Pacific Hospital of Long Beach: The Referral Payments Behind the Implant Bill

Pacific Hospital of Long Beach’s owner paid more than $40 million to buy spinal-surgery referrals, using implant sales to help finance the payments, according to the Justice Department’s account. The patient heard a medical recommendation. Behind it sat a price for delivering that surgery to this hospital. For someone who saw the referral contracts or the implant invoices, the connection between those transactions is the heart of the Pacific Hospital kickback case.

The scheme operated from at least 1997 through 2013. Doctors, chiropractors and other referral sources received hospital kickbacks for sending patients to the Long Beach facility. Most of the resulting bills went to California’s workers’ compensation system.

Lumbar and Cervical Fusion Referral Payments

The lumbar and cervical fusion referral payment amounts were typically $15,000 and $10,000 per surgery, respectively, the department said.

Some Pacific Hospital patients traveled hundreds of miles for surgery even though qualified facilities were closer to home. Alongside the payment schedule, their travel shows how bought referrals brought the hospital business that could have gone elsewhere.

The government described thousands of patients who did not know their physicians had been paid to direct their surgery to Pacific Hospital. They believed the advice was free of a financial conflict.

How the Implant Bill Funded the Referrals

The hospital owner’s medical hardware company, International Implants, generated much of the money used for the kickbacks. It sold devices for spinal surgeries at Pacific Hospital and added $250 per device to its invoices to the hospital, the department said.

The arrangement depended on California’s former spinal pass-through law. Under that law, hospitals could pass the full cost of implanted spinal devices to workers’ compensation insurers. The law has since been repealed. During the scheme, the implant invoice gave the owner a way to generate money through the supply business and use it to buy patients for the hospital business.

The insurer stood at the paying end of that arrangement, while the referring provider received a payment for bringing in the next surgery.

The department’s June 2018 account put the fraudulent bills submitted through the scheme at more than $580 million, mostly to California’s workers’ compensation system. The referral payment bought access to a much larger stream of surgical billing.

The Contracts That Hid the Payment

Pacific Hospital’s referral payments came with bogus contracts that concealed their purpose, the department said. The agreements gave the money a written explanation. What they bought was the patient’s arrival.

The same gap between a contract’s label and its purpose appears in a separate whistleblower complaint concerning St. Joseph Medical Center in Towson. The whistleblowers alleged that a cardiology group used its ability to direct patients as bargaining power: Midatlantic, they said, forced the hospital to pay kickbacks presented as outcomes data research and managed care guidance.

Those labels sound like work a hospital might commission. The allegation concerns what the payments actually purchased. Pacific Hospital’s bogus agreements served that same concealment purpose in the government’s account. A contract can explain a payment on paper while someone inside the business knows a different reason for it.

Why Referral Deals Can Survive Routine Review

Collusion helps explain how a referral arrangement can pass through several desks without its purpose being challenged. The 2023 study Types of Hospital Frauds: Nature and Methods of Prevention, published in the Journal of Forensic and Investigative Accounting, examined 80 hospital fraud cases described in Justice Department announcements. Illegal patient referrals accounted for 16 cases. The paper’s table reports a sample median of $97.1 million for that category, the largest among the categories studied.

The paper identifies a weakness in a familiar safeguard: because collusion often overrides the separation of duties, such violations can be especially hard to stop.

The paper points to the substance behind service contracts: consulting work has deliverables. An agreement and an approved payment can look complete while the supposed service never happened.

The study also identifies provider staff as people who may notice unusual referral patterns. That matters here because the scheme crossed the patient route, the contract and the supplier’s invoice. An employee who understood one part of that business could recognize something the paperwork alone did not explain.

Forest Park Paid by a Different Formula

Forest Park Medical Center used marketing payments tied to the percentage of surgeries each doctor referred. The Justice Department described a hospital seeking patients whose out-of-network private insurance paid particularly well, with most kickbacks presented as consulting fees or marketing payments.

Pacific Hospital’s schedule paid a fixed amount by spinal procedure, with the implant business helping supply the money. Forest Park’s formula linked payments to the surgeries referred, and its business depended on attracting a different payer. Both arrangements put a price on a provider’s influence over where a patient received care.

For a hospital insider, the useful comparison is the formula behind the payment. A marketing budget, a service agreement and an implant invoice can occupy different places in the books while serving the same commercial aim: buying the next referral. The payer and the route the money takes explain why one hospital’s arrangement looks different from another’s.

What a Hospital Insider May Recognize

The telling connection at Pacific Hospital ran from the referral to the payment, through the contract used to explain it and the device sale used to finance it. Patient travel and the undisclosed financial relationship gave that connection a human consequence. People trusted advice from physicians who had been paid to choose where their surgeries would happen.

For someone working with physician agreements, implant purchasing or referral relationships, that is a concrete business pattern. The valuable knowledge may be what the contract was understood to buy, who controlled the supplier, or why a particular provider kept sending patients to the hospital. Those facts give meaning to invoices and agreements that can look routine when read separately.

A case under the False Claims Act can pay the whistleblower a reward of 15% to 30% of the government’s recovery. Our whistleblower experts assess how the referral arrangement and the bills fit together, and work out with you which state or federal law gives you your strongest case.

The Deal You Saw Behind the Invoice

If you know what a hospital’s referral contract really bought, or how a device supplier funded the payments, speak with our whistleblower experts about that arrangement. We connect your inside knowledge to the hospital’s payment practices and bring in hospital kickback whistleblower lawyers who understand the payer and the scheme. We remain your partners from that first conversation through the case’s resolution.