Skip to main content

Hospital CFO's Plea Deal Details $950M Alleged Kickback Scheme

Analysis  |  By John Commins  
   July 03, 2018

Court documents show how the co-conspirators established a handful of shell companies that were all designed to facilitate referrals for the now-defunct Pacific Hospital of Long Beach.

A California hospital executive's plea agreement provides a detailed look at a long-running scheme dubbed "Operation Spinal Cap" that allegedly bilked the federal government of nearly $1 billion in fraudulent claims.

George William Hammer, 65, of Palm Desert, California, was the former chief financial officer of the physician management arm of the now-defunct Pacific Hospital of Long Beach. He pleaded guilty in May to tax evasion based on the fraudulent classification of illegal kickbacks in hospital-related corporate tax filings, the Department of Justice said.

According to a plea agreement, unsealed last week, Hammer and eight co-conspirators at Pacific Hospital and affiliated shell companies accumulated more than $950 million from 1998 through 2013.

Alleged ringleader Michael Drobot, the former owner of Pacific Hospital, paid more than $40 million in illegal kickbacks to doctors, chiropractors, and other medical professionals over a 15-year period in exchange for referring thousands of patients who received surgeries, imaging, and other services at the hospital.

How They Did It, Allegedly

In one example cited by prosecutors, Pacific Specialty Physician Management, Inc., a company that was "only in existence for Pacific Hospital's benefit," paid the office expenses of an orthopedic physician group referred to as "Downey Ortho."

In exchange, Downey Ortho provided referrals that generated $142 million of Pacific Hospital's claims to insurers between 1998 and 2014, of which the hospital was paid $56 million.

The scheme also used sham contract options that would provide physicians with monthly payments that were supposedly for the purchase of the physician practice.

"In reality, however, PSPM and the Kickback Induced Surgeons would not desire or expect to consummate any ultimate sale transaction," the plea deal read. "Rather payments, in the guise of an option contract, which would often vary from month to month, were made exclusively to 'reward' physicians to refer patients…."

PSPM also steered co-conspirator physicians to specific durable medical equipment vendors who had mutually beneficial financial arrangements that offset PSPM’s kickback costs.

Hammer and his co-conspirators attempted to hide kickbacks made under the sham option contracts. They deducted "termination of option fees" as "other deductions" and took a corresponding deduction on PSPM's income taxes from 2011 through 2013, and avoided about $2.1 million in federal taxes.

Hammer pleaded guilty to one count of Aiding and Assisting in the Preparation of a False Tax Return. He could face up to three years in prison and one year of probation. Under the plea deal, he will also forfeit $500,000, and could testify for the government in the prosecution of his co-conspirators, some of whom were identified by federal prosecutors as:

  • Daniel Capen, MD, 68, of Manhattan Beach, an orthopedic surgeon, who pled guilty to conspiracy and illegal kickback charges. Capen accounted for approximately $142 million of Pacific Hospital’s claims to insurers, on which the hospital was paid approximately $56 million.
     
  • Timothy Hunt, MD, 53, of Palos Verdes Estates, an orthopedic surgeon who referred spinal surgery patients to Capen and other doctors. He pled guilty to a conspiracy charge involving his receipt of illegal kickbacks stemming from various financial relationships with Pacific Hospital and related entities.
     
  • Lauren Papa, 52, of Tarzana, a chiropractor, who plead guilty to a conspiracy charge involving her receipt of illegal kickbacks to refer patients to a neurosurgeon with the understanding that the neurosurgeon would perform the surgeries at Pacific Hospital.
     
  • Tiffany Rogers, MD, 53, of Palos Verdes Estates, an orthopedic surgeon, who was named in an indictment unsealed last week in connection with receiving illegal kickbacks to refer patients for spinal surgeries at Pacific Hospital.
     
  • Brian Carrico, 64, of Redondo Beach, a chiropractor, was charged in connection with the receipt of illegal kickbacks to influence the referral of patients to Pacific Hospital.

    An indictment unsealed Wednesday alleges that Carrico and his co-conspirators submitted approximately $80 million in claims to the federal workers' compensation program and were paid approximately $56 million in connection with patients referred to Pacific Hospital.
     
  • William Parker, 64, of Redondo Beach, was charged in a separate indictment unsealed last week in connection with the same kickback scheme involving Carrico and his companies.
     

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

Tagged Under:


Get the latest on healthcare leadership in your inbox.