A former Long Beach hospital executive has admitted to bribing State Sen. Ron Calderon (D-Montebello) in an effort to protect an insurance fraud scheme worth hundreds of millions of dollars - the biggest such fraud in California history, according to state officials.
On Friday, the US Department of Justice announced that Michael Drobot, 69, had pleaded guilty to running a sophisticated operation centered around spinal fusion surgery. Federal and state officials say Drobot submitted more than $500 million in fraudulent workers compensation claims over a five-year period for surgeries performed at Pacific Hospital in Long Beach, which Drobot owned until late last year. For a time Pacific Hospital performed more spinal surgeries than any other hospital in California.
As part of his plea deal, Drobot faces up to 10 years in federal prison. He also agreed to cooperate with ongoing federal, state and local investigations.
Prosecutors said Drobot is expected to surrender and be arraigned on March 31st in Santa Ana.
The scheme involved illegal kickbacks to doctors, chiropractors and others who referred patients to Pacific Hospital. The kickbacks added up to tens of millions of dollars, according to the US Attorney's office.
Drobot also admitted to inflating prices for medical devices, then billing workers comp insurers for the bogus amounts. A state law known as spinal "pass-through" legislation permitted hospitals to bill workers comp insurers for the full amount of devices implanted in spinal surgery patients.
It was Drobot's desire to kill legislation that would have done away with the "pass-through" law that led him to bribe Calderon, prosecutors said.
According to the indictment, Drobot paid the Calderons through various means, such as Ron Calderon's son and daughter, to keep the spinal "pass-through" law intact, according to the plea agreement. Calderon did beat back efforts to undo the law, although it has since been repealed.
Drobot, who lives in Corona Del Mar, is also the subject of at least two other civil lawsuits related to alleged fraud.
Eric Weirich, deputy commissioner for the California Department of Insurance, called Drobot's scheme "the largest insurance fraud" in California history.
Drobot’s attorneys Jeffrey Rutherford and Janet Levine, of the L.A. firm Crowell & Moring, issued a brief statement Friday:
"As his plea agreement reflects, Mr. Drobot has acknowledged and accepts responsibility for his actions. He is providing information to assist the government in its expanding investigations."
Drobot has a long history in Southern California’s healthcare industry.
A biography posted on a now defunct company’s website, where he was listed as a board member, described him as "an experienced veteran of healthcare industry and corporate finance."
In addition to being CEO of Pacific Hospital, the website said Drobot was President and CEO of HealthSmart Corporation, and Chairman of the Board of HealthSmart MSO. Healthsmart is described as a company that owns and operates medical surgical hospitals and ambulatory surgical centers. The site said Drobot earned a Masters in Business Administration from George Washington University and a Bachelor of Science degree from Wayne State.
The two other ongoing civil cases are related to the same allegations of fraudulent workers compensation cases.
The federal indictment came as good news for attorneys who filed the first lawsuit nearly two years ago. They did so on behalf of two people – one who had worked for Drobot's partner, and another who investigated Drobot for a workers compensation insurer – alleging fraud. The lawsuit also alleges that surgeons inserted counterfeit medical hardware into many patients during spinal surgery.
Friday's plea agreement "proves what we have been saying, there is now a criminal admission that our fraud allegations are accurate," said Niall McCarthy, who represents the plaintiffs in the lawsuit. "This entire Drobot situation is a massive fraud of Bernie Madoff-like proportions," said McCarthy, a partner at Burlingame firm Cotchett, Pitre and McCarthy. "California taxpayers, workers comp insurance carriers and citizens who had unnecessary surgery have all been harmed tremendously."
In July 2013, more than a year after the suit was filed, the State Insurance Commission Fund filed a similar lawsuit against Drobot, his son Michael Drobot Jr., and Pacific Hospital under the state’s racketeering laws. The lawsuit alleges the State Fund, the state's largest workers compensation insurer, paid more than $160 million to Drobot's companies since 2001.
"In our complaint we allege that a complex fraudulent scheme was orchestrated by the Drobots and executed through Pacific Hospital and other entities to defraud by filing false and inflated workers compensation claims," said Jennifer Vergan, spokeswoman for the State Insurance Commission Fund.
The lawsuit alleges the Drobots created shell companies that supposedly made spinal hardware and billed at much higher rates than allowed, billed for the time of nurses as if they were surgeons, and doubled-billed the Fund for radiology services.
The Fund did not have enough time to review the bills, because state laws require insurers to pay claims within a relatively short period of time.
The State Insurance Commission Fund lawsuit was prompted by the federal raids that took place in April 2013 at Pacific Hospital and Industrial Pharmacy Management – both owned by Drobot at the time - and which resulted in the indictment filed Friday.
This story has been updated.