According to a new story in the Wall Street Journal, federal agents are looking into fraud allegations at companies owned by Michael D. Drobot, a hospital executive who built a Southern California business empire centered on treating spine injuries suffered by workers’ compensation patients. Last week, FBI and IRS agents conducted searches at the companies as part of a fraud investigation by the U.S. attorney for the Central District of California, said Laura Eimiller, a spokeswoman for the FBI’s Los Angeles field office. She added that the grand jury affidavit supporting the searches was sealed, and declined to provide specifics about the investigation.
The agents served search warrants on Pacific Hospital of Long Beach, a 184-bed facility owned and run by Mr. Drobot, and on Industrial Pharmacy Management LLC, a Drobot company based in Newport Beach that dispenses medications to patients in doctors’ offices.
“We look forward to working with the authorities to resolve the misunderstandings that led to” the searches, said Laura Salas Reyes, a spokeswoman at the hospital. A person at the drug-dispensing firm said no one was available to comment. Mr. Drobot and his attorney didn’t respond to requests for comment.
Mr. Drobot, 68 years old, acquired Pacific Hospital of Long Beach in 1997 and shifted its focus to spine surgeries for workers’ compensation patients. In a front-page article last year, the Wall Street Journal identified the hospital as one of the most prolific spine-surgery facilities in California. 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 the state.
For a time, Mr. Drobot was in business with Paul Randall, a hospital marketer who served time in federal prison in the 1990s for racketeering. Mr. Randall said he recruited spine surgeons to operate at Mr. Drobot’s hospital, and the two said they operated a magnetic-resonance-imaging business together. Documents reviewed by the Journal last year showed that Mr. Randall was under investigation by the U.S. attorney’s office for allegedly inflating the cost of spinal implants and paying kickbacks to chiropractors and spine surgeons. Mr. Randall hasn’t been charged and has denied engaging in any illegal activities. On Monday, he and his attorney both declined to comment.
In January, the Wall Street Journal reported that Randall was a consultant paid millions of dollars by Tri-City Regional Medical Center, that It built up this business rapidly. Tri-City is a 107-bed facility just south of Los Angeles near Long Beach. The small hospital billed workers’ compensation insurers $65 million in 2010 for spinal fusions, up from less than $3 million three years earlier. Randall’s role for Tri-City was twofold: bringing surgery cases to the hospital by recruiting surgeons to operate there, and supplying metal implants for the surgeries through distributorships he owned. An official of Tri-City said the hospital ended its relationship with Mr. Randall in the middle of last year, a few months after it ousted the executive who had hired him.
Mr. Randall, 52 years old, an entrepreneur with a collection of sports memorabilia and a yen for gambling, began his career as a hospital marketer in the mid-1990s after serving a stint in federal prison for racketeering. He was convicted of the felony in 1993 for deals that involved buying wooden shipping pallets on credit and reselling them without paying the original vendors, and was sentenced to a 21-month term. After serving time in the Terminal Island federal correctional facility in Long Beach harbor, Mr. Randall went into business with Michael D. Drobot, the owner of Pacific Hospital of Long Beach.
A Naval officer in the Vietnam era, Mr. Drobot bought Pacific in 1997 and shifted its focus to spine care for workers’ compensation patients. For a decade, Messrs. Randall and Drobot operated a business that arranged for magnetic resonance imaging, or MRI, services. Randall was reportedly paid $25,000 a month to run the MRI business plus a share of profits. Mr. Drobot created several businesses focused on workers’ compensation patients: a van service to shuttle patients, a provider of Spanish interpretation and a distributorship of metal implants used in back surgery. His hospital became one of the most prolific spine-surgery facilities in California.
After a business dispute between the two men, Mr. Randall in 2008 moved to Tri-City, a hospital eight miles away that then focused on bariatric surgery. Tri-City, which is a nonprofit institution, paid Mr. Randall more than $3.2 million between 2008 and July 2011 as a business-development consultant. Mr. Randall recruited some of the same spine surgeons to Tri-City that he earlier introduced to Mr. Drobot at Pacific. By August 2011, Mr. Randall said, he was back to doing spine-surgery marketing work for Mr. Drobot at Pacific Hospital of Long Beach. . Mr. Randall said he signed a $100,000-a-month marketing agreement with Mr. Drobot – technically between Mr. Drobot’s spinal-implant distributorship and a Randall marketing firm – under which Mr. Randall is to provide services such as “recruiting surgeons to the medical staff of hospitals that use” implants Mr. Drobot distributes. Mr. Drobot said through a spokesman that he didn’t recall entering into any such contract and that he didn’t believe the signature on the document was his.