Before Heading to Prison, Attorney Apologizes for Major Workers’ Comp Fraud

O’Keefe last Wednesday morning apologized to an audience of fraud investigators and claims administrators at the Combined Claims Conference. Then he gave an eyewitness account of life inside an organized crime syndicate that started with an offer in 2011 by hospital owner Michael D. Drobot to pay him $15,000 for each patient he referred for spinal surgery at the Pacific Hospital of Long Beach.

O’Keefe said insurers paid bills from Drobot’s hospital for years thinking they were getting a discount.

Sean O’Keefe addressing the Combined Claims Conference.

“You all approved the surgeries and when Mr. Dorbot’s office called you to pay the bills, his bills were 15 percent to 20 percent less at his shoe box hospital than they would have cost you if they had been done at U.C. Irvine,” he said.

O’Keefe was brought down as part of Operation Backlash, an investigation in Southern California capping schemes led by the U.S. Justice Department that had yielded 30 convictions so far. He was also involved in a separate referral scheme with Drobot, who pleaded guilty in 2014 to bribing former state Sen. Ron Calderon in order to preserve an odd California rule, since repealed, that allowed hospitals to bill insurers for the full cost of hardware used in spinal surgeries.

Drobot and Calderon are now both serving time in federal penitentiaries. The Justice Department said the spinal surgery scam cost insurers $500 million over a 15-year period.

Former California Hospital Owner Sentenced in $600M Workers’ Comp Scheme

O’Keefe said crooked doctors and lawyers get the most attention, but 85 percent of the people involved in capping schemes are not licensed professionals. The real action is done by marketers, what O’Keefe called “the sign-up guys.”

“To the syndicates, doctors and lawyers are just high wage earners,” he said.

O’Keefe’s first sign-up guy was Carlos Arguello, who went to work at his San Diego law practice at the tender age of 19. He said he had to let Arguello go about a year later because 80 percent of the clients he brought to his office “could not even articulate an industrial injury.” That was bad for his practice because doctors who treat injured workers don’t get paid if a claim is denied. They would quickly stop treating his clients, he said.

But O’Keefe said what he failed to understand at the time was that Arguello wasn’t concerned about the doctors getting paid. He went on to operate another scheme that bilked carriers by billing for unnecessary copy services.

Arguello had his hand in bogus medical bills as well. He was the founder of Centro Legal Internacional, a mill that the Orange County District Attorney’s Office says had worked with 20 to 30 workers’ comp and personal injury attorneys to gin up medical bills.

O’Keefe was among them. He said the scheme was designed to generate bills in as many ways as possible. The medical provider that he worked with mostly, San Diego chiropractor Steve Rigler, would enter a patient’s information into a computer program that automatically generated referrals for diagnostic testing, durable medical equipment and pharmaceutical services. Rigler was also arrested and pleaded guilty as part of Operation Backlash.

As it happens, Arguello on Wednesday was testifying as a cooperating witness five miles away at the Orange County courthouse. There, the trail of the first of 10 attorneys and six others involved in the alleged billing scam, which the Orange County District Attorney’s Office said defrauded insurers out of $300 million. Prosecutors say the network generated 33,000 fraudulent workers’ compensation claims.

O’Keefe said after he was confronted by investigators, it took him “about 10 seconds” to decide to cooperate.

“My cooperation began like most cooperators: I was afraid of going to jail,” he said. “But along the way, I met people with extraordinary integrity who showed me exactly how far I had fallen afield.”

He will soon pay his price. O’Keefe was sentenced in February to serve 13 months in prison and must report to U.S. marshals on May 29. He also owes $300,000 in restitution and $200,000 in taxes, “which I don’t have.”

Teena Barton, a senior investigator with ICW Group’s special investigations unit, persuaded O’Keefe to tell his story. She said O’Keefe’s presentation at the Combined Claims Conference was his sixth or seventh in a mea culpa tour, of sorts. O’Keefe said he isn’t paid any speaking fees. He wants to make amends.

Barton said carriers need to understand that the medical mills are relentless and quickly replace any fraudsters who are caught.

“This is a Cali thing, you might say. They are moving east and we know where they are right now,” she said.

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