Los Angeles County Sues Hospital Owner for False Surgical Implant Claims to County Workers’ Compensation Program

by Akin Gump Strauss Hauer & Feld LLP

On July 18, 2014, the County of Los Angeles (“the County”) filed a lawsuit in Los Angeles Superior Court again Michael D. Drobot, Sr., his son Michael R. Drobot, Jr. and their controlled entities, Pacific Hospital of Long Beach and International Implants LLC, among other defendants, alleging that they violated the California False Claims Act (FCA), Cal. Government Code § 12650 et seq. and the California Insurance Frauds Prevention Act (IFPA), Cal. Insurance Code § 1871 et seq., by submitting false bills to the County’s workers’ compensation program. The County also claimed violations of California Business and Professions Code §§ 17200 et seq. and intentional and negligent misrepresentation.

Prior to January 1, 2013, California Labor Code § 5318 permitted reimbursements for surgical implants on a cost-plus basis, allowing providers to recover 110% of “documented paid cost” up to $250.00. The County alleges that the Drobots formed a shell entity, International Implants, which purchased surgical implants from third-party manufacturers and “sold” them to Pacific Hospital. International Implants then submitted invoices to Pacific Hospital charging “grossly inflated” prices, and Pacific Hospital passed these costs on to the County under the Labor Code’s cost-plus scheme. The Drobots’ actual cost to procure these items was significantly lower than the costs that they represented to the County when seeking reimbursement, enabling them to receive a greater profit margin than what is mandated by law.

The County also alleges that the Drobots falsely represented International Implants as a “manufacturer” of spinal implants, which would have required them to register as such with the United States Food and Drug Administration (FDA). However, the FDA listed International Implants as a “repackager,” not a “manufacturer,” rendering the claims false.

Finally, the County alleges that the Drobots paid illegal fees to physicians in exchange for referrals using “runners, cappers, or steerers” in violation of the IFPA.

Notably, the County’s allegations against Drobot, Sr. are not the first of their kind.

In February, Drobot entered into a plea agreement with federal authorities for numerous criminal offenses, including mail fraud, aid of a racketeering enterprise and payment of illegal kickbacks. See U.S. v. Drobot, No. SA CR 14-00034 (C.D. Cal.). Drobot specifically pled guilty to the conduct alleged in the recent FCA lawsuit, including the payment of kickbacks in connection with Pacific Hospital and the use of International Implants as a shell entity to fraudulently inflate its costs. Drobot also pled guilty to bribing California State Senator Ronald S. Calderon in exchange for Calderon’s agreement to support legislation and regulations that would facilitate Drobot’s fraud. Senator Calderon was also indicted in February and pled not guilty. See U.S. v. Calderon, CR No. 14-0103 (C.D. Cal.).

Also, on July 25, 2013, a qui tam complaint in Sacramento County was unsealed against Drobot for violating the state FCA and the California Insurance Frauds Prevention Act. See State of California ex rel. Mark Seransie and William Reynolds v. Gardens Regional Hospital Medical Center, Inc., et al., Case No. 34-2012-00125005 (Sacramento Super. Ct.).


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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