“Operation Spinal Cap” Uncovers $600M in Healthcare Billing Fraud

The former CFO of a Long Beach hospital in California, two orthopedic surgeons and two others have been charged in relation to a $600 million fraudulent billings scheme involving illegal referrals of thousands of patients for spinal surgeries. James L. Canedo was the CFO of Pacific Hospital of Long Beach from 1999 to 2013. Canedo communicated directly with a number of the doctors regarding the payments and surgeries, and sometimes mediated disputes between different doctors who claimed credit for the same referral. Canedo pleaded guilty on September 4 to numerous criminal charges and is scheduled to be sentenced on June 17, 2016.

He faces up to 5 years in prison and is expected to pay restitution of at least $20 million. All five defendants have agreed to cooperate with the government's ongoing investigation called "Operation Spinal Cap." Others involved in the case include: Philip Sobol, an orthopedic surgeon, Alan Ivar, a chiropractor, and Mitchell Cohen, an orthopedic surgeon. Sobol, Ivar and Cohen each received, respectively, $5.2 million, $1.24 million, and $1.64 million in kickbacks from the referral of more than 200 patients. 
 
In a similar scheme, Michael D. Drobot, the former CEO and owner of Pacific Hospital, ran a 15-year scheme that resulted in the billing of hundreds of millions of dollars for spinal surgeries, paid for by the California worker's compensation system. It was one of the largest worker's compensation insurance fraud cases in U.S. history. Conspirators were paid a kickback of $15,000 for each lumbar fusion surgery and $10,000 for each cervical fusion surgery, which were hidden in fake business contracts.

Through Summit Medical Group, owner Paul Richard Randall distributed spinal surgery hardware at inflated prices and then used the proceeds to pay a 5% kickback and up to $20,000 per surgery to the doctors and chiropractors who referred the patients. The ongoing investigation of these medical billing fraud cases is being conducted by the FBI, the USPS, the Office of Inspector General, the IRS Criminal Investigation, and the California Department of Insurance.

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