Former Hospital Owner Gets Over 5 Years in Prison for Paying Illegal Referral Kickbacks

 A former California hospital owner will spend more than 5 years in prison, give up $10 million and liquidate his vintage cars after he pled guilty to orchestrating a 15-year health care fraud scheme  involving more than USD $40 million in kickbacks to doctors and medical professionals in exchange for thousands of referrals for patients who received spinal surgeries at his hospital in Long Beach, California.

While most people working in the healthcare industry in the USA, Canada, UK, and Germany are aware that this contractual arrangement is unlawful, many newcomers to the medical tourism industry are woefully ignorant of this prohibition. As such, they routinely contract with providers of healthcare services in many countries where kickbacks and incentive payments to steer referrals to a particular clinic, hospital or clinician are permitted. 


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Whether one is the payer or recipient of these kickback payments for referral steerage, the effect on the public is the same

Patients believe that they are receiving conflict-free advice when, in fact, the referral agent is illegally incentivized to recommend or refer patients to the kickback source.

But what is also terrifying for most otherwise law abiding small business owners that have entered medical tourism is the fact that they can be charged with several compliance violations with just one referral. Now multiply that times as many referrals as have been made.  But it doesn’t end there.  

When a medical tourism facilitator shares in the proceeds of the surgical fee, they dirty their hands when it comes to the clinical liability as well.  This is the case no matter how much disclaiming they do that they are not responsible for the acts of the doctors, the airlines, the hotel or other trading partners.  “If something goes sideways in the episode of care, if the medical tourism facilitator received an illegal kickback or share of the proceeds for rendering that service, they should expect to be named jointly and severally as a liable party for having anything to do with the referral to those healthcare and affiliated ancillary trading partners.”

The story is quite similar to most medical tourism kickback commission payment arrangements

Michael Drobot  owned and was CEO of Pacific Hospital from 1997 through 2013. Prosecutors say he billed insurers who paid hundreds of millions of dollars for the spinal surgeries on patients that had been referred to him by doctors, chiropractors and others in exchange for money. A referral could earn a kickback of $10,000 or $15,000, according to court documents, and the patients sometimes had to travel to Pacific Hospital even if there was a qualified facility closer to their home. 

Sound familiar?

The argument against the practice is that through his conduct, Mr Drobot “deprived thousands of patients — many who were undergoing potentially life altering medical procedures — of their right to conflict-free advice from their physicians about whether to have surgery and, if so, the best hospital for the surgery,” prosecutors said in sentencing documents.

At a sentencing hearing in Santa Ana, Drobot was sentenced to 63 months in prison, beginning June 1, by U.S. District Judge Josephine Staton, who “noted that Drobot ‘introduced greed into the doctor-patient relationship,’” according to a federal press release.  Court documents show prosecutors asked for a sentence of 120 months.

Drobot’s sentence also includes a $500,000 criminal fine. Drobot’s own bonus and salary and other compensation at Pacific Hospital was in excess of $20 million. He’ll also forfeit $10 million and was ordered to liquidate multiple assets, including real estate, a 1965 Aston Martin, a 1958 Porsche and a 1971 Mercedes Benz, according to a forfeiture order Judge Staton signed on Wednesday. 

 The kickbacks were generated through Drobot’s medical hardware company, International Implants (I2), which sold the hardware for Pacific Hospital’s spinal surgeries. I2 submitted bills to the hospital that tacked on an additional $250 per device, which could be paid under a now-defunct “pass-through” law that required the invoices to be paid in full, prosecutors said.

“Because the California “pass through” rule required the workers compensation entities to pay the amount for which the hospital was invoiced for the hardware plus $250, Mr Drobot knew that Pacific Hospital would be fully reimbursed by workers compensation entities for the price his other company invoiced the hospital,” prosecutors said. “Through the operation of I2, defendant generated substantial profits that he used to pay at least $40 million dollars in kickbacks.”  This tangled web of revenue is a crime usually in the category of racketeering and income corruption. 

In addition to paying doctors  to send patients to his hospital, Drobot allegedly paid bribes to former state Sen. Ronald Calderon to keep the spinal implants pass-through law on the books. Calderon was sentenced to three and a half years in prison, prosecutors said, after he pled guilty to a federal corruption charge over his acceptance of $150,000 in bribe money. His brother Thomas Calderon, a former assemblyman, was sentenced to one year on related charges.

What are the other revenue generation options for medical tourism facilitators?

The alternative to this practice is to consult to clients professionally in an unbiased and independent relationship and charge a professional fee for the professional services you offer. 

If you incur time and overhead expenses to coordinate care, provide unbiased consultations, make recommendations, give options, describe destinations you’ve inspected, arrange for secure medical records transfers, inspect your referral facilities, contract for expected standards of performance with suppliers, purchase professional liability insurance, have an office where you pay rent, power, phone, and other business operation and marketing expenses, operate and maintain a website, then you have the basis of a professional fee for professional services rendered.

If you simply have a website and draw in consumers or other customers and make appointments and do little else, you still have a basis for a service fee, but it will be much lower than the competitor described above who has more expense and provides more service.  Ultimately it is your decision to set the business model you are comfortable with.

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Read more about this subject

The case is USA v. Drobot, case number 8:14-cr-00034, in the U.S. District Court for the Central District of California

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