Santa Rosa doctor accused of defrauding insurers

A prominent Santa Rosa orthopedic surgeon is facing charges of accepting more than $300,000 in illegal kickbacks and fraudulent billings in an alleged workers’ compensation insurance scam involving nearly two dozen doctors and pharmacists across the state.

Dr. Eric S. Schmidt, 63, pleaded not guilty to 24 felony offenses last week in a Santa Ana courtroom, where the case was filed by the state Department of Insurance and the Orange County District Attorney’s Office.

Neither Schmidt nor his lawyer, Irvine attorney Kay Anderle, returned telephone calls seeking comment Tuesday.

Prosecutors allege Schmidt participated in a $40 million insurance scheme orchestrated by a Beverly Hills couple, Christopher King and Tanya Moreland King. The couple is accused of paying doctors and pharmacists to prescribe unnecessary treatment and tests for patients seeking help for injuries suffered at work.

The sum of the alleged payments to Schmidt - more than $308,000 - was the largest single amount paid to any individual physician named in the complaints.

Insurance Commissioner Dave Jones said the alleged scam is one of the largest cases of medical fraud he has ever seen.

“Insurance fraud is not a victimless crime,” Jones said Tuesday. “In this case, the patients were treated like pawns in this fraudulent scheme. In addition, the costs of fraud get passed on by the insurers to the rest of us in the form of higher premiums. So we all pay.”

The complaint alleges that Schmidt entered into a conspiracy to commit medical fraud with the Kings in 2012 and engaged in three complex schemes with the couple to defraud insurers over the next three years.

In the first, Schmidt allegedly prescribed patients a medicated cream manufactured for the Kings and shared in the profits with them. The Kings billed workers’ comp insurers $250 to $700 for each prescription written by Schmidt, but the medicated cream cost only $16 to $40 to manufacture, the complaint alleged.

The cream was neither approved by the Food and Drug Administration nor uniquely formulated to the specific needs of patients, said Orange County District Attorney Tony Rackauckas, who described it as a “snake oil scam.”

In a second scam, Schmidt allegedly prescribed urine tests for his workers’ comp patients and referred the results to One Source Laboratories, another business operated by the Kings. Schmidt was allegedly paid 90 percent of the profits on the tests conducted at his clinic, according to the complaint. One Source Labs billed insurers more than $700 for tests referred from Schmidt’s office, the complaint alleged.

In a third scheme, Schmidt allegedly contracted with another business operated by the Kings, Monarch Medical Group, to dispense oral pain medication it had purchased from NuCare Pharmaceuticals in Orange and A S Medication Solutions in Costa Mesa. Monarch allegedly paid Schmidt 80 percent of the net money it collected from workers’ comp insurers for the repackaged drugs.

The complaints filed in Orange County Superior Court name 21 physicians, two pharmacists and one physician assistant who worked with the Kings as they allegedly defrauded at least 27 insurance companies from 2011 to 2015. Insurers were billed $40 million for the tests and treatments, and approximately $23.2 million was paid to the two dozen defendants, prosecutors said.

The doctors involved in the alleged scheme face up to 25 years in prison if convicted.

“The law is very clear,” Jones said. “Medical providers cannot accept a kickback or financial payment in exchange for prescribing or referring treatment. ... We want to make sure that medical providers are prescribing drugs and treatment based on our medical needs as opposed to a kickback.”

Schmidt was charged with 16 counts of insurance fraud, one count of conspiracy to commit medical insurance fraud, two counts of making false or fraudulent claims and five counts of violating the state’s anti-kickback and fee-splitting laws.

A preliminary hearing for Schmidt is scheduled for June 30. The surgeon has hospital privileges at both Santa Rosa Memorial Hospital and Sutter Santa Rosa Regional Hospital.