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

By Michael H. Cohen, Esq.

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.

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.

***

Michael H. Cohen is a health care law and business law attorney providing business legal advice to green entrepreneurs and companies, and health care law advice to businesses and physicians, acupuncturists, naturopathic doctors, homeopaths and others in the holistic health, wellness, and green industries. He works with telemedicine, medical devices, and cutting-edge technologies and gives clear legal advice to grow your business.

As a founding attorney of the Global Vision Law Group, he represents businesses poised for vertical lift, whose leaders are conscious, intuitive, and committed to shaping a better world. Michael also advises medical spas and integrative medicine clinics, physicians, chiropractors, naturopathic physicians, massage therapists, energy healers, nutritionists and herbalists, dietary supplement and cosmetics companies, and businesses with bio-energy and other technologies and medical devices. The website also offers the Entrepreneur's Legal Toolkit as a series of legal guides to businesses.

See what clients say about his work, visit the Legal Services page for information on business law and healthcare legal services where alternative billing arrangements (such as a flat rate or project fee) can be discussed for discrete projects such as incorporation for entrepreneurs, review and drafting of business contracts, trademark, and package health law services.

Our healthcare law and business law firm also provides special expertise to attorneys and law firms whose clients are involved in wellness industry projects or who require guidance regarding fee-splitting, Stark, anti-kickback, medical board discipline, and other health law and regulatory compliance issues.

To speak with a lawyer about health care law issues pertaining to complementary and alternative medicine, or to consult a business lawyer about laws and legal issues for entrepreneurs and new enterprises that are seeking legal advice, contact the Global Vision Law Group today.

 

Full post as published by Complementary And Alternative Medicine Law Blog on September 17, 2010 (boomark / email).