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Surgeon Who Failed to Pay Taxes on Spinal Kickbacks Spared Prison

By Greg Jones (Deputy Editor)

Wednesday, March 14, 2018 | 3123 | 5 | 40 min read

A Southern California surgeon who failed to pay taxes on $1.6 million he received in kickbacks for performing spinal surgeries at Pacific Hospital of Long Beach will not be joining his co-conspirators in prison.

U.S. District Judge Josephine Staton on Friday instead ordered Dr. Mitchell Cohen to serve 10 months in a halfway home and recommended that he be allowed to serve his sentence at a facility in Orange County. The judge also ordered Cohen to perform 100 hours of community service and pay a special assessment of $100.

Cohen must also forfeit $1.6 million in proceeds from criminal activity, under an order Staton signed March 2.

The orthopedic surgeon from Fountain Valley pleaded guilty in November 2015 to one count of filing a false tax return in which he admitted to not reporting the kickbacks as income on his personal tax returns.

Cohen admitted that he deposited “the substantial majority of his kickback payments” into the corporate bank account for his Spine Care Center. The medical corporation, however, had no legitimate business purpose other than serving as a conduit for kickback payments, according to the plea agreement.

He also admitted to reporting the kickbacks as gross receipts of Spine Care Center on tax returns filed in 2009, 2010, 2011 and 2012, when he should have reported the payments as income on his personal filings. According to the plea agreement, not reporting the payments as personal income reduced Cohen’s cumulative tax bill for the four-year period by $402,139.

Cohen received the kickbacks from Michael D. Drobot, the former owner of Pacific Hospital, and a person identified in the plea agreement as “Marketer A.” Drobot or Marketer A paid Cohen $15,000 for each posterior lumbar fusion and $5,000 to $7,500 for each cervical fusion. The kickbacks were contingent upon his performing the surgeries at Pacific Hospital using hardware purchased from International Implants, a distributorship Drobot owned.

But his dealings with Drobot stretch back to 2004 when Cohen signed a contract with California Pharmacy Management, an in-house dispensary management company.

The agreement purported to allow allowed CPM, also owned by Drobot, to set up a pharmacy in Cohen’s office in return for 50% of the gross collections on prescriptions filled. But in reality, Drobot was paying Cohen $20,000 to $40,000 a month as an inducement to operate the pharmacy and to “gain access to defendant’s patients including, in particular, defendant’s workers’ compensation patients.”

Cohen received his monthly fee regardless of actual collections from the in-office dispensing program. And, at times the pharmacy contract was used to conceal kickbacks paid for patients Cohen referred to or operated on at Pacific Hospital, according to court filings.

Although Cohen wasn’t convicted of defrauding workers’ compensation carriers or a health care program, the Division of Workers’ Compensation nonetheless determined that he should be suspended.

Cohen in January 2017 appealed the DWC’s notice of suspension, arguing that he hadn’t been convicted at the time and that tax fraud is not one of the crimes for which providers can be sentenced under the new Labor Code Section 139.21 created by Assembly Bill 1244 in 2016.

“This relates to patient care, as surgeries may have been done that were not or were marginally necessary and the defendants in those cases ended up spending more money on each surgery due to the kickback scheme,” Workers’ Compensation Judge Alan Skelly wrote in his determination and order. “We cannot look just to the crime he pleaded guilty to, but also to the conduct that led to the conviction.”

Cohen will also be required to inform medical boards that the tax charge was related to his practice, as a condition of his sentence.

Staton’s order requires Cohen to notify the Medical Board of California and the New York Medical Board about his conviction, and “the entire factual basis of the plea agreement, including that relating to the kickback scheme.”

Cohen’s 10-month sentence is the shortest the judge has handed down since sentencing hearings started last year.

Paul Randall, a former marketer at Pacific Hospital who pleaded guilty to a conspiracy charge for offering kickbacks to providers who referred work comp patients to have spinal surgeries at Tri-City Regional Medical Center in Hawaiian Gardens, was sentenced to 15 months in November.

Drobot was sentenced to 63 months in prison in January. He was also ordered to forfeit $10 million in proceeds from criminal activity and pay a $500,000 fine. Drobot pleaded guilty to a conspiracy charge and a kickback charge in February 2014.

His son, Michael R. Drobot, was sentenced to 41 months in prison and ordered to start serving May 14. He was fined $175,000 during a sentencing hearing Thursday.

In February, the younger Drobot was ordered to forfeit $1 million he admitted to acquiring while using pharmaceutical companies, including California Pharmacy Management and Industrial Pharmacy Management, to facilitate kickback payments to providers who referred patients to his father’s hospital. The younger Drobot pleaded guilty to a single conspiracy charge and a single charge of paying kickbacks in 2016.

James Canedo, chief financial officer at Pacific Hospital from 1999 until October 2013, was sentenced to 366 days in jail during a sentencing hearing in February. He was also ordered to forfeit $633,091 identified as criminal proceeds in a November 2015 agreement to plead guilty to a single conspiracy charge.

Canedo and both Drobots are scheduled to appear in court again on May 11 to determine whether they will be forced to pay restitution to injured workers, insurance carriers or other victims.

Dr. Philip Sobol was sentenced to serve 21 months in prison during a sentencing hearing last month after pleading guilty in November 2015 to a single conspiracy charge. Sobol was also ordered to forfeit $2 million he received in kickbacks for referring about 90 patients to have spinal surgeries performed at Pacific Hospital.

Sobol received $5.2 million in kickbacks between 2005 and 2013, but the judge gave him credit for $3.2 million he already paid to settle a civil complaint over illegal patient referral fees. Court documents don’t identify the civil case, but Sobol in June 2016 entered a confidential settlement with Sate Compensation Insurance Fund over a Racketeer Influenced and Corrupt Organizations Act accusation that the carrier filed in 2013.

Former state Sen. Ron Calderon, D-Montebello, who accepted $30,000 in bribes from the older Drobot to preserve the pass-through payment on hardware used in spinal surgeries Pacific Hospital, was sentenced to 42 months in prison in October 2016.

Two additional defendants are awaiting sentencing for their role in the Pacific Hospital scheme.

Chiropractor Alan Ivar of Costa Mesa faces up to five years in prison at a March 23 hearing. Ivar pleaded guilty in 2015 to a conspiracy charge and admitted to receiving $1.2 million in kickbacks for referring work comp patients to Pacific Hospital.

Linda Martin, a former marketer for the hospital who pleaded guilty to a conspiracy charge in 2016 and admitted to recruiting doctors to refer patients to the hospital, faces up to five years at a July 13 hearing.

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