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DOJ Catch of the Week -- Operation Spinal Cap

Posted  November 25, 2015

By the C|C Whistleblower Lawyer Team

This week’s Department of Justice “Catch of the Week” goes to the doctors and other healthcare professionals caught up this week in the government’s “Operation Spinal Cap” dragnet.  In a series of related cases the DOJ announced yesterday, the former CFO of Long Beach, California-based Pacific Hospital, two orthopedic surgeons and two others have been charged in long-running health care fraud schemes that illegally referred thousands of patients for spinal surgeries and generated nearly $600 million in fraudulent billings over an eight-year period.  The wide-ranging kickback scheme, which involved dozens of surgeons, orthopedic specialists, chiropractors, marketers and other medical professionals, involved improper referrals to Pacific Hospital and Hawaiian Hospital.  See DOJ Press Release.

The most recent targets of the government’s investigation, all of whom have agreed to plead guilty, include: former Pacific Hospital CFO James L. Canedo; orthopedic surgeons Philip Sobol and Mitchell Cohen; chiropractor Alan Ivar; and health care marketer Paul Richard Randall, previously affiliated with Pacific Hospital and Tri-City Regional Medical Center in Hawaiian Gardens.  Under the terms of their plea agreements, Sobol faces a federal prison term of up to 10 years; Canedo, Ivar and Randall face up to five years in prison; and Cohen faces up to three years in prison.  All of them will be required to pay restitution to the victims of the scheme, which in Canedo’s case will be at least $20 million.  In April 2014, Michael D. Drobot, the former CEO and owner of Pacific Hospital of Long Beach, pleaded guilty to participating in the scheme and is also cooperating with the investigation.

As described in court documents, Drobot ran a 15-year-long scheme in which he and others billed workers’ compensation insurers and the U.S. Department of Labor hundreds of millions of dollars for spinal surgeries and other procedures performed on patients who had been referred by dozens of doctors, chiropractors and others who were paid illegal kickbacks.  As part of the scheme, the kickbacks were disguised in various ways:

  • Doctors entered into agreements with Pacific Specialty Physician Management (PSPM), a company owned by Drobot, under which the doctors received as much as $100,000 per month for the right to purchase their medical practices (an option never exercised).
  • PSPM paid doctors inflated prices for the right to operate their practices and collect on their insurance claims.
  • Pacific Hospital entered into phony contracts with doctors to purportedly help the hospital collect on its surgery bills to insurance companies (which they never did).
  • Doctors entered into lease agreements under which PSPM or Pacific Hospital paid rent for the use of office space, but rarely used the space.
  • Doctors had agreements to provide consulting services to Drobot’s companies, but did not actually provide the services.

Sobol, Ivar and Cohen each received, respectively, $5.2 million, $1.24 million and $1.64 million in kickbacks.  Together they referred more than 200 patients to Pacific Hospital.  According to the government, two other Drobot companies, California Pharmacy Management (CPM) and its successor, Industrial Pharmacy Management (IPM), also played a significant role in the scheme.  Both set up and managed what the government described as “mini-pharmacies” within doctors’ offices.  CPM and IPM bought and dispensed medication that the doctors prescribed to their patients, and these businesses received a portion of the money reimbursed by insurance companies for the medications.

In announcing the settlement, the government took pains to highlight the dangers of illegal kickback schemes like these.  U.S. Attorney Eileen M. Decker of the Central District of California said:

Health care fraud and kickback schemes burden our healthcare system, drive up insurance costs for everyone, and corrupt both the doctor-patient relationship and the medical profession itself.  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.

California Insurance Commissioner Dave Jones was equally pointed in his condemnation of the scheme: “Injured workers were treated like livestock by doctors and hospitals who paid or accepted kickbacks and bribes in exchange for referrals.  Injured workers are put at risk when their medical treatment is based on kickbacks and bribes instead of their medical needs.”

Tagged in: Anti-Kickback and Stark, Catch of the Week,