“This is one of the largest workers’ compensation fraud cases in the history of the Department of Insurance.”  –  California Insurance Commissioner Dave Jones

On  February 21, 2014, the former owner of Pacific Hospital in Long Beach was charged in a long-running health care fraud scheme  in which more than $500 million in bills were fraudulently submitted to insurance companies and the California worker’s compensation system.  The scheme also involved tens of millions of dollars in illegal kickbacks to doctors in exchange for referrals of thousands of patients who received spinal surgeries.

Michael D. Drobot, 69, of Corona Del Mar, was charged with orchestrating the  wide-ranging conspiracy and with paying illegal kickbacks.  In a plea agreement, Drobot pleaded guilty to the two counts which could send him to federal prison for as long as 10 years.  In addition,  Drobot admitted in his plea agreement that, as part of his fraudulent scheme,  he paid bribes to California State Senator Ronald Calderon in exchange for Calderon performing official acts to keep the spinal pass-through law on the books. The spinal pass-through law allowed Pacific Hospital to fraudulently inflate the cost of the medical hardware used during spinal surgeries,  and was a vital component of Drobot’s ability to pay kickbacks to the doctors, chiropractors, marketers, and others who had referred patients to Pacific Hospital for surgeries and other medical services.  

Calderon has been  indicted on federal charges for allegedly accepting bribes from Drobot, as well as undercover FBI agents seeking official acts in relation to other matters.   As part of his plea agreement, Drobot has agreed to cooperate in the government’s ongoing investigation of the health care fraud scheme, which has been dubbed Operation “Spinal Cap.” Drobot has also agreed to cooperate in the government’s prosecution of Ronald Calderon and Calderon’s brother.

“The mere scope of this scheme and the resulting ‘Operation Spinal Cap’ investigation is enough to take your breath away,” said Alan Barcelona, president of the California Statewide Law Enforcement Association  (CSLEA) which represents investigators in the California Department of Insurance.  “The investigation into this sophisticated conspiracy took detailed work and uncovered one of the largest, if not the largest case of insurance fraud in the history of the California Department of Insurance.  It is a reflection of the caliber, the level of excellence,  of investigators at CDI.”

 For referrals for spinal surgeries, Drobot typically paid a kickback of $15,000 per lumbar fusion surgery and $10,000 per cervical fusion surgery. Some of the patients lived as much as hundreds of miles away from Pacific Hospital, and closer to other qualified medical facilities. The patients were not informed that the medical professionals had been offered kickbacks to induce them to refer the surgeries to Pacific Hospital.

Drobot and his co-conspirators concealed the kickback payments by entering into bogus contracts with the doctors, chiropractors, and others who received kickbacks. In reality, the contracts merely provided a cover story for the kickback payments.

The kickbacks were financed largely by money generated from inflated prices for medical devices implanted into state workers’ comp patients during spinal surgeries. Drobot set up a scheme that exploited the  now-repealed California law known as the spinal “pass-through” legislation, which permitted hospitals to pass on to workers’ comp insurers the full cost of medical devices implanted in spinal surgery patients.  Specifically, Drobot used shell companies to inflate the costs of those devices and then billed the insurers at the inflated rates.

Drobot has agreed to surrender and be arraigned in this case in United States District Court in Santa Ana on March 31.

The ongoing investigation into abuses involving the spinal pass-through law and kickbacks paid for spinal surgery patients is being conducted by the Federal Bureau of Investigation; IRS – Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.