Is referral marketinglegal? This is the single most asked question we receive from dentists around the country. There are two federal laws that address the issue of referral marketing for doctors – the Stark Law and the Anti Kick Back Act.
Every day we here at keebitz.com talk to dentists from all over the country. Some of them get referred to us, and others stumble upon our website and request a demo from us.
When Sammy asked the attorney of the health department if referral marketing is legal, he said no. So she asked, “Why are a lot of dentists still doing it?” The attorney told her, “We don't have enough staff to chase all the dentists who do not abide by the law.”
Sammy concluded that illegal referral marketing among dentists occurs often, and because she sees the value in it, she wanted to do it too. She started her program thinking she was breaking an unenforceable law, but was she? Was the attorney right or wrong? Both!
Neither the Stark Law nor the Anti Kick Back Act say anything about dentists rewarding patients for word of mouth referrals, so what’s the confusion all about? Why are dentists under the impression they’re breaking the law?
Understanding the laws
The Stark Law physician self-referral is the practice of a physician referring a patient to a medical facility in which he has a financial interest, be it ownership, investment, or a structured compensation arrangement. Stark law governs physician self-referral for Medicare and Medicaid patients. The law is named for U.S. Congressman Pete Stark, who sponsored the initial bill.
Critics of the practice allege an inherent conflict of interest, given the physician's position to benefit from the referral. They suggest that such arrangements may encourage overuse of services, therefore driving up health care costs. They also believe that it might create a captive referral system, which limits competition by other providers. How does the Stark law apply to dentists who reward their patients for referrals? It doesn't.
The Anti Kick Back Act prohibits a federal building contractor or subcontractor from making an employee give up any part of the compensation that he or she is entitled to under the terms of his or her employment contract. How does the Anti Kick-Back Act apply to dentists who reward their patients for referrals? It doesn’t.
Before we launched keebitz.com, we researched this legal questions in great detail. After checking the legal framework, we asked experts their thoughts and how the law works in real life.
I asked a well-known dental consultant who consults for hundreds of dentists about it, and she answered, "I don't know any dentist sitting in jail for having a patient referral program. It’s a gray area." This was the advice I received from a well know and successful consultant!
So why did Sammy's attorney inform her that her referral program would be illegal? Why did a successful dental consultant tell me the dental referral laws are a gray area?
The short answer is, they didn't know, and neither do a lot of people who should know. The laws are very complicated and it's hard for lawyers to understand. Many people lump all different types of referrals together, but not all referrals are the same. Different types of referrals are subject to different regulations.
Doctor to patient, and patient to friends and family, referrals do NOT fall under the guidelines of these two laws. That’s very black and white to me, and I hope after reading this it will be clear to you as well.
Anne-Aymone Ferreira has a strong background in performance-based marketing on Internet start-ups, including kelkoo (acquired by Yahoo!), Jamba! (acquired by VeriSign), and Plazes (sold to Nokia), and experience in ventures creation at Rocket Internet and FoundersLink. She is the founder and CEO of keebitz.com, a patients referral marketing app built with and for dentists. Keebitz is a Microsoft venture backed by Techstars, the largest American accelerator, in partnership with Amazon.com Gift Cards.