The hospital dismisses these claims.

"It's easy for someone to say it's illegal, when they mean, 'We don't like it,'" Friedman said.

"This is a 100-hundred-year-old organization that has made its reputation in compassionate patient care, ethical activities and extraordinary research. It would be foolish to do anything inappropriate or illegal."

The hospital said the group is "misrepresenting" the makeup of the board, which has yet to be fully established. And the California Hospital Association, which backs the hospital, said that under California law foundation boards must contain a majority of non-physician members.

"At the governance level, our law, California law, requires the majority of members be community members and it be not for profit," Duane Dauner, CEO of the CHA, said.

The hospital also pointed out that at least 20 other leading California hospitals, such as Cedars-Sinai, Scripps and Catholic Healthcare West, also contract doctors through foundations and that those boards are made up of a mix of physicians and business people.

Nonetheless, not everyone is convinced City of Hope's foundation will be independent.

"One critical factor [with the other foundations] is the board that runs the foundation is independent, and our understanding of what the hospital system is trying to do here, the hospital board is also the board of the foundation, so there's no difference between the two," said Francisco Silva, general counsel for the California Medical Association, which supports the doctors group. "So they're making potentially clinical decisions at the same time they're acting as a hospital board."

Silva said hospital-created foundations can be a way for hospitals to make money from referrals, which they can keep in-system, and which get reimbursed at higher rates by Medicare than outpatient ones.

For instance, Jensen explained, Medi-Cal, California's Medicaid program, reimburses CT scans at $177.47 for independent clinics. But if the hospital owns the clinic, Medi-Cal will pay the hospital $254.56 for the same procedure.

"That's a 43 percent increase in revenue just for filing paperwork under a hospital license," Jensen said.

Jensen based this example on a situation his group is currently facing: the doctors group owns a South Pasadena cancer clinic, which the hospital wants to make a part of its system, he said. "But patients want to stay there and not be part of a hospital system."

The California hospital lobby argues the reimbursement advantages are too small to be a "major" incentive for hospitals to set up foundations.

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