Buyer Beware! The Dangers of Referral Fees for Addiction Treatment

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.