Years before the feds roiled the Capitol by indicting the Calderon brothers on charges of accepting bribes, Bill Reynolds was onto the scheme.
Reynolds had battled killers and cartels during 20 years as an Oakland cop and federal drug enforcement agent. He saw more than his share of fraud while working as a private insurance company investigator for 20 years after that.
But he is particularly appalled by the political corruption that opened the way for crooked surgery centers to perform needless back operations on thousands of laborers and bilk hundreds of millions from the workers’ compensation system.
“I’m floored it went as far as it did,” Reynolds said. “It shakes your confidence that politicians can be paid for and bought.”
Reynolds, 63, who flies the American flag outside his home in suburban Contra Costa County, is a plaintiff in a private whistle-blower lawsuit filed in May 2012 against surgery centers and others. It presaged the indictment of Sen. Ron Calderon and his brother, former Assemblyman Tom Calderon.
As Reynolds discovered – and detailed in debriefings with the FBI – Michael Drobot was at the center of it all, employing Ron Calderon’s son and retaining Tom Calderon.
Drobot, 69, bought Pacific Hospital of Long Beach in 1997. By 2001, he was in Sacramento seeking legislation that would crack open the workers’ comp vault for his hospital’s specialty, spinal-fusion surgery.
Drobot’s raid of the workers’ comp system reflects the corrosive impact of money on politics. Politicians carried legislation that helped enrich a crook who, by owning a hospital, purported to be a healer. Drobot used his riches to buy vintage autos and resort property, and lavish donations on politicians. It was lucrative for Drobot but a vicious circle for the rest of us.
In charging Drobot, federal authorities in Los Angeles said his hospital submitted more than $500 million in fraudulent bills during the last five years, much of it charged to the California workers’ compensation system, paid for by you and me and our employers.
Drobot has relinquished control of Pacific Hospital and pleaded guilty two weeks ago to federal charges that include paying kickbacks to doctors and chiropractors who referred laborers from as far away as Northern California for the unnecessary surgery.
“People like Drobot seek out the weak link. In terms of ethical compasses, the Calderons were clearly the weak link in Sacramento,” said Niall McCarthy, the Burlingame lawyer who represents Reynolds.
If the whistle-blower suit succeeds, the state would receive 70 percent to 75 percent of any recovery from the defendants. Reynolds and his co-plaintiff, Mark Sersansie, would collect the remainder.
Through his investigation, Reynolds found numerous examples of hyperinflated costs charged by Drobot and other surgery centers. In January 2012, for example, a company called International Implants provided spinal-fusion hardware to Pacific Hospital at a cost of $32,465.
“Only a few days later and without having actually paid for the surgical hardware yet, Pacific Hospital bills the workers’ compensation carrier $64,930,” the suit said.
Drobot was exploiting a now-repealed California provision of law that essentially permitted hospitals to double bill the workers’ comp system for the spinal surgery. Spinal fusion was the only operation that received the special exemption.
To grease his way, Drobot and his minions donated at least $240,650 to the Calderon clan’s campaigns over the years, including $179,000 to Tom, and $45,850 to Ron. But many politicians, most of them Democrats, gathered at Drobot’s trough. By my count, Drobot’s network donated $1.9 million to political campaigns since 2000, including $540,000 to the California Democratic Party.
In 2001, Tom Calderon carried a bill that extended a favorable fee schedule for spinal surgeries that was due to expire at the end of 2001. Gov. Gray Davis, who took $332,800 in donations from Drobot and his operation, signed the bill in September 2001.
A few months later, in February 2002, Tom Calderon and then-Senate Leader John Burton jammed a 39,000-word workers’ compensation overhaul through the Legislature.
The California Labor Federation, seeking to increase what had been stagnant payments for injured workers, was the bill’s main backer. Drobot stayed in the shadows, as was his method of operation. But buried in the megillah was a turn of phrase that, according to a 2003 report in the San Francisco Chronicle, “made it almost impossible” to cap spinal-fusion fees.
Tom Calderon ran for insurance commissioner in 2002, with Drobot’s support. After voters wisely rejected him, he went to work for Drobot.
In 2003, with Tom Calderon as Drobot’s consultant, the Legislature approved a bill that created special protection for spinal-fusion surgery. Davis signed the bill in late September amid the recall campaign.
Upon ousting Davis, Gov. Arnold Schwarzenegger promised to vastly cut the cost of workers’ compensation for employers. In one of his first orders of business, he signed a business-friendly overhaul in April 2004. However, the bill failed to touch the spinal-fusion protection. Drobot’s firm gave Schwarzenegger $22,300 for his 2006 re-election.
Numerous reports and studies have decried the overuse of spinal-fusion surgery. The California Workers’ Compensation Institute reported in 2012 that double payments for the surgery added an average of $20,137 to the cost of 3,350 work injury claims in 2010, jacking up costs by $67.5 million.
In 2012, Sen. Ted Lieu, D-Torrance, introduced a bill to close the loophole for spinal-fusion surgery. According to the indictment, Ron Calderon met with “Senator C” – believed to be Lieu – in June 2012, and “discussed the negative impact Senator C’s proposed legislation would have on Pacific Hospital and other hospitals.”
Shortly afterward, Lieu’s bill became inactive, though it became part of a larger workers’ comp measure since approved that closed the Drobot loophole. Ron Calderon was one of the few Democrats who voted against it.
The other day, Reynolds sat at his kitchen table and spread out blue, gold and silver screws, nuts and rods, the titanium hardware doctors install in the backs of patients who get spinal-fusion surgery. He had begun looking into Drobot while working as an insurance fraud investigator for a Berkshire Hathaway subsidiary. He blames Drobot for getting him fired. He is pursuing the case as a private whistle-blower.
The hardware was fundamental to the fraud. Doctors use the hardware to fuse the spines of people suffering from back pain. Some of the material is legitimate. Much of it is counterfeit.
He could spot the phony rods because the machine shop left tiny spurs. If installed in a person’s back, those spurs would cause further pain. He worries that counterfeit hardware could degrade and become toxic.
No one knows how many people received counterfeit metal or what toll it’s taking. “If that’s your son or daughter, or your grandfather,” Reynolds asked, “who stands up for them?”
Certainly not the Calderons.
Follow Dan Morain on Twitter @danielmorain.