By George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law
Federal prosecutors filed two cases on November 24, 2015, and a federal judge unsealed three others, all in correlation to the same fraudulent health care scheme. The former Chief Financial Officer (CFO), two orthopedic surgeons, a chiropractor and a health care marketer of (or affiliated with) Pacific Hospital (“Pacific”) in Long Beach, California, pled guilty or have agreed to plead guilty in a nearly $600 million health care fraud scheme that spanned over an eight year period. The defendants were each charged with their specific involvement in the illegal referring of thousands of patients for spinal surgeries resulting in $580 million in fraudulent billings.
All five of the defendants have agreed to cooperate in the ongoing investigation, otherwise termed “Operation Spinal Cap.” According to federal prosecutors, dozens of other surgeons, orthopedic specialists, chiropractors, marketers and other medical professionals are alleged to be involved in the illegal kickback schemes.
To read another news story about costly referral fraud in which approximately three dozen health care professionals pleaded guilty, click here.
The government operation should not be confused with the 1980’s documentary or “mockumentary” about a fake metal band, titled, “This Is Spinal Tap.” For 15 things you didn’t know about Spinal Tap, click here.
A Long-Running Kickback Scheme.
Former Chief Executive Officer (CEO) and owner of Pacific, Michael D. Drobot, had previously pled guilty in April 2014, to his involvement in the scheme. His 15-year-long ruse ended in late 2013. His participation in the ploy included billing workers’ compensation insurers and the U.S. Department of Labor for spinal surgeries and other procedures performed on patients who had been referred by various doctors and other medical professionals in exchange for the receipt of illegal kickbacks.
The running price of a typical kickback paid by the conspirators was $15,000 for a lumbar fusion surgery and $10,000 for a cervical fusion surgery. Many patients traveling in excess of a hundred miles for surgery were unaware of the existence of much closer qualified medical facilities.
Former CFO, James L. Canedo, pled guilty on September 4, 2015. His guilty plea addressed charges of his participation in a conspiracy involving mail fraud, honest services fraud, money laundering, paying or receiving kickbacks in connection with a federal health care program and violating the Travel Act, or more specifically, interstate travel in aid of a racketeering enterprise.
The other defendants pled guilty to similar charges. Chiropractor, Alan Ivar, also admitted to an agreement with the hospital’s owner to accept a monthly retainer in exchange for referring patients. Orthopedic surgeon, Mitchell Cohen, agreed to admit guilt to filing a false tax return by failing to report income received by way of illegal kickbacks. Paul Richard Randall, a health care marketer, pled guilty in April 2012 to facilitating the kickback scheme at Pacific by introducing physicians to Drobot and coordinating the kickback arrangements. He also admitted to his involvement in a similar scheme with Tri-City Regional Medical Center (“Tri-City”).
To read the full press release by the Department of Justice (DOJ), click here.
All Five Defendants Are Facing Prison Time.
Orthopedic surgeon, Philip Sobol, is facing up to a decade in prison for his involvement in the scheme. Canedo, Ivar and Randall are facing up to five years, and Cohen is facing up to three years behind bars. Each defendant will also be responsible for paying millions of dollars in restitution. As a part of their plea agreements, each defendant will cooperate with the government’s ongoing investigation.
California Insurance Commissioner, Dave Jones, said of the scheme, “Injured workers were treated like livestock…” U.S. Attorney, Eileen M. Decker, said something similar in a statement: “The members of this scheme treated injured workers and their spines as commodities, to be traded away to the highest bidder. This investigation should send a message to the entire industry: patients are not for sale.”
To read one of our previous blog posts on compliance with anti-fraud laws, click here.
Have you ever been suspected of receiving or promising illegal kickbacks for patient referrals?
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Department of Justice, Office of Public Affairs. “Five Individuals, Including Two Doctors, Charged in Kickback Schemes Involving Nearly $600 Million in Fraudulent Claims by Southern California Hospitals.” Press Release. Justice News: 24 Nov. 2015. Web. 24 Nov. 2015.
Kass, Dani. “Ex-Hospital CFO, Docs Guilty in $580M Referral Billing Scheme.” Law360. Portfolio Media Inc.: 24 Nov. 2015. Web. 24 Nov. 2015.
About the Author: George F. Indest III, J.D., M.P.A., LL.M., is Board Certified by The Florida Bar in Health Law. He is the President and Managing Partner of The Health Law Firm, which has a national practice. Its main office is in the Orlando, Florida area. www.TheHealthLawFirm.com The Health Law Firm, 1101 Douglas Ave., Altamonte Springs, FL 32714, Phone: (407) 331-6620.
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