California Self-Referral, Kickbacks & Patient Steering Disputes

Self-Referral & Kickback Laws in California

California maintains some of the nation's strictest prohibitions on physician self-dealing and referral kickbacks. These laws aim to ensure that physicians' referral decisions are based on medical judgment and patient welfare—not financial profit. When physicians own ancillary services (imaging centers, labs, physical therapy clinics) or receive payments for steering patients to specific providers, they create conflicts of interest that compromise care quality and drive up healthcare costs.

Recent enforcement trends focus on med-spas, imaging centers, compounding pharmacies, and "integrated care" networks where financial incentives distort clinical decision-making. Understanding California's framework—which is stricter than federal Stark Law and Anti-Kickback Statute—is critical for both physicians structuring ancillary relationships and patients seeking recourse for conflicted care.

Key California Statutes

Business & Professions Code § 650 – Prohibition on Fee-Splitting: Makes it unlawful for physicians to pay or receive "any consideration, compensation, remuneration, or reward" for "securing or soliciting patients or patronage." Violations are misdemeanors punishable by license discipline, fines up to $10,000, and imprisonment up to one year.

§ 650 is broad—it prohibits:

Direct referral fees ("$500 per patient you refer to my surgery center")
Percentage-based arrangements ("10% of revenue from patients you refer")
Disguised kickbacks ("marketing fees," "consulting payments" tied to referral volume)
Reciprocal referral agreements ("I'll send you dermatology referrals if you send me patients needing Mohs surgery")

Business & Professions Code § 650.01 – Physician Ownership and Referral Act (PORA): California's state-level equivalent to federal Stark Law. Prohibits physicians from referring patients to entities providing "designated health services" in which the physician has a financial interest, unless specific exceptions apply.

Designated health services under PORA include:

Clinical laboratory services
Physical therapy and occupational therapy
Radiology and imaging (MRI, CT, ultrasound, x-ray)
Radiation therapy
Home health services
Outpatient prescription drugs
Durable medical equipment (DME)

California PORA vs. Federal Stark Law:

Aspect	Federal Stark Law	California PORA (B&P § 650.01)
Scope	Only Medicare/Medicaid referrals	ALL patient referrals (private insurance, cash-pay)
Enforcement	CMS, DOJ, qui tam whistleblowers	Medical Board, Attorney General, private patients (unfair competition claims)
In-Office Ancillary Exception	Physicians may refer within their own group practice if services performed in same building	Similar exception but more restrictive location/supervision requirements
Penalties	$15,000-$100,000 per violation; treble damages under False Claims Act	License discipline; restitution; civil penalties; unfair competition damages

Why California Enforcement Is Increasing

Several factors drive California's aggressive pursuit of self-referral and kickback violations:

Private Equity Consolidation: PE firms acquiring physician practices often create "affiliated" imaging centers, labs, and ancillary services with complex ownership and referral arrangements that violate PORA.

Med-Spa Explosion: Physicians referring patients to med-spas for cosmetic procedures in exchange for "medical director fees" or revenue sharing create obvious kickback issues.

Compounding Pharmacy Kickbacks: High-dollar compounded medications (pain creams, scar gels, hormone treatments) generate lucrative kickbacks to referring physicians—often $50-$200 per prescription.

Patient Awareness: Informed patients increasingly question why their dermatologist only refers to the imaging center in the same building or why their pain doctor exclusively prescribes compounded creams costing $2,000/month.

⚠ Strict Liability: Unlike federal Anti-Kickback Statute (which requires proof of intent), California B&P § 650 is essentially strict liability. If the payment structure creates a financial incentive for referrals, it violates § 650 regardless of the physician's subjective intent or whether patients were harmed. Courts focus on the arrangement's structure, not the parties' good faith.

PORA & Physician Self-Referral Rules

When Can California Physicians Self-Refer?

Business & Professions Code § 650.01 establishes strict requirements for physician self-referral. The baseline rule: physicians may not refer patients to entities they own or in which they have financial interests UNLESS an exception applies.

PORA Exceptions & Compliance Requirements

Exception 1: In-Office Ancillary Services

Physicians may refer patients for designated health services performed "in the same building" where the physician provides primary services, if:

Services are personally supervised by the referring physician or another physician in the same group
Services are billed by the physician or group, not a separate entity
Physician or group assumes financial risk for the services (not fee-for-service arrangements with outside vendors)

Example – Compliant: Dermatologist performs skin biopsies in his own office suite, sends specimens to in-house lab staffed by group-employed technician, and bills under the group's tax ID. Dermatologist directly supervises lab quality.

Example – Non-Compliant: Dermatologist refers patients to imaging center located in the same medical building (but not the same suite) where dermatologist owns 25% equity stake. Even though services are in same building, they're not under physician's direct supervision and billing—PORA violation.

Exception 2: Disclosure to Patients

California requires physicians to disclose financial interests in referral targets. If a physician has ownership in an imaging center, lab, or DME company, they must:

Provide written disclosure to patients at time of referral
Inform patients of alternative providers (at least one) where services are available
Allow patients to choose whether to use physician's affiliated facility or an alternative
Document disclosure in medical record

Disclosure Requirement Language (B&P § 650.01(f)):

"You are being referred to [Facility Name] for [services]. I have a financial interest in this facility. You have the right to choose any provider for these services. Alternative providers include: [List]. Your choice of provider will not affect the quality of care you receive from me."

Consequences of Non-Disclosure: Failure to provide required disclosure voids the referral and may entitle patients to:

Refuse payment for services
Demand refunds if already paid
File complaints with Medical Board for unprofessional conduct
Pursue civil claims under Unfair Competition Law (B&P § 17200)

Ownership Percentage Limits

Even with disclosure, California limits the extent of physician ownership in ancillary services. B&P § 650.01 prohibits physicians from referring to entities where the physician's ownership interest exceeds:

40% of the value of the facility or entity for a single physician
Exceptions: Group practices where all owners are licensed physicians may exceed 40% individual ownership if structured properly

Why the 40% Limit Matters: This prevents physicians from creating sham "partnerships" with non-physician investors where the physician holds majority control but the arrangement is designed to circumvent PORA.

PORA Compliance Checklist for Physician-Owned Ancillaries:

Verify services fall within in-office ancillary exception (same building, direct supervision, group billing)
If exception doesn't apply, provide written disclosure to all referred patients
Offer at least one alternative provider option
Document disclosure in patient chart
Ensure ownership doesn't exceed 40% individual limit (unless group practice exception applies)
Avoid tying physician compensation directly to referral volume (use salary or equal profit-sharing instead)
Conduct annual compliance reviews to ensure disclosures are being provided and documented

Common Kickback & Patient Steering Schemes

Med-Spa "Medical Director" Kickbacks

Scheme Structure: Physician agrees to serve as "medical director" for med-spa owned by non-physician esthetician or investor. Physician is paid monthly fee PLUS a percentage of revenue from patients physician refers for Botox, fillers, laser treatments, or other cosmetic procedures.

Legal Violations:

B&P § 650: Revenue-sharing tied to referrals is classic fee-splitting
Corporate Practice of Medicine: If med-spa controls clinical decisions, it's practicing medicine unlawfully
False advertising: Patients believe physician provides services when estheticians actually perform treatments

Red Flags:

Physician's compensation increases with patient referral volume
Physician has office hours at med-spa only on days when high-volume procedures scheduled
Physician refers 100% of cosmetic patients to single med-spa with no clinical rationale
Physician has ownership stake in med-spa without proper disclosures to patients

Imaging Center Ownership Without Disclosure

Scheme Structure: Orthopedic surgeon owns 30% of outpatient MRI center. Surgeon refers all patients needing imaging to owned center without disclosing financial interest or offering alternatives. MRI center charges $3,500 for studies that cost $800 at hospital or independent centers.

Legal Violations:

B&P § 650.01 (PORA): Failure to disclose ownership and provide alternatives
Unfair Competition: Concealing conflict of interest while charging inflated prices
Insurance fraud: If billing insurers for unnecessary imaging driven by profit motive

Patient Harms:

Higher out-of-pocket costs (deductibles, co-insurance)
Unnecessary imaging exposure (radiation, contrast dye risks)
Delayed diagnosis if physician orders wrong imaging study to route patient to owned facility

Compounding Pharmacy Kickbacks

Scheme Structure: Pain management physician receives $100-$200 per prescription for compounded pain creams prescribed to patients. Compounding pharmacy charges insurers $2,000-$5,000 per month for creams containing generic ingredients costing $50. Physician prescribes creams liberally to maximize kickback income.

Legal Violations:

B&P § 650: Direct payment for referrals (prescriptions)
Federal Anti-Kickback Statute: If patients covered by Medicare/Medicaid
Insurance fraud: Billing for medically unnecessary compounds
Malpractice: Prescribing based on profit, not medical need

Recent Enforcement: DOJ and California AG have prosecuted dozens of compounding pharmacy kickback cases, resulting in multi-million dollar settlements and physician license suspensions.

Lab Testing Ownership & "Integrated Care" Models

Scheme Structure: Primary care practice partners with lab company. Practice collects specimens in-office but sends to "partner" lab where physicians have equity stake. Lab performs comprehensive panels (30-40 tests) when only basic metabolic panel (7 tests) was medically indicated. Physicians profit from over-testing.

Legal Violations:

PORA (B&P § 650.01): Self-referral to lab without proper in-office ancillary compliance or disclosure
Medicare fraud: Ordering unnecessary tests
Patient welfare: Over-testing leads to false positives, patient anxiety, unnecessary follow-up procedures

Kickback Scheme	How It Works	Typical Violation	Patient Harm
Med-Spa Referral Fees	Physician receives % of revenue from patients referred for Botox, fillers, lasers	B&P § 650 fee-splitting; CPOM	Pressured into unnecessary cosmetic procedures; high prices
Imaging Center Ownership	Physician co-owns MRI/CT center; refers without disclosure or alternatives	PORA § 650.01 non-disclosure	Inflated imaging costs; unnecessary radiation exposure
Compounded Rx Kickbacks	Physician paid $100-200 per prescription for compounded pain creams	B&P § 650; federal AKS; insurance fraud	$2,000-5,000/month drug costs for $50 worth of ingredients; insurance premium increases
Lab Over-Testing	Physician owns lab; orders comprehensive panels when basic tests sufficient	PORA § 650.01; Medicare fraud	False positive results; anxiety; unnecessary follow-up biopsies/procedures
DME Kickbacks	Physician refers to DME company (wheelchairs, oxygen, CPAP) for commission per rental	B&P § 650; federal AKS	Prescribed unnecessary equipment; inflated rental costs

Patient-Side Claims for Kickbacks & Self-Referral Violations

When Patients Have Standing to Sue

Patients harmed by physician kickback or self-referral arrangements have several legal remedies under California law:

1. Refund Claims Based on Lack of Informed Consent: If physician failed to disclose financial interest in referral (violating PORA § 650.01 disclosure requirements), patient may argue they did not give informed consent to the conflicted referral. Patients can demand refunds of amounts paid for services.

2. Unfair Competition Law (B&P § 17200): Patients have standing to sue under UCL for unlawful (§ 650, § 650.01 violations), unfair (conflicts of interest), or fraudulent (concealing financial interests) business practices. Remedies include restitution and injunctive relief.

3. Fraud/Concealment Claims: If physician actively concealed ownership interest or misrepresented reasons for referral ("This is the only facility that can do this imaging" when in fact many alternatives exist), patient may sue for fraud. Damages include amounts paid plus punitive damages if fraud was malicious.

4. Medical Malpractice: If physician's conflicted referral led to substandard care (e.g., ordered wrong imaging study because owned facility didn't have proper equipment; prescribed unnecessary compounded drug that caused adverse reaction), patient has malpractice claim.

5. Unjust Enrichment: Patient can argue physician was unjustly enriched by profiting from undisclosed conflicts, and restitution is appropriate.

Evidence Patients Should Gather

Building Your Case—Patient Evidence Checklist:

Referral documentation: Prescription, imaging order, or referral form from physician
Lack of disclosure: Document that physician did NOT provide written disclosure of financial interest or alternative providers
Ownership verification: Public records (Secretary of State business entity search, Medical Board license verification, property records) showing physician's ownership in imaging center, lab, or med-spa
Financial harm: Bills, EOBs, credit card statements showing amounts paid; comparison quotes from alternative providers showing inflated pricing
Medical necessity questions: Medical records or expert opinion questioning whether referral was medically necessary or if physician ordered unnecessary services
Pattern evidence: Online reviews or complaints from other patients suggesting systematic self-referral without disclosure

Damages Calculation for Patient Claims

Direct Economic Damages:

Amounts paid to physician-owned facility (co-pays, deductibles, out-of-pocket costs)
Difference between inflated price at physician-owned facility vs. fair market price at independent facility
Cost of corrective treatment if conflicted referral led to wrong or delayed diagnosis

Consequential Damages:

Lost wages from unnecessary procedures or complications
Travel costs to physician-owned facility when closer alternatives existed
Emotional distress from unnecessary radiation exposure, false-positive test results, or adverse drug reactions

Restitution Under UCL: California's Unfair Competition Law allows restitution of "money or property" obtained through unfair competition. Courts may order physicians to disgorge profits from conflicted referrals.

Punitive Damages (Fraud Cases): If physician intentionally concealed ownership and made affirmative misrepresentations, punitive damages may apply. California allows punitive damages when defendant acted with "malice, oppression, or fraud" (Civ. Code § 3294).

⚠ Statute of Limitations: California's statutes of limitations for patient claims:

Fraud: 3 years from discovery of fraud
UCL (B&P § 17200): 4 years from violation
Medical malpractice: 1 year from discovery or 3 years from injury, whichever is earlier
Contract/unjust enrichment: 2-4 years depending on theory

Act quickly—delays in filing can bar recovery even for egregious violations.

Sample Demand Letters

Sample 1: Patient Demand for Refund (Imaging Center Self-Referral Without Disclosure)

Date: [Current Date]

To: [Physician Name], M.D.
[Medical Practice Name]
[Address]

From: [Patient Name]
[Address]
[Phone / Email]

RE: DEMAND FOR REFUND – UNDISCLOSED FINANCIAL INTEREST IN IMAGING CENTER REFERRAL

Dear Dr. [Name]:

I write to demand a full refund of payments made for imaging services to which you referred me without disclosing your financial interest in the facility, in violation of California's Physician Ownership and Referral Act (Business & Professions Code § 650.01).

Background: On [Date], you examined me for [medical condition] and ordered an MRI of [body part]. You referred me to [Imaging Center Name] located at [Address]. You did not provide any written disclosure of financial interest in this facility, nor did you offer alternative imaging providers.

I scheduled the MRI at [Imaging Center] believing it was a medically necessary referral to an independent, qualified facility. I paid $[Amount] out-of-pocket (deductible and co-insurance) for the study.

Discovery of Your Ownership Interest: After receiving surprisingly high bills, I researched [Imaging Center]. Public records show that you own [X]% equity in [Imaging Center LLC], which operates the facility. Specifically:

California Secretary of State business entity records list you as [Managing Member / Owner]
Medical Board license verification shows [Imaging Center] as one of your "practice locations"
[County] property records list you as partial owner of the real estate

At no time did you disclose this ownership interest to me, either verbally or in writing.

Legal Violations:

1. Business & Professions Code § 650.01 (PORA): California law prohibits physicians from referring patients to imaging facilities in which the physician has a financial interest, unless specific exceptions apply. The "in-office ancillary" exception does not apply here—[Imaging Center] is a separate facility, not located in your office suite.

Because the exception does not apply, you were required under B&P § 650.01(f) to provide me with:

Written disclosure of your financial interest
A list of alternative imaging providers
My right to choose any provider without affecting the quality of care from you

You provided none of these required disclosures.

2. Lack of Informed Consent: Had I known you had a financial interest in [Imaging Center], I would have sought imaging elsewhere. Your conflict of interest calls into question whether the referral was based on medical judgment or financial profit. I cannot provide informed consent to a conflicted referral when the conflict is concealed.

3. Unfair Competition (B&P § 17200): Concealing financial conflicts while steering patients to owned facilities constitutes unfair and fraudulent business practice under California's Unfair Competition Law.

Financial Harm: [Imaging Center] charged $[Total Amount] for the MRI. Comparable facilities in our area charge $[Lower Amount] for the same study (quotes attached). Your undisclosed ownership led me to pay an inflated price, and I had no opportunity to comparison shop because you did not inform me of alternatives.

DEMAND FOR REFUND: Within 30 days, I request:

Full refund of $[Amount Paid Out-of-Pocket] that I paid to [Imaging Center]
Written confirmation that you will comply with PORA disclosure requirements for all future patient referrals
Correction of my medical record to note that the imaging referral was made without proper disclosure

Next Steps if Refund Not Provided: If you do not provide the requested refund, I will:

File a complaint with the Medical Board of California documenting your B&P § 650.01 violation and requesting investigation
File a civil lawsuit under California's Unfair Competition Law (B&P § 17200) seeking restitution, injunctive relief, and attorney's fees
File a complaint with the California Attorney General's Office regarding systematic PORA violations (I believe other patients have been similarly affected based on online reviews)
Report the matter to my insurance carrier, as your undisclosed ownership may constitute insurance fraud

I trusted you to make referrals based on my medical needs, not your financial interests. California law requires disclosure of conflicts precisely because patients deserve to make informed choices. Please provide the refund and ensure future compliance with the law.

Contact me at [phone/email] within 30 days.

Sincerely,

[Patient Name]

Enclosures: Secretary of State business entity records; Medical Board license verification; comparison MRI quotes from alternative facilities

Attorney Services for Self-Referral & Kickback Disputes

Self-referral and kickback disputes involve complex healthcare regulations, high financial stakes, and sophisticated concealment tactics. Whether you're a patient seeking a refund for conflicted care or a physician defending against allegations, specialized legal knowledge of California's PORA framework and federal fraud laws is essential.

How I Can Help

Services for Patients:

PORA violation investigation: I verify physician ownership through public records, analyze disclosure compliance, and quantify financial harm
Refund demand letters: I draft demands citing B&P §§ 650, 650.01 violations and UCL claims
Medical Board complaints: I file detailed complaints documenting systematic self-referral violations
UCL litigation: I prosecute unfair competition claims seeking restitution and injunctive relief
Class action evaluation: When physicians systematically violate PORA with many patients, I evaluate class certification potential

Services for Physicians:

PORA compliance audits: I review ancillary ownership structures and referral practices to identify violations before enforcement
Disclosure protocol development: I draft compliant written disclosures and train staff on delivery/documentation
Ownership restructuring: I restructure physician-owned ancillaries to fit within PORA exceptions
Defense against patient refund demands: I evaluate whether exceptions apply, whether disclosure was adequate, and negotiation strategies
Medical Board representation: I defend physicians in PORA and fee-splitting investigations

Submit Your Case for Review

Self-referral and kickback violations expose physicians to license discipline, massive restitution orders, and federal criminal prosecution. Patients harmed by conflicted referrals deserve compensation and system-wide reforms. I can help both sides achieve fair resolutions.

Send me documentation of the referral relationship, ownership records, financial information, and communications. I'll evaluate legal exposure and outline a strategy for resolution.

Contingency representation available for patients with strong refund claims. PORA compliance audits for physicians $3,000-$6,000. Attorney's fees recoverable under UCL (B&P § 17200).