Former justice secretary Jack Straw told MPs that NHS hospitals are making money by charging "ambulance chasing" lawyers fees to advertise in accident and emergency departments,.
As he attacked the "grubby" personal injury claims industry, he said 70 trusts had been paid a total of £2 million over the past five years.
Mr Straw revealed proposals to clamp down on the compensation culture which he said had led to soaring motor insurance premiums.
By promising to ban the payment of referral fees in personal injury cases, the Government has already accepted one of his key demands.
Mr Straw said: "In the last year alone there has been a 40% increase in the average premiums paid by Britain's motorists to insure their cars. The principal factor behind these rocketing premiums has been a extraordinary increase in both the number and value of claims for personal injuries."
However the number of accidents had decreased and the increase had been "artificially generated by a new industry, unheard of 20 years ago, a claims industry with, I'm afraid, the complicity of the insurance companies themselves".
He accused claims management companies, personal injury lawyers, credit hire companies and vehicle recovery firms of building a "lucrative and self-serving merry-go-round" with information about people involved in accidents passed between them in the hope of securing a payout.