opinions Involving Business & Professions Code Section 650

Is it kickback? A fee-split? (One client kept referring to this as "flea-spitting."  Sorry, it's fee splitting.)

Sometimes, in addition to reviewing statutes and cases, it's helpful to review opinions by the state attorney general.  Here are major Attorney General opinions on B&P 650 in California:

In No. 01-107 (July 17, 2001), the AG opined that a corporation may not charge patients an annual subscription fee, including a reasonable profit, for furnishing a list of physicians willing to provide medical services at discounted rates to uninsured indigent persons. According to the AG, the roster of list of physicians constituted a referral, since “refer” means “send or direct for treatment.” 

This AG Opinion appears to retreat from some of the language in a prior opinion, 65 Ops.Cal.Atty.Gen. 252 (1982), involving a roster of dentists. In that case, the quoted language below was more consistent with the narrower definition of “referral” that is usually followed nationally:

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.

            The ordinary understanding of the term “referral” would be that a third party is not entering into a referral for a patient unless that third-party actually selects the physician for the patient and then also puts the patient in touch with the physician. Unfortunately, the 2001 opinion took a much more expansive view, and found that merely assembling and choosing what physicians should be on the list and making that available constituted a referral, even though the patient then choose from the list and contacted the physician.

            In the facts before the AG in the 2001 opinion, the list was assembled with an exchange between the third party and the doctor, in which the patient would receive a discount and the third party would receive a fee. So the question is whether the expansive view of “referral” in the 2001 opinion is limited to the circumstances just described, or covers any directory of clinicians.

            In its 2001 Opinion, the AG cited a second prior opinion, involving a roster of podiatrists, to clarify that the roster itself constituted a “referral:”

While the caller could … ‘select’ a podiatrist from among two, or even perhaps more than two, who have paid the prescribed rate for the privilege, it is still the referral agency that would make the initial selection and referral, rendering the language of section 650 applicable.

            And in a third precedent mentioned in this Opinion, involving a directory of physicians, plastic surgeons, dermatologists, ophthalmologists, and other licensed health care providers willing to perform cosmetic surgery procedures at discounted rates, the AG had concluded that:

even if the [enrollee] could request and receive the referral agency’s entire list of professionals willing to [provide services at a discount], the referral would nevertheless be predicated upon considerations other than the best interests of the prospective patient.

The AG analogized the roster of physicians willing to provide discounted services to indigent services to these prior situations. Thus:

even though the uninsured indigent would make the final selection of a physician from the roster provided, nevertheless such physician would be initially selected by the corporation maintaining and furnishing the roster. Furnishing the roster would, in effect, constitute recommending each physician listed. Any other construction of section 445 would serve to defeat the Legislature’s evident purpose of eliminating a profit motive whenever a referral is made. (emphasis added)

particular medical device for the patient, where the physician had a financial interest in the device, constituted a “referral.” 

            In Opinion No. 00-1002 (February 1, 2001), the AG concluded that chiropractors who participate in an Internet marketing plan in which they agree to refer their patients to a commercial distributor of naturopathic products in exchange for 20% of the price of the products purchased by their patients are violating 650(a). The reason is that they “may be induced [to make the referral] by considerations other than the best interests of the patients.”

            In Opinion No. 99-611 (December 16, 1999), the AG concluded that a physician may not enter into an agreement with a group of licensed and certified professionals to perform working hardening and rehabilitation services for patients, where the physician would control the scope of the services by prescription, obtain payment from a workers’ compensation insurance carrier for the services, and retain a portion of the fee after compensating the group. The AG decided this opinion based on the Labor Code, but stated in a footnote that it would reach the same result under B&P Code 650. The rationale was that the “discounts accorded the physician would not be given with the best interests of the patients or insurance carriers in mind, but rather with the best interests of the physician and occupational injury group in mind.”

            The breadth of the AG’s concern about referrals is further revealed in Opinion No. 98-611 (January 20, 1999), in which the AG concluded that even a licensed health service plan may not enter into an agreement with a network of providers under which the plan: (1) refers enrollees to a provider for medical services at a discounted rate, and (2) collects an administrative fee from the physicians. Even though the discount is offered to the patient, it still constitutes an “inducement” or “consideration” to the referring entity for referrals. The rationale offers broad dicta concerning the scope of 650:

An interpretation is favored that would defeat subterfuges, expediencies, or evasions employed to continue the mischief sought to be remedied by the statute or to defeat compliance with its terms or any attempt to accomplish by indirection what the statute forbids.

In Opinion No. 93-404 (September 15, 1993), the AG concluded that a pharmaceutical company’s clinical research program where patients get paid to participate in the program and receive free drugs, medical care, and lab evaluations, violates 650 if physicians get paid referral fees but does not violate 650 if physicians receive evaluation fees. 

            In Opinion No. 93-807 (June 30, 1994), the AG addressed an arrangement involving a podiatry referral service as follows:

A podiatry referral service for profit may not direct callers on the following basis: (1) to a service subscriber who pays $500 monthly for a nonexclusive listing according to geographic proximity; (2) to a service subscriber who pays $750 monthly for a semi-exclusive listing within a five-mile radius; and (3) to a service subscriber who pays $1000 monthly for an exclusive listing within a five-mile radius, where the caller may, during the call, request and select an alternative referral.

The AG refused to find any “legal significance in the fact that the caller would be able to request an alternative referral.” The AG commented:

While the caller could thereby "select" a podiatrist from among two, or even perhaps more than two, who have paid the prescribed rate for the privilege, it is still the referral agency that would make the initial selection and referral, rendering the language of section 650 applicable. We believe that even if the caller could request and receive the referral agency's entire list of professionals willing to pay its price, the referral would nevertheless be predicated upon considerations other than the best interests of the prospective patient. The number of referrals in the proposed program would correlate with nothing other than the amount of money paid by the podiatrist to the referral agency which neither has nor expresses any interest whatsoever in the health care of the patient.

 

Beyond the CA-AG opinions, the Legal Affairs Division within the California Department of Consumer Affairs has issued an opinion concerning B&P Code 650. The proposed arrangement there involved a contract between the American Association of Retired Persons (AARP) and HearUSA, a network administrator for health plans, employer groups and subscriber organizations. The contract stipulated that HearUSA would offer discounted services and products to AARP members; further, HearUSA would invite health care practitioners to join a national provider directory, in exchange for a fee, and would offer the directory (and a discounted session with a listed provider) to AARP members. 

            Although no referral fee was flowing from the provider to HearUSA, the Division concluded that the arrangement nonetheless violated B&P Code 650. The Division reasoned that the arrangement involved “referring of patients” by HearUSA to health care providers; and, both the discount on services and products given to members by HearUSA, and the use of these discounts as a potential “marketing tool” by AARP, constituted the necessary “consideration” by AARP. The Division rejected the argument by AARP and HearUSA that they do select individual physicians for patients, but merely allow access to a list of providers. Based on prior CA-AG opinions, the Division opined that simply making the directory of providers available to patients, constituted a referral. Moreover, advertising and marketing the arrangement as a “program” did “not change the fact that” there was still a referral in exchange for a discount.

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If you have legal questions concerning telemedicine and telehealth practices, or about kickback and fee-splitting legal issues in New York, California, Massachusetts, Washington DC, and other states, contact a lawyer who knows the rules.

Consult an experienced health care law attorney who knows complementary medicine and integrative medicine for legal advice pertaining to any project involving allied health or CAM professionals.

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Consult an experienced  health care law attorney who                  knows     complementary medicine and  integrative    medicine     for       legal     advice     pertaining to any project     involving     allied    health    or CAM     professionals.

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