David Prior, non-executive chairman of medical reporting agency Premex has been arrested in connection with a £1m fraud.
Prior, a former Conservative MP and chairman of Cawston Park Hospital, Norfolk, was arrested this week in a dawn raid at his home in Norwich.
It follows an investigation by the NHS Counter Fraud and Security Services at Cawston Park, in connection with financial irregularities at the hospital where Prior was non-executive chairman.
Detectives refused to be drawn on the nature of the suspected offences, but it is understood the fraud being investigated amounts to around £1m.
Prior has been released on bail until 2007 pending further police inquiries.
According to his solicitors, Ipswich-based Gotlee and Goldsmith, Prior has given his full co-operation to the investigation.
The solicitors said: "The allegations made are groundless. He is certain when the police investigation is concluded he will be entirely vindicated."
Chief executive of Premex Group, Simon Margolis, said in a statement: "Premex Group is aware of the investigation surrounding David Prior and will keep a close eye on any developments.
"At this time we understand no charges have been made."
Margolis added: "As the matter does not relate to Premex Group, we feel it would be inappropriate to comment further at this stage."