The long simmering $950 million California Spinal Cap fraud prosecutions may be coming to a whimpering end courtesy of the IRS.
The taxman has come for the Spinal Cap crooks.
On May 3, 2018, George Hammer, the former chief financial officer of the physician management arm of Pacific Hospital in Long Beach, pled guilty to one count of aiding and assisting in the preparation of a false tax return. Hammer admitted that he disguised bribes to healthcare professional in their books and records. The IRS said the company took $7 million in unentitled deductions between 2011 to 2013.
Now the taxman wants around $2.1 million in past-due taxes because the “deductions” were thinly disguised kickbacks to physicians who referred their patients to Pacific Hospital.
The overall tax bill is negligible in the overall fraud that cost taxpayers hundreds of millions of dollars. But as is often the case—think Al Capone—failing to pay taxes can be the surest path to jail.
Hammer Sings
In Hammer’s guilty plea he names names and describes exactly how the enterprise worked. Hammer agreed to forfeit $500,000 to the U.S. Attorney’s Office before his sentencing and to cooperate with agencies as the investigation proceeds.
While he faces a maximum sentence of three years in prison, prosecutors plan to recommend a reduced sentence in exchange for Hammer’s information.
Spinal Cap
A quick Spinal Cap recap.
Spinal Cap is the name of the Justice Department investigation of a 15-year worker’s comp fraud scheme perpetrated by Michael Drobot at his Long Beach Pacific Hospital. This investigation ultimately reached beyond that single hospital and went all the way to the California Statehouse, ensnaring kickback paid physicians and exposing the $950 million false billing scheme.
Before getting busted, Drobot paid more than $40 million in kickbacks over those 15 years. Drobot’s hospital was a major provider of spinal surgeries that were often paid by workers’ compensation programs.
Drobot and a crooked former State Senator are now doing time and numerous healthcare professionals, including spine surgeons, are paying hefty fines and awaiting further sentencing.
Altogether, nine people have been convicted.
A California law known as the “spinal pass-through” legislation, allowed Drobot to pass on to insurance companies the full cost his hospital had paid for medical hardware used during spinal surgeries. As Drobot admitted in court, his hospital exploited this law, typically by using hardware he himself had made. The devices were not cleared by the FDA and purchased at highly-inflated prices from companies that Drobot controlled and passing the cost along to insurance providers.
