Sunday, August 28, 2011

Groupon's model may be both bad business and illegle for cosmetic medical services

The use of social media services like Facebook and Twitter to promote your medical practice on the web has become common in recent years. For today's potential patients, if you don't have a web footprint then you might as well be invisible. A new wrinkle on this has been causing some concern that it might be both illegal and unethical when applied to medical services like laser hair removal, BOTOX injections, and other goods and services.

Services like Groupon offer heavily discounted goods and services to people who buy the "deal of the day" through Groupon. They then collect the money and keep a large percentage of the fee, passing the rest to the merchant. Groupon’s first daily deal in October 2008 was famously a half-price deal for a pizza restaurant located in its office building in Chicago. From that event, the service has exploded. This is now a big business, with such "deal of the day" businesses projected to exceed $6 billion in sales by 2015.

Is this good for anyone other then the principals of Groupon and the like? I don't think so. Like many of the so called "innovators" of silicone valley and the web (ie. Facebook), most ideas you see bubbling up merely seek to skim money off the top of transactions rather then creating a product of any kind of value. It's a giant long con that would seem to be creating another internet bubble for shareholders and investors in these companies.

Expect to see more signs like this from small businesses:

A blog post I found from earlier this year (see here) crystalizes the problem for Groupon noting,
"many businesses will still make the mistake of overestimating the value of the customers they are likely to get from them. The proportion of customers procured from Groupon who are likely to make a return visit/repeat purchase may be dramatically lower than average meaning that, especially when you also factor in the significant cut of the revenue that the retailers have to pay to Groupon, they could actually make a significant loss on the deal. It’s the same logic which has led many online retailers to shun voucher code sites which they see as catering only to bargain hunters as opposed to potentially loyal customers."

You're hearing more and more horror stories from merchants who are not realizing how insane participating with such budiness models is, particularly at the levels of revenue Groupon is skimming from them. In aesthetic medicine, we see more and more of such deals from Botox and laser treatments for hair removal, skin tightening, and body contouring. I see these offers and am boggled at what these clinics and spas are thinking. You cannot stay in business offering services for less then cost, and it is clear that patients who shop through Groupon will always be price shoppers rather then repeat clients. I recently saw a dermatologist lose almost $5000 on a special they did on one of these services not realizing how much they were actually promising to deliver after their cost of the Botox (which is almost $600/bottle).

A new wrinkle (no pun intended) has been the examination of such a relationship in the context of restrictions of what's known as "fee splitting". These types oflaws prohibit the offer, solicitation, payment or receipt of anything of value, direct or indirect, overt or covert, in cash or in kind, intended to induce referral of patient for items or services reimbursed. The language of such laws vary by state, but the spirit of most of them would seem to be at odds with the Groupon model. A number of experts are concluding that such programs, by virtue of their "per unit" fee model, violates such federal rules and many states medical board rules (see here and here) and are advising providers to tread carefully.

So, in summary we have an illogical business model that may or may not be legal for medical goods and services. What's not to like?