Bribery, Kickbacks, and Fraud – Oh My! California Settles Largest Medical Fraud at an Unprecedented $600 Million

In what is being called the largest in California history, a now-defunct Long Beach hospital has been discovered to have engaged in an egregious healthcare fraud scandal – one that resulted in up to $600 million in claims being filed and consequently reimbursed. Pacific Hospital was involved in a variety of unscrupulous financial relationships in order to receive referrals for costly spinal surgeries; working together with physicians, chiropractors, marketers, and a multitude of other healthcare professionals, the facility billed the federal government and state workers compensation programs alike for hundreds of millions. Though the precise figure is unknown, the investigation showed that the fraudulent practices employed by Pacific Hospital resulted in reimbursements upwards of $580 million from 2005 to 2013 alone – a timeline that only reflects a portion of the alleged 15-year scheme.

With the CFO of Pacific Hospital running the show, the facility forged unethical alliances with a number of physicians who referred patients for spinal surgeries; in order to induce their participation, the hospital would offer the practitioners $10,000 per cervical fusion surgery referral and $15,000 for each lumbar fusion surgery referral. Oftentimes, the patients referred to Pacific Hospital for surgery lived hundreds of miles away and would have benefited from undergoing surgery at a closer qualified medical facility; however, in the interest of keeping an influx of patients, the hospital continued on with the scheme. During the eight years covered by the investigation, over 4,400 patients received spinal surgery at Pacific Hospital – a number that resulted in various insurers paying out north of $226 million for surgeries stemming from the illicitly-obtained referrals.

In attempts to conceal the unconscionable fraud, the CFO would enter into counterfeit contractual agreements with the referring physicians under another company he owned, Pacific Specialty Physician Management (PSPM). This company devised a range of contracts that would mask the underhanded scheme; in one example, participating physicians could collect as much as $100,000 per month for the right to purchase their medical practices, though that right was never exercised. Other offers, such as phony lease agreements for offices that ended up remaining unused, payment for “consulting services” that were not provided, and agreements involving marketers who introduced new doctors to the hospital, were also extended to those willing to take part in the hospital’s devious practices. Three doctors who admitted involvement were reported to have received a respective $5.2 million, $1.24 million, and $1.64 million in kickbacks in return for the two hundred patients they referred to the hospital.

Financing these sizable kickbacks involved another subversive operation in which the hospital raised the price of the implantable devices that were utilized in the spinal surgeries. The CFO became aware of the fact that a proposed workers compensation reform could close the loophole that made this practice legal under California state law; in an effort to perpetuate this lucrative operation, he colluded with the senator, offering up to $28,000 in bribes in exchange for his assistance in keeping the new legislation from passing.

The investigation as a whole, nicknamed “Operation Spinal Cap,” culminated in the discovery of this exorbitant fraud, which resulted in the recovery of funds that were blatantly bilked from the U.S. Department of Labor, the California Workers Compensation System, and countless independent insurance companies. The monetary value of the scheme is shameless in and of itself, but the brazen and deliberate treatment of injured patients as mere commodities is what truly sets this case apart from typical hospital fraud.

Whistleblower Justice Network Can Help You

Whistleblower Justice Network partners with potential whistleblowers in efforts to expose the entities that purposefully commit these unspeakable acts of fraud. We believe that the integrity of healthcare should be protected at all costs, and seek to restore justice by filing claims against those who violate patient rights in the pursuit of financial gain.

If you have meaningful information regarding hospital fraud that you believe is in violation of the False Claims Act, Whistleblower Justice Network can help. Working alongside world-class legal counsel, we will ensure you are protected to the fullest extent of the law and that you receive credit for the information you bring to the U.S. government. Partnering with whistleblowers is all we do. Visit us at, or call us at 844-WJN-4ALL.