SANTA ANA, California – A doctor and the former owner of a Long Beach hospital was sentenced this morning to 15 months in federal prison for taking part in a long-running health care fraud scheme where he authorized sham contracts that concealed over $30 million in illegal kickback payments to physicians who steered spinal surgeries to his hospital. The overall scheme resulted in more than $900 million in fraudulent bills being submitted, primarily to California’s worker compensation system.

          Dr. Faustino Bernadett, 65, of Rolling Hills, was sentenced by United States District Judge Josephine L. Staton, who also ordered him to pay a $60,000 fine on top of $1 million he has already forfeited to the United States.

          Bernadett, a board-certified anesthesiologist and pain management physician who retired his license last year, pleaded guilty in August to a one-count criminal information charging him with misprision of a felony.

          The kickback scheme centered on Pacific Hospital in Long Beach, which specialized in surgeries, especially spinal and orthopedic procedures. Pacific Hospital’s owner, Michael D. Drobot, conspired with doctors, chiropractors and marketers to pay kickbacks in return for the referral of thousands of patients to Pacific Hospital for spinal surgeries and other medical services paid for primarily through the California workers’ compensation system.

          In 2005, Bernadett purchased Pacific Hospital from Drobot. Under the terms of the sale, Drobot guaranteed to Bernadett that 75 spinal surgeries per month would be performed at Pacific Hospital or else Drobot’s payout would be reduced by $25,000 for each surgery below that requirement.

          Bernadett, who became directly involved with the hospital’s day-to-day operations by late 2007, later learned that Drobot was making illegal kickback payments to physicians in order to cause those physicians to steer spinal surgeries to Pacific Hospital. By January 2008, Bernadett had learned that Drobot concealed the illegal kickback payments by entering into various types of sham contracts – such as management agreements, collection agreements and option agreements.

          Instead of putting a halt to Drobot’s kickback scheme, Bernadett authorized the continued use of Drobot’s sham contracts to incentivize surgical referrals to his hospital. Between January 2008 and October 2010 (when Bernadett sold his interest in Pacific Hospital back to Drobot), Pacific Hospital and related entities made more than $30 million in illicit payments to kickback recipients and performed approximately 1,400 kickback-induced spinal fusion surgeries.

          “Kickbacks corrupt the doctor-patient relationship and have a deleterious impact on the health care system because they incentivize doctors to put their financial interests before patients’ best interests,” prosecutors wrote in their sentencing memorandum. “More so than other Pacific Hospital executives, [Bernadett] understands the sacred nature of the doctor-patient relationship because he is a physician himself.”

          Twenty-four defendants have been charged in connection with the scheme, and 15 of them have been convicted, including Drobot and his son.

          Drobot is serving a five-year prison sentence for conspiracy and paying illegal kickbacks, and has admitted that he orchestrated a wide-ranging fraudulent kickback scheme where paid more than $50 million in bribes to doctors to steer hundreds of millions of dollars in spinal surgeries to his hospital. Drobot ultimately profited millions of dollars from the scheme. Drobot currently awaits sentencing after pleading guilty to breaking additional federal laws by violating a court forfeiture order by illegally selling his luxury cars.

          The investigation into the spinal surgery kickback scheme was conducted by the FBI; IRS Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.

          This case was prosecuted by Assistant United States Attorneys Joseph T. McNally of the Violent and Organized Crime Section, Scott D. Tenley of the Santa Ana Branch Office, and Victor A. Rodgers of the Asset Forfeiture Section.

          SANTA ANA, California – A spinal surgeon was sentenced today to 30 months in federal prison for participating in a long-running health care fraud scheme in which he received at least $5 million in kickbacks for performing hundreds of spinal surgeries. The overall scheme resulted in more than $580 million in fraudulent bills being submitted, mostly to California’s worker compensation system.

          Dr. Daniel Capen, 70, of Manhattan Beach, was sentenced by United States District Judge Josephine L. Staton, who also ordered Capen to forfeit $5 million to the United States and pay a $500,000 fine.

          Capen, an orthopedic surgeon specializing in spinal surgeries, pleaded guilty in August 2018 to conspiracy to commit honest services fraud, and soliciting and receiving kickbacks for health care referrals.

          The kickback scheme centered on Pacific Hospital in Long Beach, which specialized in surgeries, especially spinal and orthopedic procedures. Pacific Hospital’s owner, Michael D. Drobot, conspired with doctors, chiropractors and marketers to pay kickbacks in return for the referral of thousands of patients to Pacific Hospital for spinal surgeries and other medical services paid for primarily through the California workers’ compensation system.

          Capen received kickbacks for referring surgeries to Pacific Hospital and also for using medical hardware from a Pacific Hospital-affiliated entity during the spinal surgeries he performed. He also received kickbacks for referring medical services such as urine and drug testing to Pacific Hospital-affiliated entities.

          In total, between 1998 and 2013, Capen accounted for approximately $142 million of Pacific Hospital’s claims to insurers, on which the hospital was paid approximately $56 million. Capen admitted to receiving at least $5 million in kickbacks during the course of his crimes.

          Drobot is serving a five-year prison sentence for conspiracy and paying illegal kickbacks, and has admitted that he orchestrated a wide-ranging fraudulent kickback scheme where paid more than $50 million in bribes to doctors to steer hundreds of millions of dollars in spinal surgeries to his hospital. Drobot ultimately profited millions of dollars from the scheme. Drobot currently faces additional federal criminal charges for allegedly violating a court forfeiture order by illegally selling his luxury cars.

          Seventeen defendants have been charged in connection with the scheme, and 10 of them have been convicted, including Drobot and his son. Another doctor – Timothy James Hunt, 55, of Palos Verdes Estates – was sentenced in late September to two years in federal prison after he admitted taking illegal kickbacks.

          The investigation into the spinal surgery kickback scheme was conducted by the FBI; IRS Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.

          This case is being prosecuted by Assistant United States Attorneys Joseph T. McNally of the Violent and Organized Crime Section, Scott D. Tenley of the Santa Ana Branch Office, Ashwin Janakiram of the Major Frauds Section, and Victor A. Rodgers of the Asset Forfeiture Section.

          SANTA ANA, California – The imprisoned former owner of Pacific Hospital in Long Beach has agreed to plead guilty to federal criminal charges for illegally selling his luxury cars and keeping the proceeds for himself, disobeying a court order that he forfeit the money because of a previous conviction for orchestrating a nearly $1 billion health care fraud scheme.

          Michael D. Drobot, 74, formerly of Corona del Mar but who is now imprisoned at Taft Correctional Institution in Kern County, has been charged in a three-count criminal information with wire fraud, engaging in monetary transactions in property derived from unlawful activity, and criminal contempt of court.

          Drobot is scheduled to be arraigned on the information in the coming weeks in United States District Court in Santa Ana. He faces a statutory maximum sentence of 50 years in federal prison.

          Drobot pleaded guilty in 2014 to charges of conspiracy and paying illegal kickbacks, admitting that he orchestrated a wide-ranging fraudulent kickback scheme where paid more than $50 million in bribes to doctors to steer hundreds of millions of dollars in spinal surgeries to his hospital. Drobot ultimately profited millions of dollars from the scheme.

          According to his plea agreement filed on Tuesday, in January 2018, Drobot was sentenced to five years in federal prison and was ordered by the court to forfeit $10 million to the United States government and to partially satisfy the forfeiture by selling his 1965 Aston Martin, 1958 Porsche, and 1971 Mercedes-Benz automobiles. Drobot was ordered to perform this obligation by July 5, 2018.

          Instead, from June 22, 2018 until September 14, 2018, Drobot intentionally violated the court’s forfeiture order in an effort to keep his criminal proceeds, the plea agreement states.

          For example, on June 22, 2018, Drobot conveyed an interest in the Aston Martin car to a classic car auction company in exchange for a $1 million advance on the proceeds of the car’s sale, according to the plea agreement. Drobot admitted that he caused the auction company to wire $1 million to Drobot’s bank account. Drobot also admitted he used that money for personal expenses and not to satisfy the court’s forfeiture order. Drobot further admitted to laundering the money via transfers to third parties.

          After Drobot violated the court’s forfeiture order, the government moved successfully in February 2019 to satisfy the outstanding money judgment by forfeiting Drobot’s interest in his Newport Beach residence and Perris, California business property.

          As part of the underlying health care fraud scheme for which he was imprisoned, Drobot paid bribes to California State Senator Ronald Calderon in exchange for Calderon performing official acts to keep the spinal pass-through law on the books. Calderon served a 3½-year sentence in federal prison after admitting that he took bribes from Drobot and undercover FBI agents.

          Prosecutors have charged 17 individuals and obtained 10 convictions as part of Operation Spinal Cap, which targets a long-running health care fraud scheme that generated nearly $1 billion in fraudulent claims to federal government, California state, and private insurers. Drobot spearheaded the scheme.

          This case was investigated by the Federal Bureau of Investigation, IRS-Criminal Investigation, the California Department of Insurance, and the United States Postal Service, Office of the Inspector General.

          This matter is being prosecuted by Assistant United States Attorneys Joseph T. McNally of the Violent and Organized Crime Section, Scott D. Tenley of the Santa Ana Branch Office, Ashwin Janakiram of the Major Frauds Section, and Jonathan S. Galatzan of the Asset Forfeiture Section.

          SANTA ANA, California – Three additional doctors have been charged in three new cases for their roles in a 15-year-long health care fraud scheme that involved more than $40 million in illegal kickbacks paid to doctors and other medical professionals in exchange for referring thousands of patients who received spinal surgeries. As a result of the kickback scheme, more than $580 million in fraudulent bills were submitted, mostly to California’s worker compensation system.

          David Hobart Payne, 60, an orthopedic surgeon who lives in Irvine, is scheduled to be arraigned later today in United States District Court on charges of conspiracy, honest services fraud, and using an interstate facility to aid in unlawful activity. A five-count superseding indictment returned by a federal grand jury on April 25 alleges that Payne was bribed approximately $450,000 to steer more than $10 million in kickback-tainted surgeries to Pacific Hospital of Long Beach.

          Jeffrey David Gross, 52, an orthopedic surgeon who resides in Dana Point and Las Vegas, Nevada, appeared in federal court on Wednesday and pleaded not guilty to charges contained in a 14-count indictment returned earlier this year by a federal grand jury. Gross, who faces charges of conspiracy, honest services mail fraud and honest services wire fraud, was ordered to stand trial on August 7. The indictment alleges that Gross made at least $622,000 in exchange for performing and/or referring more than $19 million in kickback-tainted surgeries to Pacific Hospital.

          In the third indictment being announced today, Lokesh Tantuwaya, 51, who maintains residences in Rancho Santa Fe and Rock Springs, Wyoming, was charged in February by a federal grand jury. The 13-count indictment charges Tantuwaya with conspiracy, honest services fraud, and using an interstate facility to aid in unlawful activity. Tantuwaya, who pleaded not guilty in April, has been ordered to stand trial on November 6. The indictment alleges that Tantuwaya received approximately $3.2 million in kickbacks for referring and/or performing $38 million in surgeries to Pacific Hospital.

          The kickback scheme centered on Pacific Hospital of Long Beach, which specialized in surgeries, especially spinal and orthopedic procedures. The owner of Pacific Hospital, Michael D. Drobot, conspired with doctors, chiropractors and marketers to pay kickbacks in return for the referral of thousands of patients to Pacific Hospital for spinal surgeries and other medical services paid for primarily through the California workers’ compensation system. During its final five years, the scheme resulted in the submission of over $500 million in fraudulent medical bills. To date, nine defendants have been convicted for participating in the kickback scheme.

          If they were to be convicted of the charges in the indictments announced today, Payne, Gross and Tantuwaya would face potential sentences of decades in federal prison.

          An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.

          The investigation into the spinal surgery kickback scheme is being conducted by the Federal Bureau of Investigation; IRS Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.

          This case is being prosecuted by Assistant United States Attorneys Joseph T. McNally and Scott D. Tenley of the Santa Ana Branch Office, and Assistant United States Attorney Ashwin Janakiram of the Major Frauds Section.

          SANTA ANA, California – A federal judge today sentenced the former owner of Pacific Hospital in Long Beach to 63 months in prison for overseeing a 15-year-long health care fraud scheme that involved more than $40 million in illegal kickbacks paid to doctors and other medical professionals in exchange for referring thousands of patients who received spinal surgeries.

          The scheme operated by Michael D. Drobot led to more than $500 million in fraudulent bills being submitted during last five years of the scheme – much of which was paid by the California worker’s compensation system.

          Drobot, 73, of Corona Del Mar, was sentencing this morning by United States District Judge Josephine L. Staton, who noted that Drobot “introduced greed into the doctor-patient relationship.”

          Drobot pleaded guilty in 2014 to charges of conspiracy and paying illegal kickbacks, admitting that he orchestrated a wide-ranging fraud scheme in which “[t]housands of patients received surgeries at Pacific Hospital not knowing that [Drobot] bribed their physician to perform their surgery at Pacific Hospital,” prosecutors wrote in a sentencing memorandum filed with the court. Drobot “was motivated by greed and ultimately profited millions of dollars through the scheme.”

          From at least 1997 through 2013, Drobot, who owned and/or operated Pacific Hospital during this time, ran a scheme in which he billed workers’ compensation insurers hundreds of millions of dollars for spinal surgeries performed on patients who had been referred by dozens of doctors, chiropractors and others who were paid illegal kickbacks.

          “The patients believed that they were receiving conflict-free medical advice when, in fact, [Drobot] illegally incentivized their physician to perform the surgery at Pacific Hospital,” prosecutors said in court documents.

          The kickbacks were financed largely by money generated from Drobot’s sale of medical devices implanted into state workers’ comp patients during spinal surgeries. Drobot set up a scheme that exploited a now-repealed California law known as the spinal “pass-through” legislation, which permitted hospitals to pass on to workers’ comp insurers the full cost of medical devices implanted in spinal surgery patients.

          Drobot generated the kickback money through his own medical hardware company – the Newport Beach-based International Implants (I2) – to sell hardware used in spinal surgeries performed at Pacific Hospital. I2 submitted bills to Drobot’s Hospital and tacked on an additional $250 per device knowing that the “pass-through” law required to state to pay the full amount of the invoices.

          “Through the operation of I2, [Drobot] generated substantial profits that he used to pay at least $40 million dollars in kickbacks,” prosecutors wrote in court papers. “According to the former CFO of Pacific Hospital, his income, bonuses, and other compensation at the hospital was in excess of $20,000,000.”

          As part of the health care fraud scheme, Drobot paid bribes to California State Senator Ronald Calderon in exchange for Calderon performing official acts to keep the spinal pass-through law on the books. Calderon is currently serving a 3½-year sentence in federal prison after admitting that he took bribes from Drobot and undercover FBI agents.

          Drobot typically paid a kickback of $15,000 per lumbar fusion surgery and $10,000 per cervical fusion surgery. Some of the patients lived as much as hundreds of miles away from Pacific Hospital, and closer to other qualified medical facilities.

          Drobot and his co-conspirators concealed the kickback payments by entering into bogus contracts with the doctors, chiropractors, and others who received kickbacks. In reality, the contracts merely provided a cover story for the kickback payments.

          In addition to the prison term, which Drobot will begin serving on June 4, Judge Staton imposed a $500,000 criminal fine and issued an order directing Drobot to forfeit $10 million to the government. As part of the forfeiture judgment, which Judge Staton signed on Wednesday, Drobot was ordered to liquidate assets that include real estate and a 1965 Aston Martin, a 1958 Porsche, and a 1971 Mercedes Benz.

          Judge Staton has scheduled a restitution hearing for May 11.

          In addition to Drobot, prosecutors have charged seven other defendants in relation to the kickback scheme. The seven additional defendants – which include Drobot’s son, Michael R. Drobot – have pleaded guilty and are scheduled to be sentenced by Judge Staton over the next two months.

          The ongoing investigation into the spinal surgery kickback scheme is being conducted by the Federal Bureau of Investigation; IRS Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.

          The case against Drobot was being handled by Assistant United States Attorneys Joseph T. McNally and Scott D. Tenley of the Santa Ana Branch Office, and Ashwin Janakiram of the Major Frauds Section.