$600M California Healthcare Fraud Scheme Grows With 3 Additional Defendants

An additional 3 defendants are joining 6 others previously charged for one of California’s largest healthcare fraud schemes.

The United States Department of Justice recently unsealed 2 federal cases, revealing the names of 3 additional defendants who pled guilty to federal charges in a long-standing healthcare fraud scheme in which the individuals illegally referred thousands of patients for spinal surgery. The scheme generated nearly $600 million in fraudulent billings and lasted over the course of an 8-year period.

These new individuals join 6 others who had been previously charged concerning the government’s ongoing investigation into kickbacks on patient referrals and fraudulent bills for spinal surgery that occurred at Pacific Hospital in Long Beach, California. The recent developments are in connection with a 15-year fraud scheme, also referred to as Operation Spinal Cap, played out by Pacific Hospital owner Michael D. Drobot (senior).

“The guilty pleas announced today are the latest step in holding accountable the individuals who co-opted doctors and other specialized healthcare workers to carry out multiple kickback conspiracies that abused the state and federal healthcare systems for more than a decade,” Deirdre Fike, the assistant director-in-charge of the FBI's Los Angeles Field Office, said in a statement. “The continuing results of Operation Spinal Cap are based on a tremendous effort by investigators and prosecutors handling this case, which is among the largest healthcare fraud schemes to be perpetrated in the state of California.”

Michael R. Drobot (junior) of Newport Beach, chiropractor Michael E. Barri of San Clemente, and Linda Martin of Clovis all pled guilty to various accounts in the ongoing investigation. Drobot junior plead guilty to conspiracy and kickback charges while Barri came forward and admitted to receiving kickbacks for referrals to Pacific Hospital from 2009 to 2013. As a result of his referrals alone, the hospital billed insurance carriers approximately $3.9 billion for the spinal surgeries. And, Martin admitted to recruiting medical professionals to refer patients to the hospital with promise of kickbacks. These individuals are expected to be sentenced in the coming months.

The fraud scheme began 15 years ago with Drobot senior, who filled millions of dollars in bills to workers’ compensation insurers and the United States Department of Labor for spinal surgeries performed on patients who had all been referred by doctors and chiropractors receiving kickbacks on their referrals. Between the years 2005 to 2013, Pacific Hospital billed insurers more than $580 million for spinal surgeries and insurers paid the hospital more than $226 million for these services as a direct result of the illegal kickbacks.

Drobot senior drew up several contracts and company names to use as “cover stories” for the illegal kickback payments. Physicians either entered into agreements in which they could, for example, be paid for either selling their medical practices or providing counseling services to any one of Drobot’s companies, among other fronts. These agreements were either not exercised or upheld.

Drobot senior also owned 2 companies—California Pharmacy Management and its successor, Industrial Pharmacy Management—that set up and managed mini-pharmacies within these doctor’s offices. Both of these organizations dispensed the medications physicians were prescribing to their patients and the doctors were receiving a portion of the money reimbursed from insurance. Drobot senior plead guilty to federal charges in 2013.

The 4400 patients who were referred to the hospital and underwent spinal surgery were not aware that their physicians were receiving kickbacks due to their referrals to Pacific Hospital, a hospital that was sometimes more than a 100 miles away from the patient’s home. Many patients lived closer to some hospitals that were just as medically qualified as Pacific Hospital.