Five Former Pacific Hospital Long Beach Employees Charged in $600M Fraud Scheme

File photo. 

Federal prosecutors filed two new cases today against a group of former employees of the now-defunct Pacific Hospital Long Beach, charging the group with gaining nearly $600 million in fraudulent billings from referrals, from 1999 to October 2013, in a scheme now dubbed “Operation Spinal Cap.”

According to a release from the Department of Justice (DOJ), two of the defendants have previously pleaded guilty and three others have agreed to plead guilty in the coming weeks to the charges leveled against them.

“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,” said United States Attorney Eileen M. Decker in a statement. “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.”

Those charged include the former CFO of Pacific Hospital Long Beach, two orthopedic surgeons and two others. All have agreed to cooperate in the government’s ongoing fraud, kickbacks and referrals program.

“Injured workers were treated like livestock by doctors and hospitals who paid or accepted kickbacks and bribes in exchange for referrals,” said California Insurance Commissioner Dave Jones in a statement, calling the scheme one of the largest of its kind. “Injured workers are put at risk when their medical treatment is based on kickbacks and bribes instead of their medical needs.”

The scheme consisted of illegally referring thousands of patients for spinal surgeries, providing tens of millions in illegal kickbacks to “dozens” of chiropractors, doctors and others. Most of the claims were paid for by the California worker’s compensation system and the federal government.

According to the DOJ, as a result of the illegal payments, thousands of patients were referred to Pacific Hospital Long Beach, receiving surgeries that led to at least “$580 million in fraudulently submitted bills in the last eight years alone.”

A second scheme involving spinal surgeries also allowed doctors to receive millions in kickbacks for referrals to a Hawaiian Gardens hospital.

Former CEO and Owner of Pacific Hospital Long Beach Michael D. Drobot pleaded guilty to participating in the scheme in 2014, and is currently cooperating with authorities in the investigation.

The defendants include:

  • James L. Canedo, 63, of San Pedro, the former chief financial officer of Pacific Hospital of Long Beach, who pleaded guilty on September 4 to a criminal information charging him with participating in a conspiracy that engaged in mail fraud, honest services fraud, money laundering, paying or receiving kickbacks in connection with a federal health care program, and violating the Travel Act (specifically, interstate travel in aid of a racketeering enterprise).
  • Philip Sobol, 61, of Studio City, an orthopedic surgeon, who has agreed to plead guilty to conspiracy (to commit mail fraud, honest services fraud, and violations of the Travel Act) as well as a separate, substantive Travel Act violation.
  • Alan Ivar, 55, of Las Vegas, a chiropractor who formerly resided in San Juan Capistrano and owned several businesses based in Costa Mesa, was charged today in a criminal information that alleges one count of conspiracy (to commit mail fraud, honest services fraud, money laundering, and violations of the Travel Act).
  • Paul Richard Randall, 56, of Orange, a health care marketer previously affiliated with Pacific Hospital and Tri-City Regional Medical Center in Hawaiian Gardens, who pleaded guilty on April 16, 2012 before Judge Staton to conspiracy to commit mail fraud. Randall, who admitted recruiting chiropractors and doctors to refer patients to Tri-City in exchange for kickbacks, is scheduled to be sentenced on April 8, 2016.
  • Mitchell Cohen, 55, of Irvine, an orthopedic surgeon, was charged last week with filing a false tax return.

Under the plea agreement terms, Sobol faces a federal prison term of up to 10 years; Canedo, Ivar and Randall could be sentenced to as much as five years; and Cohen faces up to three years in prison on the tax charge. Further, all defendants are required to pay restitution to the victims of the scheme. For Canedo, this means paying at least $20 million.

“The defendants carried out this elaborate scheme by callously gathering patients, remaining indifferent to patient needs, and greedily lining their pockets with a cut of the cash from taxpayer-funded health care systems,” said David Bowdich, the assistant director in Charge of the FBI's Los Angeles Field Office in a statement. “The effort by investigators and prosecutors in this case cannot be overstated and, as it continues, will play a part in restoring confidence in the medical marketplace.”

The investigation is ongoing, conducted by the Federal Bureau of Investigation (FBI), the US Postal Service, Office of Inspector General, IRS Criminal Investigation and the California Department of Insurance.



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