Kickbacks, bribes and Cal. medical fraud scandal

http://www.lamag.com/longform/kickbacks-bribes-and-the-horrifying-truth-behind-californias-largest-medical-fraud-scandal/

Kickbacks, Bribes, and the Horrifying Truth Behind California’s Largest Medical Fraud Scandal
Long Beach hospital owner Michael Drobot spent decades bilking the state of millions for unnecessary surgeries with allegedly bogus hardware, and plenty of doctors went along with him

March 21, 2016 Steven Mikulan Business, Crime 1 Comment

Ron Calderon sat alone in the New Deal-era federal courthouse at Spring and Temple streets in downtown Los Angeles. Moments before, this scion of a California political dynasty had strolled through the room’s big Wizard of Oz double doors, his suit jacket open to expose a generous girth, as though he were casually stepping onto the floor of the state senate, where he had once been a power broker. Nobody paid attention to him, and he had a whole row to himself. On this morning last April Calderon had nothing to do but fuss with his glasses and await the appearance of a judge. At the podium Mark Geragos, the theatrically affable celebrity lawyer, was playfully straightening the tie knot of an unsmiling Doug Miller, an aggressive assistant U.S. attorney who sported a shaved head.

They were all gathered for one of a string of hearings that might eventually lead to Calderon’s trial on bribery and conspiracy charges. A conviction could, if only theoretically, put the Montebello Democrat in prison for the rest of his life. If, as Calderon sat in court, he wondered how he got here, he might have begun with his first handshake with a Long Beach hospital owner named Michael Drobot.

Drobot, then 70, was not there that day. He had pleaded guilty to bribery and conspiracy charges in 2014 in exchange for his future testimony against the man he was charged with bribing: Ron Calderon. Drobot had been accused by the Justice Department of masterminding a byzantine web of kickbacks that were paid to dozens of doctors, chiropractors, and others to steer spinal fusion patients to Drobot’s Pacific Hospital or to three other medical facilities in Southern California involved in the conspiracy. Most of the patients had back problems stemming from work-related injuries, and many were low-income Latinos who spoke and read little or no English. Their operations might have been paid for by any of several taxpayer-supported insurance systems available to Californians, including the Federal Employees’ Compensation Act, the state’s workers’ compensation system, or—for low-income residents, seniors, and the disabled—Medi-Cal. The surgeries may have also been covered by various private insurance carriers. The four hospitals allegedly stuck the carriers with invoices that were stratospherically higher than the actual value of their billed services.

Calderon is not charged in connection with the medical fraud itself but with taking Drobot’s money in exchange for the senator’s help in ensuring that a highly lucrative law covering spinal surgeries remain unmolested by reform impulses in Sacramento. The broker for these bribes was Drobot’s legislative consultant and a former assemblyman, Tom Calderon—Ron’s brother.

But there is more to the story than kickbacks and creative accounting. Drobot and his associates are also being accused in a cascade of civil lawsuits of supplying surgeons with substandard, knockoff hardware that sometimes broke apart in patients’ bodies. A whistle-blower suit further claims that some of the thousands of patients who had entered Drobot’s hospital and others since 1998 went under the knife “for surgeries that were not medically necessary.”

L to R: Michael Drobot, Tom Calderon, and Ron Calderon
L to R: Michael Drobot, Tom Calderon, and Ron Calderon
PHOTO OF RON BY RICH PEDRONCELLI/AP PHOTO
The FBI raided Ron Calderon’s offices in June 2013; by November he was suspended from the senate until his term expired. He and Tom were indicted together on February 20, 2014. Calderon’s fall was spectacular, but then, Drobot’s scam was so vast, so brazen, and involved so much money that it would become California’s largest case of medical fraud—a category of criminal deceit that has experienced white-hot growth over the past few decades. Half a billion dollars had been paid out to Drobot’s hospital by government and private insurers between 2008 and 2013; the scheme’s kickbacks alone may have amounted to $50 million. While Calderon’s trial is scheduled for May 10, the suits against Drobot, who already faces up to ten years in federal prison, are drifting along in slow motion. Given the animosity between Drobot and his accusers, however, there’s little doubt of the courtroom acrimony that lies ahead. “This is going to be World War III,” a plaintiff’s attorney, Brian Kabateck, promised me.

Spinal fusion operations, intended to alleviate severe chronic back pain, have been around since the early 1900s. Doctors first used them to treat the spinal deformities associated with tuberculosis infections and scoliosis. The 1960s saw the development of special screws that allowed bracing plates and rods to be secured to the ridges of a patient’s spine called pedicles. Suddenly a range of stabilizing hardware could be implanted in patients’ backs, and corrective surgeries that in the past had spotty success rates became more common. With subsequent refinements in the pedicle screws, recovery times were cut dramatically—and the spinal fusion industry exploded. Operations jumped nationally by 70 percent from 2001 to 2011, when they reached 488,300 procedures; the most recent estimates say that more than 600,000 fusion operations are performed annually.

Although the procedure has evolved, the general approach has not: Often it involves a surgeon replacing a damaged disc in the lower back (the lumbar region) or neck (the cervical structure) with a sliver of bone. Sometimes it will first go into a threaded cylinder known as a cage. As it grows, the bone graft fuses with the vertebrae above and below it to stabilize that portion of the spine. For added support the surgeon will install plates or rods, which in the latter case are routed through small loops at the top of pedicle screws that have been drilled into bone. Once implanted, the instrumentation is there to stay—removal can lead to serious injury or death. That is why such parts are made from surgical steel or titanium, which is able to withstand the lifetime of stress a patient’s body will place on them.

The operation usually lasts at least three to four hours and is followed by up to a week’s hospital stay. The typical tab paid by insurers (inevitably more than what hospitals actually charge) is between $80,000 and $150,000, making spinal fusion not only a complex medical procedure, but one of the nation’s most expensive, according to the federal Healthcare Cost and Utilization Project. An elective surgery, it’s normally not the kind of operation the average wage earner can afford, but in California spinal fusions have been available for decades through workers’ compensation to people who have suffered job-related back injuries (the procedure accounts for about 40 percent of in-patient bills charged to workers’ comp in the state) and through Medi-Cal. That may be an additional reason for the proliferation of such surgeries. In fact, a considerable number of medical experts believe the procedures are no more effective than physical therapy and can result in permanent postoperative pain. There is even a term for this condition: failed back surgery syndrome.

If injured California workers wanted their backs fixed, the state did its best to guarantee their operations were paid for in full. Until January 1, 2013, Section 5318 of California’s Labor Code mandated that the state should reimburse providers for the individual devices, instrumentation, and pieces of hardware implanted in patients. Providers could bill for the cost of each item, including shipping, handling, and taxes. They could also tack on a 10 percent surcharge, as long as that little bonus didn’t exceed $250 for each item.

The provision was known as the “pass-through allowance.” Its fundamental flaw was that hospitals were already able to charge this same amount when they included costs for pedicle screws and other hardware in their invoices for the surgeries themselves. So hospitals that were willing could double-bill for their hardware costs and inflate them in the process. As it turned out, the pass-through allowance wasn’t a license to print money; it was an ATM card to Fort Knox.

Drobot had begun his hospital management career during the Vietnam War, when as a Navy officer he had run the thousand-bed Oakland Naval Hospital’s outpatient services. Spinal surgeries were not the house specialty of the 29 other hospitals Michael Drobot had managed prior to his purchase of Pacific Hospital. Nor had they been at the seven he had previously owned, including medical centers in Tustin and Rosemead. The Long Beach facility he bought for $4.1 million in 1997 was bankruptcy-bound and catered to Medi-Cal patients. Earlier that decade he left the 15,000-square-foot home he and his wife, Patricia, owned near Seattle (asking price: $17 million) and wound up in posh Corona del Mar in Southern California.

In Washington State Drobot had maintained a low profile, and in California he remained just as inconspicuous. The single published photo of him shows a bald executive in his sixties, looking for all the world like a man trying to overcome a bout of heartburn as he has his picture taken at the DMV. Drobot surfaced briefly in the news in 2008, when he built 18 luxury condominiums in Bandon, Oregon. The coastal site had belonged to the Oceanview Care Center, which was demolished at the order of the local health district. Drobot then bought and developed the property. According to the California Secretary of State’s office, Ron Calderon’s Diversity Political Action Committee spent $104,443 on fundraising events at the nearby Bandon Dunes Golf Resort between 2008 and 2013.

One place Drobot was not low-key was in the hearing rooms of the state’s workers’ compensation board, where he became an assertive—some have said arrogant—presence as he and a bodyguard of experts fought to keep the pass-through allowance. And while avoiding court appearances whenever possible, Drobot has shown an unflinching combativeness by countersuing patients and their lawyers who’ve filed legal complaints against him. He’s also sued dozens of unindicted doctors and business associates with whom he has worked. His lawsuits had a possibly desired chilling effect: For much of last year plaintiffs and their attorneys would not talk to the media.

The hospitals named in the whistle-blower and patient lawsuits are alleged to be linked to Drobot through shell companies that manufactured, distributed, and marketed counterfeit screws and rods. Many of the doctors he is accused of bribing to perform surgeries at Pacific Hospital stand accused of accepting kickbacks to the other three hospitals as well.

Drobot would not speak to me but did, via intermediaries at a crisis communications firm, respond to written queries. Since Pacific had been losing about $21 million per year through its services to charity patients, according to a statement from the firm, “Mr. Drobot had to make changes.” Those changes included pumping up the Medi-Cal trade so that it accounted for 95 percent of Pacific’s business. “He also started,” the statement continued, “a Workers Compensation service to help offset the loss. The workers’ comp business provided a stream of revenue that helped the hospital to stay open and keep its 1,000 employees working.” That is, Drobot tapped a state money hydrant intended to give medical care to injured workers and the state’s poor.

Shortly after he began performing his economic turnaround, though, Drobot was faced with a threat to his back-surgery profits: The workers’ comp rule that had allowed hospitals to charge the state for the cost of the spinal fusion hardware was set to expire at the end of 2001. Drobot started sinking big money into lobbying efforts to maintain that allowance and the loophole that went with it.

The point man for this campaign was Tom Calderon. In 2001, the Los Angeles County Democrat received $65,000 in campaign donations from Drobot and his business ventures; as Calderon’s Assembly Bill 1177, designed to renew the existing reimbursement schedule for spinal fusions, headed to Governor Gray Davis, Drobot ponied up at least $200,000 for Davis’s reelection campaign. Davis signed the bill, which allowed the old reimbursement provisions to be extended until new regulations could be formulated by the state.

Those new regulations came soon enough: That same year Tom Calderon introduced Assembly Bill 749, a massive overhaul of the state’s workers’ compensation system. Among other things, the legislation created the pass-through allowance with the loophole that legislators were slow to grasp and even slower to reform.

For Tom Calderon, the next year proved to be mixed. He had come through brilliantly for Drobot but couldn’t get voters to elect him as their insurance commissioner, despite having received an eyebrow-raising $1.5 million in campaign donations from the insurance industry. Drobot would not permit his champion in the assembly to enter political exile; instead he hired him as his Sacramento consultant. In 2004, Calderon received $1 million from Drobot for helping him browbeat $27.5 million in disputed reimbursements out of the State Compensation Insurance Fund (SCIF). Public records suggest that for the next decade Drobot and his associates worked along two tracks: to defeat any attempt in Sacramento to close California’s hardware pass-through loophole and to find new ways of making more money off the backs of patients.

Few people driving past Drobot’s little hospital tucked on a dowdy stretch of Long Beach’s Pacific Avenue would have imagined that behind its brick and stucco walls operated a surgical assembly line that carried out more workers’ comp spinal fusion procedures than Cedars-Sinai. Now sold and transformed into College Medical Center, Pacific Hospital was a split-level complex of one- and two-story wings built in a midcentury Legoland style, too far away to see the ocean, close enough to hear gulls wheeling overhead. The neighborhood’s cluster of rehabs, pharmacies, and medical offices marks it as a place where the old or injured go to recover or die: “Wound Management…Falls Prevention” announces the nearby Royal Care Skilled Nursing Center.

Pacific Hospital’s former Long Beach campus
Pacific Hospital’s former Long Beach campus
PHOTO BY BRITTANY MURRAY/PRESS TELEGRAM
By the time Drobot had built his Oregon condos, he had turned the 184-bed medical center around, and with the help of Ron Calderon’s skill at beating back reform measures from the likes of state senators Ted Lieu and Kevin De León, he succeeded in retaining the pass-through allowance. Under Drobot, Pacific reaped industry praise for curbing hospital-generated infections.

There was even a brief moment in 2008 when Pacific seemed poised to take over Martin Luther King, Jr./Drew Medical Center, the troubled giant that served low-income neighborhoods ten miles to the north in depressed Willowbrook. With Los Angeles County supervisor Yvonne Brathwaite Burke’s blessing, Pacific Hospital was tapped as the outside agency that could restore King/Drew to a semblance of functionality. In fact, through the county’s vetting process, Drobot’s hospital was declared the only facility to completely qualify as King/Drew’s savior, partly because larger, marquee-name hospitals preferred to keep their distance from the controversy-racked medical center.

Doubters, however, questioned how such a small hospital could be chosen to provide administrative triage to King/Drew and protested the closed-door secrecy of the board’s negotiations with Pacific. Those talks fizzled, and the hospital’s candidacy was withdrawn. Then in 2012, a Wall Street Journal report on suspicious billing charges for spinal fusions at Pacific would throw an unwelcome glare on the hospital until it was sold in 2013.

Drobot’s 2014 plea deal closed the door on only one problem, and he entered 2016 free on $5,000 bond while facing several major civil lawsuits. One was filed in federal court under the Racketeer Influenced and Corrupt Organizations (RICO) Act, in which the SCIF claims Drobot and a list of doctors, business associates, and hospitals massively overbilled the state. A separate whistle-blower suit claims that Drobot and the three other accused hospitals—Tri-City Regional Medical Center in Hawaiian Gardens, Riverside Community Hospital in Riverside, and St. Bernardine Medical Center in San Bernardino—fraudulently overcharged the SCIF and gave kickbacks to doctors who performed back surgeries at these facilities. The suit was filed by Mark Sersansie, who had been employed by one of Drobot’s associates, and by William Reynolds, an insurance fraud investigator who also alleges that Drobot and company illegally manufactured, marketed, and used counterfeit hardware in spinal fusion surgeries.

Until last November Drobot was the only person in the case known to have cut a deal with the federal government. (His sentencing date has continually been postponed, presumably until after he testifies against Ron Calderon.) “Right now the defendants are operating in a pack,” plaintiff’s attorney Brian Kabateck told me last summer. “Nobody’s peeling off yet, but they will.”

Sure enough, on November 24 the Justice Department announced that five key suspects had entered plea agreements with the government. The defendants were James Canedo, Pacific Hospital’s chief financial officer, who admitted his involvement with mail fraud and money laundering; Mitchell Cohen, a spine surgeon who faces a single count of filing a false income tax return; Philip Sobol, another orthopedic surgeon, who pleaded guilty to mail fraud and other charges connected to his receiving kickbacks from Drobot’s hospital; and Alan Ivar, a chiropractor, who admitted to receiving kickbacks in return for referring his patients to surgeons who would then recommend spinal fusion surgery at Pacific Hospital. A fifth defendant, Paul Randall, had been an important marketer for a couple of the implicated hospitals and was accused of paying doctors to steer patients to their operating rooms.

Derika Moses, one of Drobot’s victims
Derika Moses, one of Drobot’s victims
PHOTO BY GREGG SEGAL
In a third civil complaint, 106 former surgery patients sued Drobot, his former associates, and the four hospitals on the grounds they were harmed by substandard hardware that was not approved by the Federal Drug Administration and that broke off in their bodies.

One of those patients was Derika Moses. She was working for Pepsi, delivering sodas to a Riverside County supermarket on Labor Day 2007 when her problems began. “I lifted a case of two-liter bottles when I heard pops in my back and felt it. It took a while for me to leave the store, and when I did, I was still bent over.” Despite months of steroid injections, ice packs, MRIs, and X-rays, her pain persisted. “ ‘The only way I can get you feeling 85 to 95 percent better is with spinal fusion surgery,’ ” Moses recalls her orthopedist saying. She was terrified at the thought of having her back opened up but wanted to be free of her pain. “He went through my workers’ comp insurance and got the clearance. Eight months later I was in for spinal fusion.”

Moses is telling me this in the living room of her Riverside tract home, owned by her parents, where she lives with her 16-year-old daughter, 13-year-old son, and an in-home caregiver who carries her groceries and helps her cook. She says she has remained in pain ever since her spinal fusion. Perhaps that would have been the case without the surgery. Still, in 2013, after more X-rays and MRIs, her surgeon told her a screw had come loose and was hitting a nerve, which explained the constant numbness in her toes.

“Then he said, ‘Well, we can take them out,’ ” she says. “He told me he could never take the cage out because the bone has fused through it. He couldn’t take three pins out because they were holding everything in. But he took out the screws, connectors, and rods.”

Now those 20-plus pieces of fusion hardware might become evidence in the patient suits against her orthopedist and others. Because her operation was not performed at Pacific Hospital, Drobot was severed from Moses’s case last year by a judge, who concluded the same for dozens of other complaints. After that ruling, Drobot still faces 16 patient complaints about substandard hardware.

It’s unclear why the federal government isn’t pursuing the claim that Drobot used knockoff screws. Assistant U.S. Attorney Josh Robbins declined to comment when asked, while SCIF spokeswoman Jennifer Vargen replied by e-mail to say, “As an insurance company, we wouldn’t have a direct cause of action for issues stemming from counterfeit medical hardware allegedly harming a patient.”

The counterfeit hardware charge remains an important accusation in two other complaints. The whistle-blower suit, for example, contends that “plaintiffs are in possession of the counterfeit screws and rods that Defendants have knowingly implanted in hundreds, likely thousands, of California workers.” But the screws were not confined for use in California; they were also sold to hospitals throughout the country.

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Crowder Machine and Tool Shop occupied space within an anonymous business park in the Riverside County town of Temecula. That’s where, according to lawyers, William Crowder, an octogenarian, fabricated screws and rods that were copies of those manufactured by two legitimate medical equipment suppliers: South Korea’s U&I Corporation and a South African company, Ortho Sol Development. He was working for Roger Williams, a Drobot codefendant who operated a Murrieta, California, distribution company called Spinal Solutions.

The allegedly bogus hardware removed from Moses’s back
The allegedly bogus hardware removed from Moses’s back
PHOTO BY GREGG SEGAL
To an undiscerning eye, the pedicle screws allegedly used by the implicated hospitals might appear legitimate. But not only was U&I’s logo in the wrong font, the screws’ manufacturing lot numbers didn’t correspond with actual serial numbers. In addition, the patients’ suits claim, the screws came with varying thread sizes. One person familiar with Crowder’s work, speaking on condition of anonymity, told me the screws were so roughly executed that their threads bore tiny metal fragments. Citing poor health, William Crowder declined to return phone calls and e-mails requesting comment for this article.

The two whistle-blowers, Sersansie and Reynolds, claim that he billed Drobot’s associates $65 to produce a single screw for which a legitimate surgical hardware manufacturer might charge $400. To be sure, the four hospitals named in the civil complaints are not the only medical centers to use “alternative” hardware. The high price of pedicle screws has motivated some to explore the possibility of manufacturing their own, according to Alan Hilibrand, the director of medical education for the Department of Orthopaedic Surgery at the Rothman Institute at Philadelphia’s Jefferson Medical College. “It’s really gaining more and more traction as a concept,” he says of house-brand spinal hardware. “People are talking about doing it because [the hardware] is so expensive and there’s less money to pay for these surgeries. Some places—not many—are trying to manufacture their own implants. Whether that’s OK or not depends on if they’ve been tested mechanically to show they can stand the stresses required to do the operation.”

Crowder’s screws, though, do not seem to have been made with lowering surgical overhead in mind. At least they didn’t save the state’s health insurance funds any money. Tri-City Regional Medical Center would bill California’s workers’ comp $12,000 or more per screw in an operation that would often require half a dozen screws. But the price wasn’t only jacked up nearly 200 times, according to complaints. The screw was also laundered through a chain of “distributors” and “marketers” that were really shell companies run by Drobot and his confederates. It might ship from Crowder’s shop to Spinal Solutions. Spinal Solutions would then “sell” the product to the Drobot-owned International Implants, which sold the hardware to Drobot’s hospital or to one of the other three defendant medical centers.

An anonymous source familiar with the charges against Drobot and his associates says the alleged counterfeits began rolling out of Crowder’s shop at least by 2008 and possibly earlier. The scheme came to light in 2009, when Spinal Solutions defaulted on its payments to Ortho Sol, the South African company from which it had been purchasing pedicle screws for resale in the United States. “Spinal Solutions,” Ortho Sol’s CEO, Richard Walker, said in an e-mail to me, “not only counterfeited our products but as our distributor stole over a million dollars of our consignment stock.” Ortho Sol dispatched a company auditor to California, who recovered about 5 percent of the screws for which it was owed money. But most of those, Walker said, turned out to be counterfeit.

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Fridays may be the busiest day of the week for bank robbers, but medical insurance scams occur with metronomic regularity in California. Over the past year eight people in Los Angeles were accused of Medicare grift totaling $66 million, while three Orange County women were convicted of bilking insurance companies out of $71 million in claims for medically unnecessary procedures. Then there were the 16 Glendale residents convicted of running a $20 million bogus prescription-drug racket involving the recruitment of homeless people from Los Angeles’s skid row.

The figures involved Lotto-size jackpots, but the stories barely scratched the news cycle. They are part of an expanding phantom zone of crime seldom reported by the media. Adam Weintraub, a spokesman for California’s Department of Health Care Services, told me that while state agencies are making strides to catch and analyze more quickly the warning signals that go up almost every day from health care providers, staying ahead of scammers is an almost Sisyphean task. “It’s a little like an arms race,” he says. “Criminals are clever and innovative. We have to be the same to keep up.”

In the case of Drobot and his cohorts, what’s amazing is the large number of warning signs there seemed to be. Among them was the fact that many patients, as the Justice Department charges, were encouraged to travel hundreds of miles to Pacific Hospital for their surgeries, even though they could have had them performed closer to home. From 1998 to the end of 2013, Drobot admitted, he offered money to doctors in exchange for their referral of thousands of spinal fusion patients to Pacific Hospital—a transaction that the other three hospitals also allegedly engaged in. Surgeons were typically kicked back $15,000 for a lumbar operation and $10,000 for each cervical fusion surgery performed at Pacific Hospital. Paul Randall, one of the five who’d entered a plea agreement last November, admitted to recruiting chiropractors and doctors to refer patients to the Hawaiian Gardens hospital; the government claimed he had given one chiropractor alone $30,000 in cash.

The kickbacks didn’t exactly arrive in anything so obvious as bags of money. At least not all of them did. According to one of the civil lawsuits, “flights were provided to a large number of spinal surgeons…and transported medical devices and/or instruments, cash, and prostitutes or other ‘adult entertainers’ for the spinal surgeons’ enjoyment.” The doctors’ payments were also allegedly cloaked by invoices for sham consulting agreements, marketing deals, research and development agreements, overinflated pharmacy reimbursements, lease and rental contracts, management arrangements—even rare coins.

All three civil suits allege that the accused hospitals vastly “upcharged” their billing for surgery and prescription drugs by “unbundling” traditional surgical costs. A spinal operation involves an array of medical services (doctors, imaging systems, blood-saving processes, et cetera) that are discounted when they are bundled for an individual operation. Yet Pacific Hospital is accused of billing SCIF separately for each service and at the highest rate possible. It was the equivalent of a car dealership charging for each individual part of an automobile instead of just for the car. And for several years the state paid, but not just for unbundled services and marked-up screws. The hospital also had a habit of billing the state and other insurers for attending nurses who should have been included in the basic surgery bill but who were additionally itemized as “assistant surgeons”—an exaggerated job description that allowed the hospital to claim the nurses cost it more than they did.

What seems to have put Drobot and his schemes on the federal radar were the extraordinary consultant fees he was paying Tom Calderon (who wasn’t a registered lobbyist) and the suspicion that his brother, Ron, was running interference for Drobot in Sacramento. Drobot allegedly supplied the senator with entrée to luxury golf courses, bought him expensive dinners, and flew him around the country on private planes—all in violation of state ethics laws. Ron Calderon returned Drobot’s favors by setting up meetings between himself, Drobot, and a director of the Division of Workers’ Compensation, as well as with state senators and others whose ears Drobot was eager to bend on the subject of the pass-through allowance. The senator had been able to spike legislative attempts to close the pass-through loophole in 2011 and then again in 2012. But later that year a third bill came up in Sacramento, and this time Calderon could not stop the pressure for reform. By then, an FBI investigation of Ron Calderon was well under way.

The Bureau started in 2011 with an undercover investigation called Operation Spinal Cap, to dig up enough incriminating evidence to obtain a search warrant for Calderon’s office that would look for, as the document would later state, “all records relating to the spinal surgery legislation” from January 1, 2008, onward. In 2012, three undercover agents set a honeytrap for the senator, posing as people connected to an independent film company based in downtown L.A.’s Arts District. The agents told Calderon they were seeking inclusion in a newly expanded version of the state’s film tax credit program. The cover story made sense—in 2009, California, alarmed by the number of film and TV productions being shot elsewhere, launched a tax credit program aimed at keeping the movie business in state. After all, the author of the bill creating the tax credits had been Ron Calderon, who chaired the state senate’s Film and Television Industries committee.

In order to qualify for a credit, a project has to have a minimum $1 million budget. The FBI “filmmakers” told Calderon they were seeking legislation to lower that threshold to a level that seemed more reasonable to them: $500,000. The senator expressed sympathy for the indie producers before he added that lowering the cutoff to $750,000 would make it easier for him to move it out of his committee.

As part of the alleged bribe, Calderon persuaded the FBI agents to hire his daughter, Jessica, for a $3,000-a-month job that didn’t exist, for more than a year. The FBI was seeing a pattern: Between 2010 and 2012, Drobot had spent about $30,000 bribing Calderon by paying the senator’s son, Zachary, for summer jobs in which the son appears to have been a ghost employee. What had worked for the son was being proposed to the indie filmmakers as a way to grease the legislative wheels.

Sprinkled throughout the affidavit of one undercover agent are snatches of conversation with Calderon. In several instances Calderon sounds like a man trying to cover his tracks. Especially when he explains his contractual precautions while instructing the FBI agent on how to set up payments for his daughter’s ghost job: “The second problem I have…that…um…and again this is an uncomfortable thing to do, OK, but because of my position, you cannot…we cannot have a conversation we just had. We cannot have a quid pro quo conversation.”

A moment later he tries to clarify things: “What…what…what I have to say…what I have to say…is…that I cannot guarantee that I can help you. I can’t. And I cannot take payment…or…uh…negotiate payment for Jessica in any way with the…with the…with the understanding that I’m gonna do this for you, and it’s gonna be deliberate.”

The FBI had no trouble understanding what the senator was hemming and hawing about. “Ronald Calderon,” the undercover agent wrote, was telling him that “you never take money directly from people and you have to be careful about a tit-for-tat relationship.”

Calderon didn’t deliver on lowering the project budget threshold for the FBI’s movie people. He failed to keep the pass-through allowance from being terminated in 2013, too. In the year following closure of the loophole, California’s billing costs for spinal surgeries plunged 56 percent, saving the state $110 million. That figure is only a slight indicator of how much medical fraud bleeds taxpayers.

“Health care fraud and waste costs somewhere in the tens of billions of dollars, but no one knows the real figure,” says Louis Saccoccio, the CEO of the National Health Care Anti-Fraud Association, a Washington, D.C.-based watchdog group. “Many of these providers started off completely honest and went down a road they should not have.”

Lawyers aren’t complaining—Drobot’s business activities have practically created a legal employment agency in Los Angeles. During a pretrial hearing in the Superior Court Building near Lafayette Park, about half of Department 323’s seating capacity was taken up by attorneys. There were so many, it was not possible to divide the court between plaintiff and defendant lawyers. Those attorneys who could not find table space immediately before Judge Elihu Berle had to fill the jury box so that one of Drobot’s lawyers, former chief deputy city attorney Terree Bowers, sat next to lawyers who were suing his client. The last time I’d seen such an attorney cattle call was at a hearing for Bernie Madoff’s Los Angeles accomplice, Stanley Chais.

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The legal complaints against Michael Drobot and the doctors and hospitals associated with his business model stagger the imagination not only because of the money or the number of people involved or even its audacity. What may be most disturbing of all is the notion that those we entrust our health to will harm us for profit—that suspicion may surface only as we drift off on a surgery table counting backward from 100. It’s a reality, however, that Derika Moses, like other patient plaintiffs, awoke to in 2007.

The medication Moses has been prescribed since her surgery
The medication Moses has been prescribed since her surgery
PHOTO BY GREGG SEGAL
“A good day is when I’m not falling over every five seconds,” she says, her smile evaporating as she leans to one side at her dining table. Against a wall behind her stand a walker and a back brace. As a teenager at Riverside’s Arlington High School, Moses reigned as the school softball team’s Most Valuable Player for three years and held track and field records in discus, shot put, and running. Since her surgery, she has become a recluse, rarely allowing old friends or even family members to visit and see her in her handicapped state.

Moses hadn’t heard the first fleeting news reports about Ron Calderon or Michael Drobot, but in March 2014 she got a letter from one of the law firms searching for spinal fusion patients who may have received counterfeit hardware. “Normally I’d throw it away,” Moses recalls, “but it said, ‘You might be a victim of counterfeit screws.’ I never suspected this was going on—not a clue.”

She joined the dozens of other former patients in their complaints and is among those who were sued last year by Drobot. He alleged that all the patient plaintiffs and their attorneys were defaming him with their charges. Drobot’s complaint was thrown out in court, and Moses hopes the people involved in his purported enterprise of kickbacks and counterfeit hardware will be “prosecuted or held accountable for what they did. I want to see them lose their licenses.”

Drobot’s plea agreement required him to surrender his passport, but in late September the government handed it back to him so he could travel to Vietnam. The reason he gave to the federal court was his desire to participate in another business venture—specifically, to help his son Greg expand his Oregon-based cheese business. (Another son, Michael Jr., is a defendant in the RICO Act complaint.) None of the doctors accused of having knowingly used counterfeit hardware or who persuaded their patients to undergo unneeded surgery have had their licenses suspended. When I’ve spoken to people connected with this case on or off the record, each has focused on one specific corner of it—screws, prescriptions, kickbacks—leaving the impression that it is too vast to fully comprehend and might yet produce allegations of even more crimes.

Regardless of the outcome of her lawsuit or of what happens to Drobot, his business associates, the doctors, or Ron Calderon, Moses will be in pain for the rest of her life. She says she must go to three or four doctor’s appointments each week and that she has been diagnosed with major depression. Her tone remains stoic when I ask what she regrets most about her life after her accident and surgeries. “I wish I could teach my daughter softball,” she says.

Contributing writer Steven Mikulan is the editor of the online publication Capital & Main. He wrote about the arrest of Whitey Bulger in the October 2013 issue of Los Angeles.

– See more at: http://www.lamag.com/longform/kickbacks-bribes-and-the-horrifying-truth-behind-californias-largest-medical-fraud-scandal/#sthash.udzs38v6.dpuf

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