21161935 - man with plaster walking on the beach with the help of crutches

“Spineless” is a term that could be used to describe today’s fraudster, who was the owner of a Long Beach, California hospital. He used seven accomplices to do his dirty work in a massive $600 million workers’ compensation fraud scheme involving fraudulent bills submitted for spinal surgery performed at his hospital.

Over the course of 15 years, the hospital owner paid more than $40 million in kickbacks to dozens of doctors, chiropractors and other medical professionals in return for giving out referrals to his hospital. (Some of the patients referred lived hundreds of miles away from the hospital.)

Co-conspirators usually received kickbacks of $15,000 for each lumbar fusion and $10,000 for each cervical fusion surgery. Thousands of referrals led to the submission of more than $600 million in fraudulent bills.

The kickbacks were financed by the sale of medical devices implanted into state workers’ compensation patients during spinal surgeries. (You might find it interesting that the hospital owner’s medical hardware company sold the hardware used in those spinal surgeries.)  The hospital owner benefited from a now-repealed California law known as the spinal “pass-through” legislation. This law previously permitted hospitals to pass on the full cost of medical devices implanted in spinal surgery patients to workers’ compensation insurers. These spinal surgeries were then fraudulently billed to both the California workers’ compensation and Federal Workers’ Compensation Systems, which paid out more than $226 million for the fraudulent claims. (An excess of $600 million in bills were fraudulently submitted during the last eight years of the scheme alone and the hospital owner’s take from the scheme was more than $20 million.)

The hospital owner’s corruption even went up to the level of the California State Senate. The Justice Department reported that the fraudster paid bribes to a California State Senator in exchange for the Senator performing official acts to keep the spinal pass-through law on the books. As a result, the Senator is now serving a three-and-a-half-year sentence in federal prison after he admitted to taking bribes from the hospital owner and undercover FBI agents.

The hospital owner was ordered to pay a $500,000 fine, forfeit $10 million to the government, and liquidate real estate and other assets that included vintage luxury cars, such as a 1965 Aston Martin, a 1958 Porsche and a 1971 Mercedes-Benz. (The consequences for engaging in the fraud conspiracy came at a steep price.) He’ll also be serving a 63-month prison sentence. (Looks like he will not be getting to soak up the California sun for quite some time.)

In addition to the hospital owner, prosecutors have charged seven other defendants in relation to the kickback scheme. The additional defendants, including the hospital owner’s son, have pleaded guilty and are scheduled to be sentenced over the next two months. (This spineless fraudster and his accomplices have now been forced to get a backbone and own up to their part in this massive scheme.)

Today’s “Fraud of the Day” is based on an article entitled, “Ex-California Hospital Owner Sentenced for $600M Workers’ Comp Fraud,” published by the Claims Journal on January 16, 2018.

The former owner of Pacific Hospital in Long Beach was sentenced to federal prison on Friday for running a $600 million workers’ compensation fraud scheme. Michael Drobot, 73, was sentenced Friday to 63 months in prison and fined $500,000. Earlier this week, he was ordered to forfeit $10 million to the government and to liquidate assets that include real estate along with a 1965 Aston Martin, a 1958 Porsche and a 1971 Mercedes Benz.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.