Correctional Services spokesman Manelisi Wolela has denied allegations that student leader Mcebo Dla.
"Fat cat" doctors are likely to be kicked out of the KwaZulu-Natal health department and face criminal charges.
A high-level investigation by the auditor-general into "financial irregularities" is currently under way to determine if some doctors "had channelled patients" out of public hospitals to private ones.
The audit aims to determine whether officials with interests in private entities had referred patients to them.
It will also try to reveal whether the doctors had requested and obtained permission to perform remunerative work.
It is alleged that several African and Indian doctors who own private practices "have been exploiting the loopholes in the system to con and cripple healthservices.
Provincial and regional hospitals receive up to 80percent of the department's budget.
Each state hospital gets over R500million a year and the budgets appear to be running dry - well ahead of the end of the financial year.
The health department's chief operating officer Nhlanhla Nkosi said the auditor-general would determine whether any irregularities occurred in the allocation of tenders, contracts and services to entities owned by these officials.
Nkosi was responding to allegations that senior doctors employed by the state have been fingered in a multimillion-rand scheme.
"Until the findings are released in the interim, the department has further strengthened the financial controls relating to the buy-out of services (private hospital outsourcing) with close monitoring mechanisms being implemented to control the expenditure incurred."
Nkosi said should the auditor-general report any transgressions or prove any criminal actions, the department would engage the services of other government agencies to take punitive action against those responsible.
Nkosi said the department had also experienced a high vacancy rate due to a high attrition rate of its professionals to the private sector - as well as to other countries.