On November 22, 2019, an orthopedic surgeon specializing in spinal surgeries, Dr. Daniel Capen, was sentenced to 30 months in
federal prison after he pleaded guilty. Dr. Capen pleaded guilty in August 2018 to conspiracy to commit honest services fraud and to soliciting and receiving kickbacks for health care referrals relating to Pacific Hospital and related entities.
In his plea agreement, he agreed that he received at least $5 million in kickbacks for performing hundreds of
spinal surgeries that were mostly for workers' compensation patients.
U.S. District Judge Josephine Staton who sentenced Dr. Capen also ordered him to forfeit $5 million to the United States and pay a $500,000 fine.
Dr. Capen is 70 years' old and the sentence appears to have taken into account his age and his acceptance of responsibility for the plea. One reason the sentence is 30 months is due to the total loss related to the kickbacks. When there is an illegal referral fee, the entire bill is considered a false or fraudulent claim. Given the cost of hospital bills for such surgeries, the plea agreement indicated that the illegal referral fees resulted resulted in more than $580 million in
fraudulent bills being submitted, mostly to California’s worker compensation
system.
This kickback arrangement centered on the now-closed Pacific Hospital in Long Beach, which
specialized in surgeries, especially spinal and orthopedic procedures. Pacific
Hospital’s owner, Michael Drobot who is serving a 5-year sentence for conspiracy and illegal kickbacks, paid kickbacks to doctors, chiropractors and
marketers in return for the referral of thousands of patients
to Pacific Hospital for spinal surgeries and other medical services paid for
primarily through the California workers’ compensation system.
Dr. Capen admitted to having received kickbacks for referring surgeries to Pacific Hospital and also
for using medical hardware from a Pacific Hospital-affiliated entity during the
spinal surgeries he performed. Dr. Capen further admitted to having received kickbacks for referring medical
services such as urine and drug testing to Pacific Hospital-affiliated
entities.
In total, between 1998 and 2013, the plea agreement states that Dr. Capen accounted for approximately $142 million
of Pacific Hospital’s claims to insurers, on which the hospital was paid
approximately $56 million. Capen admitted to receiving at least $5 million in
kickbacks during the course of his crimes.
Seventeen defendants have been charged in connection with Pacific Hospital, and 10 of them have been convicted, including Michael Drobot and his son. Another physician, Dr. Timothy James Hunt was sentenced in late September 2019 to two years in federal prison after he admitted taking illegal kickbacks. In addition, Michael Drobot currently
faces additional
federal criminal charges for allegedly violating a court forfeiture
order by illegally selling his luxury cars.
Attorney Commentary: The alleged kickbacks were paid in the manner of "management fees" and attorneys for the hospital allegedly signed off on these agreements. It appears that the physicians relied on the hospital's claim that these were legal arrangements and did not have their own lawyers review the arrangements. These arrangements went on for years and that led some physicians to believe that they must be legal since it was widespread.
This is one of the big issues with health care regulations. Just because "everyone" is doing it does not mean it is legal or compliant. The government only has so many resources and may not target that arrangement but if and when the light shines on that arrangement, it can then blow up like this one did. Many respected physicians got caught up in this arrangement.
