Applying the Internet to the Business of Health Care

In recent years, health care analysts and advocates of the Internet have raised expectations for gaining significant cost-savings from applying e-commerce to health care-related activities, including the provision of medical services and for efficient and affordable supply procurement.

Online exchanges, in which companies that provide medical equipment to hospitals, for instance, have lowered costs and timelines when providing products to partners in the exchange.

And even though health care products have been advertised online ' even in the form of advertisements on health-information sites ' offering discount coupons for products of services from physicians or other members of such partnerships, and that are covered by health care providers, has been forbidden.

Advocates for online health services, though, have long argued that the health care-services and health care products industries could significantly enhance its ability to deliver quality products and services to consumers by using e-commerce to improve access to, and the timeliness and accuracy of, information, delivery and purchasing pertaining to the health care-sector supply chain.

In late March, the U.S. Department of Health and Human Services' (HHS) Office of Inspector General issued Advisory Opinion 12- 02 (see, http://1.usa.gov/JIAIRg), which contains a proposed agreement that dramatically expands the ability of health care providers to engage in e-commerce by allowing the posting of coupons for discounts on health care products or services ' at up to five levels of membership for physicians who are members of the site.

Health Care Boost

This new application of the Internet to medical goods and services is likely to result in three significant benefits:

1. It could result in e-commerce providers becoming a more widely accepted, trusted source of health care products and services;
2. It could improve customer satisfaction by allowing people to browse and purchase products whenever they want; and
3. It could allow direct selling to customers and businesses, cut out the middleman, streamline business processes, reduce operating expenses and increase profits.

The HHS opinion allows an Internet-site owner and operator to display coupons and advertising from health care providers, including but not limited to:

• Medical practitioners;
• Hospitals;
• Health care systems;
• Insurance companies;
• Drug companies; and
• Pharmacies.

This opinion expands medical e-commerce while simultaneously reducing the legal liability for firms engaging in it by barring the imposition of certain penalties and sanctions.

Distributors of medical services and goods, particularly medical-equipment providers, for instance, have started using the Internet more often and more intensively. Those users have reported a sustained contribution to their bottom line in the form of cost-savings or higher revenues. Additionally, they have experienced increased profitability.

The medical-services and medical-goods e-commerce consortiums have brought together Baxter, Johnson & Johnson, Abbott Laboratories, Medtronic and GE Medical Systems, as well as McKesson, Cardinal, Owens and Minor, and Fisher Scientific.

Background

Previously, many people believed that hosting an Internet site that allowed the posting of discount coupons, and certain advertising for health care providers, suppliers and other entities, would result in civil monetary penalties under Section 1128A(a)(7) of the Social Security Act, as this section relates to the commission of acts described in Section 1128B(b) of the Social Security Act, also known as the federal anti-kickback statute.

Alternatively, it would constitute grounds for sanctions under the civil monetary penalty provision prohibiting inducements to beneficiaries, under Section 1128A(a)(5) of the Social Security Act (see, http://1.usa.gov/JIAYQc).

Traditionally, buyers of medical goods and services cooperate to negotiate discounts in exchange for larger order volumes ' a foundational principle on which health care exchanges operate. This cooperation allows for volume discounts based on multiple buyers (purchasing members of consortia) and a single supplier (the online exchange, and/or its logistics partners).

Until now, though, technical difficulties have suppressed the use of the Internet for medical services and goods per se. In particular, health care markets traditionally prenegotiate discounts on medical goods and services, which are difficult to integrate into existing e-commerce software systems. This difficulty arises because traditional Internet e-commerce software systems cannot accommodate special arrangements, such as prior negotiations, because the systems are designed to facilitate transactions based on an item for sale.

In the past, pre-negotiated medical contracts were associated with the buyer and not just with the item for sale. The HHS opinion allows discounts for sale times, which in turn allow medical-services and medical-goods providers to use traditional e-commerce software systems for facilitating the sales of medical goods and services.

Coupons

HHS expressly considered a transaction in which an Internet-site owner/operator would display downloadable coupons for health care items and services, and display advertising on behalf of individuals and entities operating in the health care industry. These e-coupons and e-advertisements would be generated as a result of a contract between the Internet-site owner/operator, and health care providers and suppliers, including physicians who wanted to post such coupons and advertisements.

In particular, the HHS opinion would allow coupons that include discounts on items eligible for reimbursement by federal health care programs. However, the advertisements could not offer “free service” coupons ' only coupons for a price-reduction for goods or services. The HHS opinion would also allow Internet advertisements of various forms, including banners and pop-ups.

Under the opinion, advertisements could appear on the Internet owner/operator's sites, and on the Internet site of a third party, including sites that result from a specific search. For example, if a patient searches a site for coupons in a particular ZIP code, then the opinion allows advertisements linked by an advertiser to a ZIP code to appear. Additionally, advertisers use links to their own sites in the advertisements.

Ability to Select or Reject Discounts

The HHS opinion found that providers posting coupons on websites would have the option to discriminate among Internet site users to allow pre-negotiated discounts.

It also would allow the use of coupons and other discount-related advertising, depending on the level of participation by a buyer or a buying group.

This bifurcated discounting system would be applicable to goods and services offered by health care practitioners, hospitals and health systems, insurance companies, drug companies, pharmacies and others.