The State Compensation Insurance Fund (SCIF) is claiming Pacific Hospital of Long Beach and other entities affiliated with it have been running scams for years to illegally boost payments for medical services provided to injured workers. The quasi-governmental carrier is now seeking to recoup some of the $160 million is has paid to the entities over the past 12 years under civil statutes used to prosecute organized crime syndicates.
"the early detection of fraud, especially on a large scale, difficult if not impossible."
–– State Compensation Insurance Fund
"State Fund's limited resources as a public enterprise fund and non-profit state agency, and massive number of bills received each day make the early detection of fraud, especially on a large scale, difficult if not impossible," the complaint maintains. SCIF's complaint notes that the defendant companies filed at least 16,490 bills for services, including spinal surgeries and implants. "In short, State Fund had no reasonable opportunity to investigate Defendant's individual bills or the schemes as a whole, and no reason to suspect the extent and systemic nature of the fraud conducted by the defendants."
State Fund's compliant maintains that the defendants concealed the alleged fraud "by submitting the same or similar bills for procedures and materials over the course of years." SCIF says it was unaware of the activity and the inflated prices until it initiated an in-depth review of billings and payments earlier this year.
State Fund filed the federal lawsuit under the Racketeer Influenced and Corrupt Organization Act (RICO) against Pacific Hospital owner Michael D. Drobot, Sr. and his son Michael R. Drobot, Jr. and several companies they operate alleging five different schemes to illegally boost payments by the carrier. SCIF maintains in the lawsuit that it uncovered the alleged schemes after it launched an investigation into Pacific Hospital's bills after learning of reports that the Federal Bureau of Investigation had served search warrants at the hospital and an affiliated entity – Industrial Pharmacy Management.
A spokesman for Pacific Hospital declined to comment on the allegations. "Right now it's a legal matter and we can't discuss it," Pacific Hospital's Randy Taylor tells Workers' Comp Executive. "As much as I would like a chance to refute any of their contentions we just can't comment on on-going litigation."
Other companies named as defendants include Long Beach Pain Center Medical Clinic, Coastal Express Pharmacy, Long Beach Prescription Pharmacy and Meds Management Group. State Fund alleges that at all relevant times these organizations were either individually or jointly owned, operated and/or controlled by the Drobots.
State Fund says it is continuing to investigate the case, but maintains that it has already identified a number of ways that bills were illegally inflated. It alleges that the defendants created shell entities to fraudulently increase reimbursements for the hardware implanted during spine surgeries, paid kickbacks to physicians for referrals, upcoded and unbundled services to inflate the bills, billed registered nurse first assistants' hours as assistant surgeons and submitted duplicate bills for radiology services.
Separate payments for implantable spinal hardware were eliminated as part of the SB 863 reforms last year. The payments were considered redundant because the DRG rate for the spinal surgery already includes consideration for the cost of the hardware used in the procedure. Until the reforms, however, providers could bill for up to $250 over the actual cost of the hardware in addition to the cost of the surgery.
In addition to seeking repayment of money spent on the bills themselves, SCIF is also asking the court to undo a number of lien settlements with the defendants that the carrier signed off on over the years. "State Fund's consent to enter into these settlement agreements was obtained by fraud," the complaint states noting four different group settlements dating back to 2004.
State Fund is seeking a jury trial in the matter.