Menu Close

The Wall Street Journal, in a new story published this week, claims that the U.S. attorney for the Central District of California is investigating allegations that the Pacific Hospital of Long Beach executive paid kickbacks to physicians so they would refer their patients for spine surgery at his facility. Over the past 15 years, Michael D. Drobot built a Southern California business empire centered on treating people with back problems, many of them workers’ compensation patients. At the heart of the operation is Pacific Hospital of Long Beach, a 184-bed facility that Mr. Drobot bought in 1997 and turned into a spine-surgery center.

Federal Bureau of Investigation agents raided the hospital and another company owned by Mr. Drobot earlier this month as part of what the agency termed a fraud investigation. Representatives for the FBI and the U.S. attorney’s office declined to give specifics about the probe.People familiar with it say it is focused on allegations that Mr. Drobot operated a kickback scheme, under which he allegedly paid doctors thousands of dollars for each spine surgery they referred to Pacific Hospital. Under California’s anti-kickback statute, it is illegal to pay money to induce patient referrals. The practice is also illegal under federal law if the patients referred are insured by government health programs such as Medicare or Medicaid.

“Mr. Drobot and the hospital categorically deny any accusation of impropriety concerning the hospital’s outstanding and world-class spinal treatment program,” Laura Salas Reyes, a spokeswoman for Pacific Hospital, said, adding that both Mr. Drobot and the hospital “are cooperating fully with authorities looking into the matter.”

In written responses to questions from The Wall Street Journal for a front-page article last year, Mr. Drobot denied paying kickbacks to doctors for patient referrals. The article identified Pacific Hospital as a prolific spine-surgery facility: From 2001 to 2010, according to state data, it performed 5,138 spinal fusions on workers’ compensation patients and billed $533 million for them – three times as much as any other hospital in California.

Spine surgery is among the most profitable businesses for hospitals nationwide. In California’s workers’ compensation system, it can be even more lucrative because hospitals are allowed to bill separately for spinal implants, creating room for abuse through excessively marked-up implant charges, according to fraud investigators employed by insurers.

Along with Pacific Hospital, Mr. Drobot owns a spinal-implant distributorship. Federal agents are investigating allegations he paid surgeons who agreed to use his distributorship’s implants $15,000 for each lumbar fusion and $7,500 for each cervical fusion they performed at Pacific Hospital, the people familiar with the probe said. Surgeons who didn’t use his implants were allegedly paid smaller sums, these people said.

Drobot’s distributorship resold implants made by Alphatec Holdings Inc. Documents reviewed by the Journal show that Pacific Hospital marked up the Alphatec implants supplied by Mr. Drobot’s distributorship sharply when it billed them to patients’ insurers – in excess of limits set by the California’s workers’ compensation division. Alphatec’s general counsel, Ebun Garner, said the firm let its contract with Mr. Drobot expire earlier this year after he violated it by charging excessive prices. Mr. Drobot didn’t reply to an inquiry put to him through the hospital about Mr. Garner’s version of events.

The U.S. attorney is probing allegations Mr. Drobot funneled the kickbacks to surgeons via another firm he owns that provides collection services to doctors, the people familiar with the probe said. In his answers to questions from the Wall Street Journal last year, Mr. Drobot denied any improper arrangements between the firm and surgeons operating at Pacific Hospital.