The “Spinal Cap” corruption case in California that derailed Michael Drobot’s Long Beach Pacific Hospital spine surgery gravy train, is about to deliver its first passengers to federal prison.
On June 13, 2016, the U.S. Department of Justice announced that former California State Senator Ron Calderon, “agreed to plead guilty to a federal corruption charge and admits in a plea agreement…that he accepted tens of thousands of dollars in bribes in exchange for performing official acts as a legislator.”
One of those “official” acts was to keep legislation from passing that would have overhauled California’s worker’s comp law. Calderon asked a fellow senator to introduce legislation favorable to Drobot. The payments from Drobot came in the form of summer employment for Calderon’s son, who was hired as a summer file clerk at Pacific Hospital and received a total of $30, 000 over the course of three years, despite the son doing little actual work at the hospital.
In February 2014, Drobot pleaded guilty to criminal fraud charges and offered to provide evidence against Calderon. His sentencing was delayed until the Calderon case was settled.
Tom Calderon, Ron’s brother and former California Assemblyman, pleaded guilty in early June to money laundering and admitted that he agreed to conceal bribe payments for his brother from two undercover FBI agents in a separate bribery investigation by having the money go through his company, the Calderon Group. Tom Calderon allowed payments to be made to the Calderon Group “to conceal and disguise the fact that the money represented the proceeds of bribery, ” according to his plea agreement.
Tom Calderon “deposited the $30, 000 bribe payment from [the undercover agent] into the Calderon Group’s bank account and then wrote a check for $9, 000 from the Calderon Group’s bank account to Ronald S. Calderon’s daughter, ” Tom Calderon admitted in his plea agreement.
As part of Ron Calderon’s plea agreement, federal prosecutors have agreed not to seek a sentence of more than 70 months in federal prison, a term that is expected to be within the United States Sentencing Guidelines advisory range for this case. However, the judge would not be bound by any sentencing recommendation and could sentence Calderon up to statutory maximum sentence of 20 years in federal prison.
Excluding the Calderons, the Spinal Cap scorecard now stands at nine individuals pleading guilty. No one has been sentenced yet.
Spinal Cap Review
Drobot’s 147-bed hospital billed out more than half a billion dollars for spine surgeries over a six-year period, primarily to the California Workers’ Compensation System. Business was good. A 2012 Wall Street Journal investigation found that Pacific Hospital led all California hospitals in conducting spinal fusions between 2001 and 2010.
To keep the gravy train rolling, Drobot needed help from politicians in Sacramento. He found that help with the powerful chairman of the California Senate Insurance Committee, Senator Ronald Calderon.
California had a law known as the “spinal pass-through” legislation which allowed a hospital to pass on to insurance companies the full cost it had paid for medical hardware it used during spinal surgeries. As Drobot admitted in court, his hospital exploited this law, typically by using hardware that had been purchased at highly-inflated prices from companies that Drobot controlled and passing this cost along to insurance providers.
Inflated Device Prices
Drobot set up shell companies to inflate the costs of those devices and then billed the insurers at the inflated rates. According to the FBI affidavit, Drobot and others inflated the prices by up to 10 times the actual cost.
Beginning in 2001, California workers’ comp law allowed hospitals to collect a second time for spinal devices implanted in the backs of injured workers. That’s in addition to a lump sum payment that included the cost of the device. The law permitted hospitals to pass on spinal medical device costs, plus up to an additional $250, to workers’ comp insurers.
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 from hundreds of miles away from Pacific Hospital and were not informed that their medical professionals had been offered kickbacks to induce them to refer the surgeries to Pacific Hospital.
Bribery
Calderon, a Democrat from Montebello, helped keep the “pass-through” loophole open. According to a secret affidavit, Drobot allegedly paid Calderon $28, 000 in bribes to meet with other lawmakers and stop legislation to close the loophole.
The government specifically alleges that Drobot bribed Calderon by hiring Calderon’s college-age son to work as a file clerk at his company and paying him approximately $30, 000 over the course of three summers. Calderon’s son showed up for only about 15 days of work each summer, according to the indictment, which also accused Calderon of accepting plane trips, golf outings, and expensive dinners from Drobot.
Drobot reportedly contributed $167, 000 in campaign contributions to Ron and Tom Calderon. Tom Calderon set up a political consulting firm which laundered the money. Drobot also reportedly contributed more than $1.3 million in total campaign contributions since 2000, nearly all to Democrats.
Scorecard of the Guilty
First there was Michael Drobot.
Then five more were charged at the end of November 2015, when the Department of Justice announced that two California spine surgeons (Philip Sobol, M.D. and Mitchell Cohen, M.D.), a former hospital administrator (James L. Canedo), a chiropractor (Alan Ivar) and a marketing consultant (Paul Richard Randall) were charged with generating almost $600 million in fraudulent spine surgery billings over an eight-year period.
The Providers
Philip Sobol, M.D. of Studio City, California, an orthopedic surgeon pleaded guilty to conspiracy to commit mail fraud, honest services fraud and violations of the Travel Act; as well as a separate, substantive Travel Act violation
Mitchell Cohen, M.D. of Irvine, California, an orthopedic surgeon, was charged in mid-November 2015 with filing a false tax return. Cohen admits in a plea agreement that he failed to report income received from kickback payments
Alan Ivar of Las Vegas, a chiropractor who had lived in San Juan Capistrano, California, and owned several businesses based in Costa Mesa, California, was charged with one count of conspiracy to commit mail fraud, honest services fraud, money laundering and violations of the Travel Act. In a plea agreement also filed in November 2015, Ivar admitted that for well over a decade, he had an agreement with Drobot to refer patients in exchange for a monthly retainer.
The Businessmen
James L. Canedo of San Pedro, California, the former CFO of Pacific Hospital, pleaded guilty on September 4, 2015, to a criminal information charging him with participating in a conspiracy that engaged in mail fraud, honest services fraud, money laundering, paying or receiving kickbacks in connection with a federal health care program and violating the Travel Act, specifically, interstate travel in aid of a racketeering enterprise. He was scheduled to be sentenced on June 17, 2016.
Paul Richard Randall of Orange, California, a health care marketer previously affiliated with Pacific Hospital and Tri-City Regional Medical Center in Hawaiian Gardens, pleaded guilty on April 16, 2012, to conspiracy to commit mail fraud. Randall, who admitted recruiting chiropractors and doctors to refer patients to Tri-City in exchange for kickbacks, was originally scheduled to be sentenced on April 8, 2016. He is still awaiting sentencing.
And Three More Cases…
Then on June 3, 2016 the Justice Department announced three more cases in which additional defendants have pleaded guilty to federal charges.
Two of the three new cases were recently ordered unsealed by a U.S. district judge. The documents in the two unsealed cases became publicly available at the end of May. In the now-unsealed cases and another case recently filed:
Michael R. Drobot, 44, of Newport Beach, California, the son of Pacific Hospital owner Michael D. Drobot (Drobot Senior), pleaded guilty on March 4 to conspiracy and illegal kickback charges. Drobot Junior is scheduled to be sentenced on November 18, 2016.
Chiropractor Michael E. Barri of San Clemente, California, who owned and operated the Santa Ana companies Tri-Star Medical Group and Jojaso Management Company, pleaded guilty on March 11 to a conspiracy count and admitted that he received illegal kickbacks for referrals to Pacific Hospital from 2009 through October 2013.
During a nine-month period that ended in 2013, Barri admitted receiving $158, 555 in illegal kickbacks after referring a dozen patients to Pacific Hospital, where they had back surgeries. As a result of his referrals, Pacific Hospital billed insurance carriers approximately $3.9 million for spinal surgeries. Barri is scheduled to be sentenced on January 13, 2017.
Linda Martin, of Clovis, California, who was a marketer for Pacific Hospital who recruited medical professionals and others to refer patients with promises of kickbacks, pleaded guilty to a conspiracy charge on May 27. She is scheduled to be sentenced on August 19, 2016.
Including the politicians, the total count of guilty pleas has reached 11. Their cells are waiting.
