Illegal Kickbacks
From 1997 to 2013, according to the FBI, Drobot billed workers’ compensation insurers hundreds of millions of dollars for spinal surgeries performed on patients who had been referred by dozens of doctors, chiropractors, and others who were paid illegal kickbacks.
For referrals for spinal surgeries, Drobot typically paid a kickback of $15,000 per lumbar fusion surgery and $10,000 per cervical fusion surgery. Patients came hundreds of miles to Pacific Hospital and were not informed that their medical professionals had been offered kickbacks to induce them to refer the surgeries to the hospital.
Pacific Specialty Physician Management
The conspirators, according to the government and described in Hammer’s plea agreement, concealed the kickback payments by entering into bogus contracts to provide a “cover story” for the surgeons, chiropractors and others who received illegal payments.
For example, the government says several doctors entered into agreements with Pacific Specialty Physician Management (PSPM), a company owned by Drobot and run by Hammer, under which the doctors received as much as $100,000 per month in return for the right to purchase their medical practices—an option that was never exercised. PSPM paid some doctors inflated prices for the right to operate their practices and collect on their insurance claims.
In other cases, according to the government, Pacific Hospital entered into contracts with doctors under which the doctors were to help the hospital collect surgery bills from insurance companies, but the hospital’s own collection staff, rather than the doctors, actually performed the collections work.
Several doctors entered into lease agreements under which Drobot’s management company or his hospital paid rent for the use of office space, but rarely used the space. And other doctors had agreements to provide consulting services to Drobot’s companies but did not actually provide the services. Still others, including marketers who introduced doctors to Pacific Hospital, had additional agreements with Drobot’s companies.
Drobot and the shell companies entered into agreements with physicians through PSPM that were used to pay the kickbacks in exchange for the referrals.
In his plea agreement, Hammer stated the agreements obviously did not specify the inducement for kickbacks, and some agreements specifically stated the referrals were not contemplated.
The contracts would allow for remunerations to the kickback recipients “far in excess” of any reasonable fair market value, according to court documents.
For example, PSPM facilitated the payments to an orthopedic surgeon named Daniel Capen, M.D., by subsidizing medical practice costs that would have reduced the profits of Capen and his practice, Downey Ortho.
Their agreement stated that PSPM’s fee projected to be sufficient to recover operating expenses and a reasonable return on their investment…”without taking into account…the volume or value of referrals.” Furthermore, no amount paid was “intended to be…an inducement…for referral.”
But PSPM’s fee was understood to be “upside down.” The monthly collections paid by the orthopedic surgeons would cover only a fraction of the expenses.
Hammer also admitted to using sham option contracts as a vehicle to pay “Kickback Induced Surgeons (KIS).” Monthly payments to KIS for the ultimate purchase of their practices. Defendants had no intention to sell their practices.
Payments would vary month-to-month and were made to “reward” or induce referments to Pacific Hospital.
Drobot instructed KIS to use specific vendors. Starting in mid-2008, KIS were instructed to use specific hardware in surgeries at Pacific Hospital. The profits financed the kickbacks and PSPM’s losses.
