What Is California Labor Code §139.3: Physician Self-Referral Ban?

Notwithstanding any other law, to the extent those services are paid pursuant to Division 4 (commencing with Section 3200), it is unlawful for a physician to refer a person for clinical laboratory, diagnostic nuclear medicine, radiation oncology, physical therapy, physical rehabilitation, psychometric testing, home infusion therapy, outpatient surgery, diagnostic imaging goods or services, or pharmacy goods, whether for treatment or medical-legal purposes, if the physician or his or her immediate family has a financial interest with the person or in the entity that receives the referral.

What Is the Physician Self-Referral Ban Under Labor Code 139.3?

Labor Code 139.3 bars a physician in your workers' comp claim from profiting off a referral to a lab, imaging center, pharmacy, or similar provider.

The rule applies to a physician as California law defines that word for workers' comp. That list includes a medical doctor, doctor of osteopathy, psychologist, acupuncturist, optometrist, dentist, podiatrist, or licensed chiropractic practitioner. It applies whether that physician is treating your injury or evaluating it for a medical-legal report. The point is simple. A referral should rest on your medical need, not on a payment the physician collects from the place you are sent.

The ban only reaches services paid through the workers' compensation system. It does not turn every ordinary medical referral into a violation. It targets the financial tie: ownership, a loan, a lease, a rebate, or any other form of payment between the physician and the business that gets the referral.

How Does Labor Code 139.3 Work in a Real Workers' Comp Claim?

Section 139.3 names the exact services a physician cannot send you to when the physician has a financial interest in the place you would go.

Say your treating physician wants you to get an MRI, physical therapy, or lab work. Section 139.3 asks a simple question first. Does the physician, or a spouse, parent, or child of the physician, own a piece of the facility that would perform that service, or get money tied to the referral? If so, the referral breaks this law.

The services covered include:

• Clinical laboratory work
• Diagnostic nuclear medicine and radiation oncology
• Physical therapy and physical rehabilitation
• Psychometric testing
• Home infusion therapy
• Outpatient surgery
• Diagnostic imaging, such as X-rays, MRIs, and ultrasounds
• Pharmacy goods

This list comes directly from the statute. It applies to a referral for your treatment and to a referral tied to a medical-legal evaluation of your claim.

What Counts as a Physician's Financial Interest?

A financial interest is any ownership, payment, discount, or benefit tied to the referral, even an indirect one.

Labor Code 139.3 defines a financial interest broadly. It includes ownership, a debt, a loan, a lease, pay, a discount, a rebate, or a dividend. Any other direct or indirect payment between the physician and the business counts too. An indirect tie counts the same way. For example, a physician might own a separate company, and that company leases property to the business that gets the referral.

The law also blocks a workaround. A physician cannot move the interest to a relative or a separate deal just to dodge this rule. If the real purpose is to get around the law, it still counts as the physician's own financial interest.

Does This Law Cover Your Own Doctor's Office, a Group Practice, or a Required Disclosure?

Care inside your own treating physician's office or a qualifying group practice is not a referral to an outside business, though a physician who refers you to a business they have a stake in must still disclose that interest in writing.

The statute defines a "physician's office" as a solo practice. It can also be an office where the physician's own staff or contractors provide the service under other California rules. It defines an "office of a group practice" too: two or more physicians organized together, sharing space, staff, and billing, who split income by a method set in advance. Care inside either setting is not a referral to a separate outside business, which is what the financial-interest ban in this section targets.

Separately, a physician who refers you to an organization they have a financial interest in must disclose that interest in writing at the time of the referral. That written disclosure is a separate duty. It does not turn an otherwise barred referral into an allowed one.

What Happens When a Physician Violates Labor Code 139.3?

A barred referral can be a misdemeanor and a civil penalty, and the resulting bill cannot be charged to you, your employer, or the insurer.

Violating the main referral ban is a misdemeanor. The licensing board that oversees the physician reviews any conviction and can discipline the physician for unprofessional conduct. The Insurance Commissioner, the Attorney General, or a district attorney can also seek a civil penalty of up to $5,000 for each violation. A cross-referral scheme, a kickback, a missed written disclosure, or an insurer paying a bill it should have refused is a separate public offense. Each one is punishable by a fine of up to $15,000, plus licensing board discipline, including possible loss of a license.

No one is supposed to pay for a referral this law prohibits. An entity cannot present a claim for payment for goods or services from a barred referral. An insurer, self-insurer, or other payor cannot pay that charge, or a lien based on it, either.

How Does Labor Code 139.3 Connect to QME Evaluations and Other Workers' Comp Rules?

This law shares its definition of physician with the rule for qualified medical evaluators, and it limits what the medical-legal expense rule will pay for.

Labor Code 139.3 uses the same definition of physician set out in Labor Code 3209.3: medical doctors, doctors of osteopathy, psychologists, acupuncturists, optometrists, dentists, podiatrists, and licensed chiropractic practitioners. That is the same group of providers who can serve as a qualified medical evaluator, or QME, under Labor Code 139.2. A QME is a physician too, so this referral ban reaches a referral tied to a medical-legal evaluation, not just ordinary treatment.

The medical-legal expense rule in Labor Code 4621 normally requires reimbursement of a reasonable, necessary medical-legal expense. Labor Code 139.3 sets a limit on that rule. A medical-legal expense that came from a barred referral is not a bill anyone has to pay.

Do you think a treating physician, or the physician who did your medical-legal evaluation, profits from the lab, imaging center, or pharmacy they picked for you? Save the referral paperwork, any billing statement or explanation of review you get, and the name of that business. Ask the physician directly whether they have an ownership or payment tie to it. Yazdchi Law P.C. can review those facts with you and explain your options under California law. Call (661) 273-1780 or use our contact form for a free initial review. If the referral looks like part of a wider billing scheme, our page on workers' comp fraud in California explains how that gets reported. The firm looks at each case's own facts before deciding whether to take it.