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Kickback scheme broken up as part of government’s ‘Operation Spinal Cap’

Illegal kickbacks to doctors seem to be fueling an explosive growth in worker’s compensation claims by hospitals.

Last week the US Department of Justice announced five individuals including a former chief financial officer of Pacific Hospital in Long Beach, California, and two orthopedic surgeons agreed to plead guilty to charges involving their participation in a scheme to illegal refer thousands of patients for spinal surgeries that allegedly generated nearly $600 million in fraudulent billings.

Some of those patients lived hundreds of miles away from the hospital to which they were referred.

“Injured workers were treated like livestock by doctors and hospitals who paid or accepted kickbacks and bribes in exchange for referrals,” said California Insurance Commissioner Dave Jones.

The five criminals face three to 10 years in prison and will be required to pay restitution, which in one case will be at least $20 million. Many of the fraudulent claims were paid out by the California worker’s compensation system as well as the federal government.

The case was part of the government’s ongoing investigation into kickback schemes for spinal surgeries, dubbed “Operation Spinal Cap,” which involve dozens of surgeons, orthopedic specialists, chiropractors, marketers and other medical professionals.

The hospitals paid marketers, one of whom was a convicted felon, millions of dollars to steer spinal surgeries to Pacific Hospital and Tri-City Regional Medical Center in Hawaiian Gardens. Conspirators were typically paid a kickback of $15,000 for each lumbar fusion surgery and $10,000 for each cervical fusion surgery referred to the hospitals.

The scheme went on for at least eight years before being shut down. The California False Claims Act specifically excludes worker’s compensation claims. Had the procedures been covered by that law, perhaps the scheme would have been shut down more quickly.

Using worker’s compensation patients to illegally boost profits is hardly a new practice, especially in California. The Wall Street Journal reported in February 2012 that Tri-City Regional Medical Center, a small California-based non-profit hospital, billed worker’s compensation insurers $65 million in 2010, up from less than $3 million three years earlier.

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