Former Pacific Hospital CEO and son guilty in $600M fraud scheme

Michael R. Drobot, former CEO of Pacific Hospital in Long Beach, Calif., and his son are two of nine defendants that have admitted participating in a massive fraud scheme that involved physicians receiving hundreds of millions of dollars in kickbacks, according to the Department of Justice.

The defendants were charged in relation to the government's ongoing investigation into kickbacks physicians received for patient referrals for spinal surgeries performed at Pacific Hospital. Those who referred patients to Pacific Hospital were typically paid a kickback of $15,000 for each lumbar fusion surgery and $10,000 for each cervical fusion surgery.

As a result of the illegal kickbacks, thousands of referred patients underwent spinal surgeries at Pacific Hospital, leading to more the submission of more than $580 million in fraudulent bills for spinal surgeries during the last eight years of the scheme alone, according to the DOJ.

All nine defendants have agreed to cooperate with the government's ongoing investigation — dubbed "Operation Spinal Cap" — which involved dozens of surgeons, orthopedic specialists, chiropractors, marketers and other medical professionals.

Mr. Drobot, who served as CEO of Pacific Hospital until late 2013, ran the 15-year-long fraud scheme. To conceal the illegal activity, a number of physicians involved entered into agreements with a company Mr. Drobot owned, under which the physicians received as much as $100,000 per month for the right to purchase their medical practices. Other physicians had agreements to provide consulting services to Mr. Drobot's companies, but never provided the services.

California Pharmacy Management and its successor Industrial Pharmacy Management were two companies owned by Mr. Drobot that played an important role in the scheme. The companies set up and managed mini-pharmacies in physicians' offices and received a portion of the money reimbursed by insurance companies for medications that were dispensed. Mr. Drobot often agreed to increase the physicians' shares of the insurance claims in return for patient referrals to Pacific Hospital, according to the DOJ. Mr. Drobot's son admitted participating in the kickback scheme, primarily through his operation of CPM and IPM.

In addition to Mr. Drobot and his son, defendants who have been charged and pleaded guilty to their involvement in the scheme include the following:

  • James L. Canedo, former CFO of Pacific Hospital
  • Philip Sobol, MD, an orthopedic surgeon
  • Alan Iva, DC, a chiropractor
  • Paul Richard Randall, a healthcare market previously affiliated with Pacific Hospitals and Tri-City Regional Medical Center in Hawaiian Gardens, Calif.
  • Mitchell Cohen, MD, an orthopedic surgeon
  • Michael Barri, DC, a chiropractor who owned and operated Tri-Star Medical Group and Jojaso Management Company, both in Santa Ana, Calif.
  • Linda Martin, former marketer for Pacific Hospital


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