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Doctors, others charged in spinal surgery kickback scheme

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Five people have been charged in what California's insurance commissioner calls “one of the largest workers compensation insurance fraud cases we have ever seen.”

The former chief financial officer of a Long Beach, California, hospital, two orthopedic surgeons, a chiropractor and a health care marketer have been charged with illegally referring more than 4,000 patients for spinal surgeries and generating more than $580 million in fraudulently submitted bills during an eight-year period, the U.S. Department of Justice said Tuesday in a statement.

Many of the fraudulent claims were paid by the California workers comp system and the federal government, according to the statement.

While James L. Canedo, the former CFO of Pacific Hospital of Long Beach, and Paul Richard Randall, the health care marketer, have already pleaded guilty, the three other defendants have agreed to plead guilty, the U.S. attorney's office for the Central District of California said in the statement.

Under the terms of their plea agreements, each defendant could face a prison term and be required to pay restitution to victims of the scheme, the statement said, noting that Mr. Canedo faces a federal prison term of up to 10 years and at least $20 million in restitution.

The scheme involved “a kickback of $15,000 for each lumbar fusion surgery and $10,000 for each cervical fusion surgery,” according to the statement. “Some of the patients lived hundreds of miles away from Pacific Hospital, and closer to other qualified medical facilities. The patients were not informed that medical professionals had been offered kickbacks to induce them to refer the surgeries to Pacific Hospital … Insurers paid the hospital more than $226 million for the surgeries performed as a result of illegal kickbacks.”

All five defendants have agreed to cooperate with the ongoing investigation, which has been dubbed “Operation Spinal Cap,” the statement said.

“Injured workers were treated like livestock by doctors and hospitals who paid or accepted kickbacks and bribes in exchange for referrals,” California Insurance Commissioner Dave Jones said in the statement. “Injured workers are put at risk when their medical treatment is based on kickbacks and bribes instead of their medical needs. Detectives from the Department of Insurance worked closely with federal law enforcement agencies to investigate and expose this illegal conspiracy, which is one of the largest workers compensation insurance fraud cases we have ever seen.”