Thursday, February 5, 2009

Illegal Referrals And Fraud: Chiropractors, Attorney And Office Employees Charged In Orange County Undercover Sting

On February 4, 2009, the Orange County District Attorney's Office (OCDA) reported that it had arrested and charged 12 defendants, including chiropractors, an attorney, and office employees in an undercover sting operation targeting illegal patient referral and insurance overbilling schemes.

As attorneys who protect people's rights under the Constitution, please remember that an indictment or felony complaint contains allegations that a defendant has committed a crime. Every defendant is presumed innocent unless proven guilty in court.

OCDA's Insurance Fraud Unit and Gatekeepers Insurance Fraud Team (GIFT) conducted an undercover operation called Operation K-Fraud (Knockout Fraudulent Attorneys and Unscrupulous Doctors). GIFT investigates provider professionals suspected of defrauding auto and Workers’ Compensation Insurance companies through undercover operations. It is in not clear but GIFT may be a unit organized by the National Insurance Crime Bureau (a non-profit organization funded by insurers). In this case, the NICB and OCDA worked closely together. Automobile Club of Southern California, Infinity Insurance, Mercury Insurance, and Sentry Insurance Companies cooperated with the investigation. The State Bar also worked with the OCDA.

Based on a list compiled by the NICB (a non-profit organization funded by insurers), the OCDA sent 248 letters to medical providers suspected of engaging in fraudulent practices or billing. The letter explicitly outlined the opportunity for the medical professional to engage in an illegal fee splitting scheme with a fake attorney’s storefront office set up by the OCDA. The scheme involved medical professionals agreeing to pay up to 30 percent of specific patient billings to the OCDA undercover investigators posing as law office administrators in exchange for that patient’s referral. OCDA undercover investigators also posed as “patients” claiming to be suffering from soft tissue damage from car accidents.

Of the 248 letters, 20 individuals responded to inquire about the scheme. Four of the 20 medical professionals did not show up after scheduling a meeting. Six others showed up for a meeting, but after meeting with undercover OCDA investigators, they abandoned the scheme, acknowledging it was illegal. The OCDA did not pursue three of the medical providers for other reasons.

As an example, in one alleged case, between March 18 and June 4, 2008, an undercover OCDAs investigator went to one of the chiropractors for 14 treatments under the pretense of having been involved in a car accident. That chiropractor is accused of overbilling an insurance company for 23 treatments, accepting $2,065 from the insurance company and illegally kicking back $1,020 to the OCDA's undercover investigator.

The OCDA has charged 12 defendants in nine criminal cases including eight chiropractors, one attorney, and three administrative staff members. In the storefront operation, the OCDA charged seven chiropractors and one chiropractic administrator/chiropractor’s wife for engaging in an illegal fee splitting scheme. Two of these eight defendants are also charged with billing for more services than rendered.

In addition to the law office storefront undercover investigation, the OCDA also conducted walk-in investigations of chiropractic clinics and law offices, where a chiropractor is accused of making a referral to an attorney and law office administrative staff are accused of making a referral to a chiropractor. In these cases, a chiropractor and an attorney have been charged with overbilling and engaging in an illegal fee splitting kickback schemes in 2005 and 2007. Additionally, the OCDA has charged one law office administrator, a chiropractor, and his chiropractic administrator with engaging in overbilling and an illegal fee splitting kickback scheme. For more and the names of those charged:

Our Commentary On This Case: The law in California is clear that professionals who file insurance claims, such as medical doctors, chiropractors, and attorneys, are prohibited from paying monetary compensation or anything of value as a kickback or inducement to a patient or to anyone who refers a patient to them for their professional services. One of the reasons for this law is the public policy of requiring medical and legal professionals to attract patients and clients based on their skills and abilities -- and not based on whether they pay a referral fee. In addition, there is a legitimate concern that where professionals are paid a percentage (kickback) for referrals, unnecessary services will be provided and billed. There is no public benefit in having patients medically treated or clients represented by less qualified or unskilled practitioners.

General advertising and marketing to make one’s name known is not barred, but the exchange of money or other things of value (including cross-referring) for patients is illegal. The government will presume that any medical professional or attorney knows or should know through their education and training that such fee splitting is prohibited by law.

In our practice, we note that in the ethnic communities (and this case involved persons from the Vietnamese and Hispanic communities), where referral fees and kickbacks are often a way of doing business in their countries of origin -- the seriousness of these prohibitions are not always fully realized. It is viewed as "everyone is doing it" and there is a fear (perhaps legitimate) that their business will not succeed if they do not offer referral fees or kickbacks to patients or clients and referral sources. In addition, where the professionals or paraprofessions are immigrants, there is often a survivor mentality where they are doing everything they can to make their business or practice a success but forgetting that the rules in the United States are much stricter. While it is true that most people who engage in these activities are not caught -- if you are the one who is caught, the price is steep.

There are more complicated marketing and joint venture arrangements that need to be examined to ensure that they do not violate the law. For example, even internet marketing where there is a specific payment for a referral (versus a pay per click) has been deemed illegal. Run any marketing plan by your health care attorney to ensure compliance with the law. The potential consequences of criminal charges which could put your license and practice and jeopardy are too great not to be careful and seek competent legal advice and effective but legal marketing plans while you seek to grow your business.

Posted by Tracy Green, Esq. Any questions or comments should be directed to Tracy Green at

The firm focuses its practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings. They have a specialty in representing licensed health care providers and in health care fraud related matters in California and throughout the country. Their website is:


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