Incentivized

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15616662 - surgery with operating table, nurses and surgeon

Incentivizing is all about getting as much out of a mutually beneficial relationship as possible. Parents can incentivize children to make good grades by dangling the proverbial carrot of $20 for every “A” they make. Employers can promise an extra day off or provide a sizeable bonus for bringing in a new account or exceeding monthly goals. The way criminals incentivize co-conspirators is to offer them a portion of their “take.” The owner of a hospital in Long Beach, California committed workers’ compensation fraud by heading up a massive $600 million fraud scheme involving spinal surgeries. He incentivized his cronies with more than $40 million in illegal kickbacks funded by his medical hardware company.

The hospital owner from Corona Del Mar orchestrated the massive workers’ compensation fraud scheme that involved directing thousands of patients, many who lived hundreds of miles from the medical facility, to have surgery using the medical hardware devices manufactured by his company. For approximately 15 years, he paid co-conspirators including dozens of doctors, chiropractors and others to refer the multitude of patients to his hospital for spinal surgeries.

The hospital filed more than $500 million in bills for the surgeries with state and federal workers’ compensation insurance systems over the last five years of the fraudulent scheme. (Many of these bills were paid for by the California workers’ compensation system.) The bills included the cost of medical hardware implanted into the patients with an upcharge of about $250 per device. (Let’s not forget that he owned the medical hardware company and reaped the profits from this illegal scheme.)

 The hospital owner was able to carry out his illegal scheme with help from a former California State Senator, who helped keep a law on the books that allowed hospitals to pass the full cost of medical devices implanted during surgery to workers’ compensation insurers. (The Senator accepted bribes from the hospital owner and kept the law alive.) The hospital owner made some extra cash by jacking up the price, knowing the workers’ compensation plan would have to pay for it.

Let’s think of the patients for a moment. They relied upon their medical care providers to give them good advice and to direct them to a competent provider. They had no idea that their individual doctors, who were co-conspirators in this case, had been bribed to perform their surgery. (Was the incentive of $15,000 per lumbar fusion surgery and $10,000 per cervical fusion surgery enough to provide the patients with a successful surgery and pain relief?)

The 73-year-old Californian pleaded guilty to workers’ compensation fraud and was sentenced to 63 years in prison and fined $500,000. But, that’s not all. He was also ordered to forfeit $10 million to the government and liquidate his assets including real estate, a 1965 Aston Martin, a 1958 Porsche and a 1971 Mercedes Benz.

The California Senator was previously convicted for accepting bribes from the hospital owner by the Federal Bureau of Investigation. He is currently serving a three-and-a-half-year prison sentence for his part in the scam. In addition, another seven individuals, including the hospital owner’s son, have pleaded guilty in connection with the  workers’ compensation fraud scheme and await sentencing.

Further research reveals that the hospital owner’s total compensation package was more than $20 million. (I guess that wasn’t enough to keep him happy, so he decided to steal from the State of California? Pure greed is the culprit in this case for sure.) While most incentive plans are beneficial, they can go wrong. This greedy man’s plan definitely backfired. (I predict he will experience quite a few backaches while serving out time in prison. Those hard metal beds with two-inch mattresses are known to be very uncomfortable.)

Today’s “Fraud of the Day” is based on an article entitled, Ex-California hospital owner sentenced for $600M fraud plan,” published by The Seattle Times published on January 12, 2018.

SANTA ANA, Calif. (AP) — The former owner of Pacific Hospital in Long Beach was sentenced to federal prison on Friday for running a $600 million workers compensation fraud scheme.

Michael Drobot, 73, was sentenced Friday to 63 months in prison and fined $500,000.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.