Mitchell G. Cohen M.D. is a board- certified orthopedic surgeon who performed spinal surgeries at Pacific Hospital of Long Beach. He is a resident of Irvine, California, and controls two corporate bank accounts under the names Spine Care Center and Mitchell G. Cohen, M.D. , Inc.
Cohen and his attorney signed a written plea agreement in federal court which has now been unsealed. He plead guilty to a single count which charges him with Subscribing to a False Tax Return in violation of 26 U.S.C. § 7206(1). In exchange, the prosecutor agreed to recommend a two-level reduction in the applicable Sentencing Guidelines. The statutory maximum sentence that the Court can impose for violating Title 26, United States Code, Section 7206(1), is 3 years of imprisonment; a one-year period of supervised release; a fine of $100,000; and a mandatory special assessment of $100.
As part of the plea agreement, Cohen agreed to the statement of facts that recited essentially the following. He accepted illegal kickback payments from Michael D. Drobot and a marketer in exchange for performing spine surgeries at Pacific Hospital. Cohen concealed the illegal kickback payments from his patients and the insurance carriers that paid for the patient’s services. He was paid between approximately $5,000 and $15,000 in kickbacks for every spinal fusion surgery performed at Pacific Hospital and deposited kickback payments primarily into his Spine Care Center bank account. Spine Care Center had no legitimate business purpose other than acting as the recipient entity.
In 2009, 2010, 2011, and 2012, Cohen caused Spine Care Center to file a Corporation Income Tax Return, Form 1120, claiming the illegal kickback payments as gross receipts of Spine Care Center. Cohen knew that the illegal kickback payments were not gross receipts of Spine Care Center, but instead should have been reported as individual income on his Individual Income Tax Return. Thus he failed to report $243, 000 in 2009, $214,100 in 2010, $426,335 in 2011, and $394,611 in 2012. Had he properly reported this income he would have been assessed an additional $402,139 in individual income tax. Thus he agreed to payment of no more than $402,139 restitution for taxes.
In 2012, Drobot and Cohen agreed that Drobot would pay him $15,000 in kickbacks for each posterior lumbar interbody fusion surgery performed at Pacific Hospital, and between $5,000 and $7,500 in kickbacks for each cervical fusion spine surgery performed at Pacific Hospital, provided those surgeries were performed using spinal hardware purchased from International Implants, LLC, a medical device distributor owned by Drobot.
In order to disguise the illegal kickback payments from Drobot Cohen entered into two bogus contracts with Drobot’s business entities. First, a Research, Product Development and Training Agreement where he purported to provide consulting services in exchange for a monthly payment of $25,000. Cohen however, provided few legitimate consulting services. Instead, the payments were purely kickbacks for spinal surgeries.
In addition Cohen entered into an Outsourced Collections Agreement with Pacific Hospital. The Collection Agreement provided that Cohen would assist Pacific Hospital in collecting its fees for spinal surgeries from insurance carriers, and that in return Pacific Hospital would pay Cohen fifteen percent of the total amount collected. In reality the collection was done by Pacific Hospital staff, without assistance from Cohen.
In total, Cohen received approximately $1,645,225 in illegal kickback payments from Drobot and the marketer between 2008 and 2013.
Beginning in or around 2004, Cohen entered into an agreement with California Pharmacy Management (“CPM”), an in-house dispensary management company owned by Drobot, and later another Drobot entity Industrial Pharmacy Management, in which the Dispensary Management Companies purported to manage Cohen’s in-office pharmacy in return for fifty percent of the gross collections resulting from prescriptions filled at defendant’s pharmacy. In reality Cohen was paid varying amounts averaging between $20,000 and $40,000 per month as an inducement to allow the Dispensary Management Companies to operate his in-office pharmacy and to gain access to his patients including, in particular, defendant’s worker’s compensation payments.
As part of the Plea Agreement Cohen agreed to cooperate fully with the US Attorneys Office, the Federal Bureau of Investigation, the United States Postal Service – Office of Inspector General, the Internal Revenue Service, and, as directed by the USAO, any other federal, state, local, or foreign prosecuting, enforcement, administrative, or regulatory authority.
A similar “cooperation” agreement has been made with other physicians, who are likely to be government informants providing information leading to yet further arrests of colleagues in months to come.