Learn / Buyer Beware! The Dangers of Referral Fees for Addiction Treatment

Buyer Beware! The Dangers of Referral Fees for Addiction Treatment

Olivia Mueller
 June 13th, 2018|   Clinically Reviewed by 
Rajnandini Rathod

Key Points

  • Rehabs often pay third parties to refer clients to their center.
  • This unethical practice has dangerous outcomes for people seeking help.
  • Watch out for these signs to avoid falling into this trap.

Deciding to look for help is a massive step in the right direction when you’re struggling with an addiction or mental health disorder. However, finding a residential treatment center that meets your or your loved one’s needs can sometimes be an even harder step to take.

With an overwhelming number of options and approaches, you’re trying to find high-quality treatment within your budget, in hopes that it will save your life. That’s where a recommendation from a trusted professional can be so helpful.

But what if that recommendation from your doctor or therapist wasn’t completely unbiased? What if you were to find out that the treatment facility your doctor recommended gave your doctor a cut from the costs you paid for residential treatment?

Unfortunately, referral fees and “kickbacks” have been a reality—most recently highlighted in the UK—for some time now in the mental health field. Some facilities who are desperate for clients, especially those offering private, residential treatment, will gladly pay referrers 10, 20, sometimes 30% of the costs they collect from the referred client.1 In recent months, this practice has been brought to light by The Sunday Times in a few comprehensive articles based on undercover reporting. Most recently, a June 3rd report exposed a number of high-profile kickback arrangements,2 causing at least one psychiatrist to promise to return all the referral fees he received.

Are Referral Fees Legal?

It depends on a variety of details—on the location, the definition of a “referral fee,” who is doing the referring, which healthcare program is involved, etc.

For example, in the United States, Stark Law prohibits physicians from receiving payments for referrals when specific federal healthcare programs are involved. The Anti-Kickback Statute broadens the restriction to any federal healthcare program and any referral source. Additionally, laws vary by state. For instance, the states of California and Florida have several laws clearly prohibiting centers from patient brokering. M. David Meagher, a lawyer and addiction treatment professional in California, warns that continuing in illegal practices will have significant adverse consequences for the industry:

“The practice of paying for referrals3 calls into question our integrity. If examined closely by the media or the justice system, it is inevitable that families will lose faith in our ability to help their loved ones. The result will be another collapse of treatment centers across the country. Once our integrity is compromised, it will be a long and difficult road back to respectability.”

In the UK, the General Medical Council (GMC) prohibits doctors from receiving referral payments. It violates the 7 Principles of Public Life.4 Kickbacks could also be in violation of the Bribery Act of 2010.5

Legality Aside, Referral Fees Are an Ethical Issue

While kickback arrangements are a common practice for some treatment providers and referring professionals, many have realized that—legal or not—referral fees are an ethical issue.

In December, we visited Paracelsus Recovery in Zurich, Switzerland, and discussed this very issue with the center’s Managing Director, Jan Gerber. He was eager to share with us that he and his family-owned business passionately stands against this practice—even when they’ve lost business over it.

From his perspective, “it’s an ethical question.” And in the worst case, it can “cost somebody’s life.”

Jan Gerber summarizing Paracelsus Recovery’s stance on referral fees.

Castle Craig, a residential center in Scotland, clearly states their stance on referral agencies and fees: “We feel that using these agencies turns patients into commodities who are effectively brokered from agencies to treatment centres.” They do not pay referral fees and “refuse to work with any referral agencies currently operating in the United Kingdom.”

If you are a treatment provider or referring professional who would also like to go on record against this practice, we’re happy to add your quote to this post.

How to Protect Yourself

Be Careful of Free Helplines: A Source of Referral Fees

If you’re looking for treatment for yourself or your loved one, be cautious of websites that appear to provide independent information about treatment options but require you to call a hotline to learn about them. These hotlines often work with treatment centers on a referral fee basis, meaning they’re more likely to refer you to centers that are willing to pay them a fee. Sometimes they have centers of their own that they will try to recommend without disclosing the affiliation.

Ask Specific Questions

When your doctor, psychiatrist, therapist, etc. makes a recommendation, politely ask if they receive compensation or favors for recommending you those centers.

For example, you could say something like, “I’ve read in the news about referral fees and kickbacks, and I’m concerned. With the utmost respect, do you receive compensation for recommending me to that center?”

Ask the treatment provider you’re considering what their opinions are about referral fees. You could also ask if they can provide an itemized quote of the costs. Upon seeing line items, ask for clarification if the description seems vague or suspicious.

Look for Credible Accreditations and Memberships

This is not 100% fail-proof as complaints go unfiled and enforcement takes time, but it’s a very good sign if a treatment provider is licensed, accredited (by the Joint Commission or CARF), and belongs to an organizing body with relevant guidelines. For example, in the U.S., members of the National Association of Addiction Treatment Providers (NAATP) must adhere to its code of ethics6 which prohibits referral payments.

Finding Treatment You Can Trust

For more information on what to look for in a rehab, see our article on avoiding addiction treatment scams and identifying quality programs.

Visit our searchable collection of rehabs to compare programs, pricing, reviews, and more, and to reach out to centers directly.

Frequently Asked Questions

What are referral fees, and how do they work at luxury rehab centers?

Referral fees are a payment that a rehab center makes to a third-party service or individual in exchange for referring a new patient. At luxury rehab centers, these fees can be substantial, ranging from a few thousand to 10s of thousands of dollars per referral.

Q: Are rehab referral fees legal in the United States?

Referral fees are legal in the U.S., but they’re subject to certain regulations under federal and state law. For example, the Anti-Kickback Statute prohibits healthcare providers from paying or receiving kickbacks in exchange for patient referrals. Violations of these laws can result in civil and criminal penalties, including fines and imprisonment.

Q: What risks do referral fees pose for patients seeking treatment at private rehabs?

Referral fees create conflicts of interest. A healthcare provider may be more likely to recommend a particular rehab center based on the size of the referral fee rather than the patient’s needs. This can lead to inappropriate or ineffective treatment, as well as higher costs for patients.

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