In announcing the indictment of state Sen. Ron Calderon on charges including money laundering Friday, federal authorities also released documents shedding new light on a spinal surgery billing scheme the California Department of Insurance called its largest-ever case of insurance fraud.
In a plea agreement, Michael D. Drobot, a Calderon connection and the former CEO of Pacific Hospital of Long Beach, admitted he conspired to pay kickbacks to dozens of doctors, chiropractors and others to refer thousands of patients to his hospital for spinal surgeries and other services.
According to the agreement, Drobot, used his own companies or those of conspirators to inflate the price of medical hardware used in the surgeries, then submitted the inflated bills for reimbursement. The services were paid for primarily through the Federal Employees' Compensation Act and California Workers' Compensation System, the filing said.
The spinal surgery matter's tie to Calderon came in a "stream of financial benefits" the government said Drobot provided to the lawmaker in exchange for his support on legislation concerning the ability of hospitals to charge workers' compensation carriers for the cost of medical hardware.
Before a change in California's workers' compensation law in 2012, hospitals could seek separate reimbursement payments for the cost of conducting spinal surgeries and for the cost of implants.
Drobot agreed to pay Calderon's son $10,000 per summer to work as a file clerk at defendant's company in 2010, 2011 and 2012, the government said. He also provided Calderon free flights on a private plane and took Calderon to "exclusive, high-end golf resorts" and to expensive dinners, according to the agreement.
The enterprise Drobot was attempting to protect was extraordinarily lucrative, the government said. From about 2008 to last year, Pacific Hospital billed workers' compensation insurance carriers about $500 million in claims for surgeries involved in the scheme, with the recipients of kickbacks receiving between about $20 million and $50 million.
According to the filing, Drobot and his co-conspirators entered into "bogus contracts" to justify the kickback payments, many at $10,000 or $15,000 a piece.
In some cases, the government said, patients lived hundreds of miles from the hospital to which they were referred.
At a news conference in Los Angeles on Friday, U.S Attorney André Birotte Jr. characterized the case as a "massive healthcare fraud scheme." In a statement, California Insurance Commissioner Dave Jones said, "The co-conspirators lined their pockets by ripping off insurance companies to the tune of hundreds of millions of dollars."
Drobot, 69, is a major donor in California politics. He has his companies since 2000 have given more than $1.3 million in campaign contributions, nearly all of it to Democrats and to the Democratic Party.
The U.S. Attorney's Office said the Corona Del Mar man's agreement to plead guilty could send him to prison for as long as 10 years.
Janet Levine and Jeffrey Rutherford, Drobot's lawyers, issued a brief statement following the announcement.
"As his plea agreement reflects, Mr. Drobot has acknowledged and accepts responsibility for his actions," the lawyers said. "He is providing information to assist the government in its expanding investigations."
PHOTO: Sen. Ron Calderon speaks to the media outside Senate chambers on Monday June 10, 2013, at the State Capitol. The Sacramento Bee/Manny Crisostomo