FBI: California Senator Tied up in Workers’ Comp Fraud

An FBI investigation shows that state Sen. Ronald Calderon accepted bribes from a hospital executive in Southern California who ran an alleged workers’ compensation scheme, the Al Jazeera America news outlet is reporting.

Calderon, D-Montebello, who chairs the Senate Insurance Committee, was not immediately available for comment. Calls placed by the Insurance Journal to his state capital office and his Montebello district office went into general voice mail. The offices of most state Legislators have a live person answering, whereas there was no one to answer at either of Calderon’s offices.

The Al Jazeera article is based on an FBI affidavit obtained by investigative journalists that references a lawsuit by California State Compensation Insurance Fund against the hospital executive that levies a number of allegations, including racketeering and upcoding.

However, it doesn’t appear State Fund is a direct part of the FBI investigation as either a subject, or an associated party, but instead it appears the State Fund suit is a parallel matter that involves the executive and not Calderon.

The executive is Michael Drobot, who ran a spinal surgery clinic in Long Beach, according to the Al Jazeera story. In exchange for payments to family members, Calderon protected the interests in Sacramento of Michael Drobot, the story states.

The article outlines Calderon’s alleged behind-the-scenes role in the workers’ comp payment controversy:

“According to the affidavit, Calderon concealed bribe payments from Drobot through his brother, former Assemblyman Thomas Calderon, and his son, Zachary, a student at Berklee College of Music in Boston. Thomas Calderon received a monthly consulting fee of at least $10,000 from Drobot, plus a one-time payment of $1 million. The affidavit says Drobot paid $28,000 to Ronald Calderon through his son, who worked a summer job at Drobot’s hospital, although most of the money went directly into the state senator’s bank account.”

The State Fund complaint, which was filed in U.S. District Court in the Central District of California Southern Division, alleges fraud, violations of the Racketeer Influenced and Corrupt Organizations Act, and unfair competition among other charges. The suit accuses the defendants of a practice known as upcoding, which refers to using medical treatment codes to submit insurance claims that represent a substantially higher billing price than the set amount for the actual services that were actually delivered.

The suit states:

“Defendants in this case conspired and participated in a scheme to defraud State Fund in connection with the submission and collection of fraudulent insurance bills for medical services, spinal implant hardware, medications, and other services (collectively, “Medical Services”) under State Fund-issued policies of workers’ compensation insurance.”

According to the suit, the defendants formed and operated shell corporations and represented that these corporations were manufacturers of spinal hardware, billing as if they did manufacture such hardware, when they did not.

The State Fund suit also alleges the defendants billed for services at substantially higher rates than allowed under the Office Medial Fee Schedule, billed at rates up to 10 times the average for over-the-counter medication, billed nurses as assisting surgeons and double-billed State Fund for radiology services.