Online Appointment Scheduling Services: Is Zocdoc’s New Fee Structure Legal?

Zocdoc’s new pricing structure not only threatens to increase costs, but potentially introduces beneficiary inducements and payment for referrals in the form of per-booking fees.  Is the federal government on board with this? We discuss OIG’s advisory opinion and its implications for the industry.

Online Appointment Scheduling Services: Is Zocdoc’s New Fee Structure Legal?

In Advisory Opinion No. 19-04, the Office of Inspector General (OIG) within the U.S. Department of Health and Human Services concluded that changes proposed by Zocdoc to the pricing models it offers to healthcare providers for participation in its online directory and scheduling platform would not violate the federal Civil Monetary Penalty law’s (CMP Law) restriction on beneficiary inducements or the Anti-Kickback Statute (AKS).

The founder and CEO of Zocdoc, Oliver Kharraz, M.D. described the opinion as a “victory for all patients.” While OIG’s analysis applies only to Zocdoc as it moves forward with the proposed changes to its business model, the opinion also could lay the regulatory groundwork for other technology companies to offer tools for patients to identify and schedule appointments with healthcare providers.

Zocdoc Search Listings: How They Work

Zocdoc operates a website and mobile app that allows users to search and book appointments with a variety of healthcare professionals, including physicians, nurse practitioners, dentists, chiropractors, dietitians, and others.  OIG refers to these providers as the “Marketplace.” Users may filter their searches by criteria such as the services needed, geographic area, desired appointment time, and insurance accepted by the provider. 

Zocdoc does not charge users for searching and booking through the Marketplace. Rather, healthcare professionals pay a fee for inclusion. The company historically charged a flat, monthly subscription rate, averaging around $3,000 per year per provider.

But steadily – and with some degree of controversy and contention – Zocdoc has been moving toward a new pricing model where it charges a lower annual subscription fee plus a “per-booking” fee for each new patient appointment booked. In some markets, it has also proposed a lower subscription price plan under which a provider would pay each time a user clicks on a provider’s listing in the search results. Earlier this year, Zocdoc’s CEO described the company’s movement away from a subscription model as necessary to “lower the barrier to entry for more providers” and “ultimately improve choice and access to care for patients.”

Advertising on Zocdoc

In addition to Marketplace participation fees, Zocdoc generates revenue through advertisements purchased by providers. The provider ads do not alter the content of the Marketplace search results but instead appear as banner ads, marked as such, alongside relevant Marketplace search results. Substantively, the ads promote the provider, not a particular item or service. As part of the business model changes that were the subject of OIG’s opinion, Zocdoc proposed adding a service to display provider ads on third-party websites.

As Zocdoc has implemented changes to its fee structure for participation in the Marketplace, it has also sought to restructure its ad fees. The company traditionally charged providers a “per-impression” fee for each ad that appears as an “impression” in a Marketplace webpage viewed by a user. But as noted in OIG’s opinion, Zocdoc has proposed an alternative where it would charge a “per-click” fee for each time a user clicks on a provider’s ad.

 The particular rate that the company charges a per-impression fee, and that it would charge for a per-click fee, is based on an “advertisement auction” with a minimum bid amount wherein providers bid on ads appearing in relevant Marketplace searches – for example, “chiropractor” and “back pain” in the case of a chiropractor. As an alternative, Zocdoc has proposed also offering keyword advertising, which would allow providers to bid different amounts for different Marketplace search terms (e.g., one bid amount for “chiropractor” and a different bid amount for “back pain”).

Zocdoc, Medicare, and Medicaid

Before OIG issued its opinion, the user experience for Zocdoc users who were beneficiaries of federal healthcare programs, including Medicare and Medicaid, was different than that for other users. Most notably, the company altogether disabled the scheduling functionality for federal healthcare program beneficiaries in states where they implemented the new per-booking fee. If a user self-identified as a beneficiary of a federal healthcare program, moreover, no provider ads showed up in the user’s search results on the Marketplace. And the company did not allow federal healthcare beneficiaries to participate in promotions of $10 or less on the Marketplace.

As Zocdoc’s CEO noted in commenting on the OIG’s opinion, the distinctions for federal healthcare program beneficiaries was the consequence of having to “navigate the ambiguity of a decades-old federal law that can impact what pricing models an innovative platform like Zocdoc can use in connection with federal healthcare programs, including Medicare and Medicaid.”

The OIG’s Analysis

In its opinion, OIG analyzed Zocdoc’s business model and the proposed changes to it for compliance with the restriction on beneficiary inducements under the CMP Law and the AKS. Both of these laws regulate conduct as it pertains to Medicare, Medicaid, and other federal healthcare programs. Thus, of particular focus in OIG’s analysis was the legal implications of Zocdoc’s proposals to: (1) allow federal healthcare program beneficiaries to book provider appointments through the Marketplace in states where Zocdoc would charge either a per-booking or per-click fee to providers; (2) display provider-purchased ads in the search results generated by a user who identifies as a federal healthcare program beneficiary; and (3) display provider-purchased ads on third-party websites, where the ads would be viewable by beneficiaries of federal healthcare program beneficiaries and others.

The Civil Monetary Penalty Law and Beneficiary Inducements

The CMP Law imposes penalties, including civil monetary penalties and exclusion from participation in federal healthcare programs, for certain offenses relating to federal healthcare programs. One such offense that the CMP Law prohibits is the offering or transferring of remuneration to a beneficiary enrolled in Medicare or a state healthcare program, including Medicaid, that the offering or transferring party knows or should know is likely to influence the beneficiary to order or receive an item or service that is payable under Medicare or a state healthcare program from a particular provider, practitioner, or supplier (42 U.S.C. 1320a–7a(a)(5)). This prohibition within the CMP Law is what is often referred to as the “beneficiary inducement” statute.

In applying the beneficiary inducement statute to Zocdoc’s business model and the proposed changes to it, OIG acknowledged that the “functionality of the Marketplace and the convenience inherent to using the Marketplace” could be characterized as a form of remunerative benefit to federal healthcare program beneficiaries. Nevertheless, OIG concluded that the arrangement would not implicate that statute. The agency reasoned that access to the Marketplace, by itself, would not likely influence a federal healthcare program beneficiary to seek items or services from a particular provider on the Marketplace. Its convenience would be but one factor among many – such as existing treatment relationships, prior experiences with providers, and geographic proximity – that would influence one’s decision to consult a particular provider.

The Anti-Kickback Statute

The Anti-Kickback Statute (AKS) prohibits knowingly and willfully offering, paying, soliciting, or receiving any remuneration to induce or reward referrals of items or services reimbursable by Medicare, Medicaid, or another federal healthcare program. A violation of the AKS is punishable criminally as a felony, the conviction of which may result in imprisonment, fines, and automatic exclusion from participation in federal healthcare programs. Additionally, OIG may initiate administrative proceedings to impose civil monetary penalties and program exclusion where a party has committed an offense prohibited by the AKS.

In contrast to its analysis of the beneficiary inducement statute, OIG determined that Zocdoc’s business models and its proposed changes did implicate the AKS. That is because “[t]hrough its scheduling services, [Zocdoc] would be arranging for the furnishing of federally reimbursable items and services in exchange for” the fees that providers pay for participation in the Marketplace. Moreover, display of the Marketplace search results and placement of the provider banner ads “constitute[ ] advertising activities meant to induce the use of an item or service” that is reimbursable by a federal healthcare program.

Despite implicating the AKS, however, Zocdoc’s proposed business model changes “present[ed] a low risk of fraud and abuse” under the AKS, according to OIG. The agency cited the following factors that compelled this conclusion:

  1. Safeguards Built into the Fee Structures: Although the per-booking fees vary, and the proposed per-click fees would also vary, based on certain factors (e.g., medical specialty, location), OIG pointed to several safeguards demonstrating that the fees payable for participation in the Marketplace were or would be unconnected to federal healthcare program referrals to participating providers: (i) Zocdoc sets, or would set, the applicable fees in advance, at an aggregate rate determined to be within fair market value range by an independent, third-party valuator; (ii) the per-booking fees do not “vary directly based on the volume or value of Federal health care program business generated by the Marketplace,” and similarly, the per-click fees for participation in the Marketplace would not “take into account the volume or value of any business generated for Providers through the Marketplace”; and (iii) “while more clicks or new-patient bookings, as applicable, would result in Providers paying higher fees to [Zocdoc], higher fee payments would not result in more frequent appearances, or favorable placements, in Marketplace Results.” OIG made similar observations regarding the fees for Zocdoc’s provider ads, noting that they do not, and would not with the proposed changes, exceed fair market value and would not take into account users’ insurance status or the volume or value of any business generated for providers from the ads.
  1. Status as a Platform – Not a Provider: In operating the Marketplace, Zocdoc acts only as a technological platform, making no recommendations for specific providers who participate in the Marketplace. Zocdoc does not act directly as or in affiliation with a provider or supplier of healthcare items or services, who is “in a position of trust and may exert undue influence when recommending healthcare-related items or services, especially to their own patients.” 
  2.  No “Targeting” of Federal Healthcare Program Beneficiaries in Advertising: A federal healthcare program beneficiary would see a provider ad only if he or she visited the Marketplace or a third-party website with a displayed ad. In this way, Zocdoc’s advertising would be “essentially passive” and would not specifically “target” federal healthcare program beneficiaries. Zocdoc also would continue to label its ads clearly. Further, it assured that the ads appearing in search results on the Marketplace would feature “more pronounced lettering and conspicuous coloration” when it determines that a user is a federal healthcare program beneficiary.
  3. No Marketing of Specific Items or Services from Specific Providers: Neither the Marketplace’s search results nor Zocdoc’s advertising activities market any specific items or services from providers identified through the results or ads.  Although the Marketplace identifies particular providers through its search feature, it does so “using an algorithm that filters and prioritizes Providers according to criteria specified by users and other user-centric information, such as Providers’ cancellation rates.” Of particular importance to OIG, “the Marketplace does not prioritize Providers listed in Marketplace Results based on the amount Providers pay [Zocdoc] or any other non-user-centric criteria.” Additionally, Zocdoc notifies users on its website that providers pay to participate in the Marketplace, thereby “reduc[ing] the chance that users would think the Marketplace reflects the full scope of healthcare professionals available to them.”
  4. General User Base: The user base of the Marketplace is the general public, including both beneficiaries of federal healthcare programs and non-beneficiaries. Zocdoc does collect insurance information through its provider search functionality but only to “match users with Providers who accept their insurance and to allow users to store medical and insurance information in advance of medical appointments with the goal of reducing the time users spend in Providers’ offices completing forms and the possibility of transcription errors by Providers’ staffs.”
  5. No Inducements to Federal Healthcare Program Beneficiaries: Zocdoc offers promotions to users other than federal healthcare program beneficiaries. However, even with its proposed business model changes, it would continue to refrain from extending the promotions or furnishing anything else of value to federal healthcare program beneficiaries to induce them to use the Marketplace or select a particular provider.

State Laws and Zocdoc

In his comments praising the OIG’s determination in Advisory Opinion 19-04, Zocdoc’s CEO announced that as of September 18, 2019, the company would “re-enable” its platform for Medicare and Tricare beneficiaries in all states where it had implemented its new pricing model. At the same time, Zocdoc would “re-enable” the platform for Medicaid beneficiaries in Colorado, Georgia, New York, and Indiana. Yet, Zocdoc’s CEO cautioned that “there is still more work to be done,” noting that it would have to work through state law issues on a state-by-state basis as it continues the rollout of its new pricing model.

One area of state law that Zocdoc and similar platforms must contend with is state fee-splitting prohibitions. Designed to prevent meddling in the provider-patient relationship by profit-seeking third parties, these laws typically prohibit physicians and certain other healthcare providers from splitting with other parties the fees they generate from their professional services to patients. Some fee-splitting laws include limited carve-outs to their prohibitions.

In Illinois, for example, the Medical Practice Act provides that a physician “may not directly or indirectly divide, share or split any professional fee or other form of compensation for professional services with anyone in exchange for a referral or otherwise,” subject to certain exceptions (225 ILCS 60/22.2). The law expressly forbids a physician from dividing, sharing, or splitting a professional service fee with, or otherwise directly or indirectly paying a percentage of the physician’s professional service fees, revenues, or profits to anyone for, the “marketing or management of the licensee’s practice,” “including the licensee or the licensee’s practice on any preferred provider list, “allowing the licensee to participate in any network of health care providers,” or “including the licensee in a program whereby patients or beneficiaries are provided an incentive to use the services of the licensee.”

One state where Zocdoc has already grappled with fee-splitting restrictions is New York. As Modern Healthcare reported, the Medical Society of the State of New York (MSSNY) “raised legal concerns with Zocdoc about whether charging per booking represented fee splitting,” which is prohibited under Section 6530 of the New York State Education Code. But Zocdoc worked with the state Department of Health and the governor’s office to develop its pricing policy, and the agency and the state attorney general told the medical society that Zocdoc was not engaging in the practice.” Still, MSSNY continues to probe the issue and other legal implications of the company’s shift in pricing models, indicating at the November 2019 meeting of its Council that it would take legal action under New York’s Freedom of Information Law to obtain unredacted documents relating to the New York State Department of Health’s review of Zocdoc’s pricing model changes.

Contact One of Jackson LLP’s Experienced Healthcare Attorneys Today

Advisory Opinion 19-04 is a reminder that innovators within the healthcare space should carefully scrutinize their new technological platforms and product offerings for compliance with federal healthcare fraud and abuse laws. Whether you are a tech startup company seeking to make inroads into the healthcare sector or a healthcare provider wanting to expand the technological reach of your practice, our experienced healthcare attorneys at Jackson LLP can assist you in navigating how the AKS, CMP Law, and myriad other federal and state laws regulating the healthcare industry apply to your business. To schedule a complimentary phone consultation with one of Jackson LLP’s healthcare attorneys, call our office.

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