Doctors can be inaccessible. They work limited hours at inconvenient locations and are often booked weeks in advance. Physician Alvin Yee was more customer friendly.1 He’d see a dozen or more patients a night, at eateries like Carl’s Jr. and Denny’s and at coffee shops like Starbucks. He once met a patient at an auto dealership. Wherever he was, Dr. Yee would take out his stethoscope, listen to patients’ hearts and lungs, and evaluate their vital signs. Sometimes, he performed neurological exams.
Yee’s unusual practice style appealed to Millennials. One-third of his patients were in their 20s. Remarkably, many of these young people needed help with pain. Yee gave them prescriptions for OxyContin, Xanax, Roxicodone, and Vicodin. Some patients had trouble concentrating. He wrote them scripts for Adderall, an amphetamine. Despite his low overhead, Yee wasn’t cheap. Initial visits cost $600; follow-ups were $300. Convenience came at a price.
Yee stopped seeing patients after two of his patients died and the feds arrested him for prescription drug fraud. A few of the folks who visited him before he shuttered his practice were U.S. Drug Enforcement Administration agents. Yee gave them prescriptions for controlled substances too. He wrote prescriptions for one agent after being told that the medicine was for a friend who was unable to keep her appointment. Another undercover agent said he was a former heroin addict who’d been borrowing painkillers from others. Yee gave that agent a prescription too, telling him, “You won’t be having to bum off of your friends anymore.”2 Yee was so quick on the draw that he once reportedly pulled out his prescription pad while gambling at a Las Vegas casino.3 After being indicted on 56 counts of illegally distributing controlled substances, Yee pled guilty and agreed to a minimum punishment of eight years in prison. The judge gave him 11 years.4
Some of Yee’s patients wanted drugs for themselves. The two who died from overdoses obviously fell into this category. Others sold the drugs they obtained on the black market. Yee was practicing in Orange County, California, but investigators seized large quantities of the drugs he prescribed during busts in Seattle, Phoenix, and Detroit. But Yee didn’t see himself as a criminal. In a televised interview, he accepted “responsibility for . . . lapses in judgment,” but he seems to have thought he was mostly helping people.5 Yee’s attitude is not unusual. A study of physicians who were imprisoned for Medicaid fraud found that none thought they had done anything wrong. They “saw themselves as sacrificial lambs hung out to dry because of incompetent or backstabbing employees, stupid laws, bureaucratic nonsense, and a host of similar reasons.”6
The prevalence of prescription drug fraud has a lot to do with the War on Drugs. Policies that criminalize access to controlled substances create lucrative black market opportunities for people willing to sell them illegally. Consider OxyContin. Its street value is about ten times the price at a pharmacy.7 Arbitrageurs (i.e., middlemen) can make an enormous amount of money on the spread, and the harder law enforcement officers crack down on illegal sales, the higher street prices rise, automatically rewarding dealers for running greater risks. When Florida clamped down on illegal sales of oxycodone (the drug that is the active ingredient in OxyContin) in 2011, the street price went from $8 a pill to $15.8 The incentive to run the risk of arrest and imprisonment was preserved and will last as long as the War on Drugs continues.
The black market in prescription drugs is good at meeting customers’ demands too. After the U.S. Food and Drug Administration approved a generic version of OxyContin, the generic pills showed up on the street in some parts of the country before they were available in local pharmacies.9 Undercover agents who bought the pills didn’t even know what they were. Today, dealers are distributing new opioids so quickly that forensic labs are having trouble figuring out what’s being sold, and first responders have no idea how to help people who overdose.10
If the War on Drugs were to end tomorrow, the street price of controlled substances would drop and a good deal of prescription drug fraud would vanish overnight. But illegal behavior would not disappear entirely. Prescription drug fraud that rips off Medicaid, Medicare, and private insurers will persist as long as patients rely on third-party payers to cover the cost of their medicines. Indeed, these other types of fraud are likely to become more of a problem as criminals who formerly sold drugs on the black market look for new ways to make money.
Perhaps the most surprising unintended consequence of the War on Drugs is that it turned urine into liquid gold. Monitoring the use of controlled substances, including both those that are prescribed and those that are acquired illegally, requires doctors and independent laboratories to test millions of urine samples, for which payers dole out billions of dollars. In just one year, Medicare alone paid for about 19 million urine screens. All together, “[t]he federal government paid providers more to conduct urine drug tests in 2014 than it spent on the four most recommended cancer screenings combined.”11 It is hard to imagine better evidence that our priorities are reversed.
In 2013, twin brothers Robert and William Carlucci, both 70-year-old pharmacists in New Jersey, pled guilty to charges of submitting fraudulent bills to health care payers, including Medicare and Medicaid.12 Their schemes covered the waterfront: underfilling prescriptions while billing for the full amount; charging for name brand drugs while substituting generics; billing insurers for refills without patients’ knowledge; and buying drugs from nonlicensed wholesalers at substantial discounts while charging insurers their normal cost. The Carlucci brothers were comparatively small fry: they took insurers for only $1.5 million.
In October of 2011, a much larger criminal conspiracy came to light when the federal government indicted 24 defendants in South Florida for trafficking in oxycodone and other synthetic painkillers to the tune of $40 million.13 The defendants included a doctor, two pain clinic operators, the owner of four Robert’s Pharmacies, recruiters, and several professional patients.
The scheme worked this way. Recruiters paid people $600 to visit pain clinics in South Florida. Physicians at the pain clinics wrote prescriptions for controlled substances, even though the patients did not need them. The patients filled the prescriptions at Robert’s Pharmacies and gave the drugs to the recruiters, who sold them on the black market. Finally, the pain clinics and pharmacies billed Medicare, Medicaid, and private insurers for the services and drugs they had provided. Everyone made money, and Robert’s Pharmacies became one of the largest purchasers of oxycodone in South Florida.
This case is typical. South Florida has long been a hot spot of pharmaceutical fraud in all of its many varieties. In 2017, the Department of Justice charged the owner of a drug-treatment center in Delray Beach, Florida. He allegedly “recruited addicts to aid him in his schemes, attending Alcoholics Anonymous meetings and visiting ‘crack motels’ to persuade people to move to South Florida to help him. He offered kickbacks in the form of gift cards, plane tickets, trips to casinos and strip clubs as well as drugs.”14 In 2011, the New York Times observed that “pill mills” were everywhere in Florida; “so many out-of-staters flocked to Florida to buy drugs at more than 1,000 pain clinics that the state earned the nickname ‘Oxy Express.’”15 Substantially more people were dying each year from prescription drug overdoses than from illegal drugs. Florida subsequently cracked down on illegal prescribing by prohibiting physicians from dispensing narcotics themselves and by creating a statewide prescription drug monitoring system. Roughly half of the pain clinics shut down immediately.
But Floridians who want painkillers and can’t find them locally don’t have to travel far. Doctors in southern states are happy to get out their pads. When the U.S. Centers for Disease Control (CDC) tracked the number of opioid-based painkiller prescriptions per 100 residents, states in the South and the Midwest stood out like sore thumbs. Alabama, Arkansas, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Ohio, Oklahoma, South Carolina, Tennessee, and West Virginia all had at least one prescription for every man, woman, and child in the state. Some southern states had 1.25 prescriptions. In Alabama, Tennessee, and West Virginia, the figure was 1.4 prescriptions per resident. All other states had less than one prescription per resident. California, Hawaii, Minnesota, New Jersey, and New York all had between 0.52 and 0.63 prescriptions per resident.16
In fairness, the South doesn’t have a monopoly on opioid fraud. A New York clinic was charged with fraudulently issuing prescriptions for more than five million oxycodone tablets, which reportedly fetched from $30 to $90 apiece on the street.17 That said, the number of pills needed to fill the prescriptions written in southern states boggles the mind. Consider West Virginia. Studying sales records provided by the Drug Enforcement Administration, journalists learned that “drug wholesalers shipped 780 million prescription painkillers to West Virginia over a six-year period.”18 Nearly nine million hydrocodone pills went to a pharmacy in the tiny town of Kermit, home to 392 people. If you divide the sales volume by West Virginia’s population, the shipments totaled “433 pain pills for every man, woman and child” in the state.19
Not surprisingly, the opioid crisis that has gripped the nation in recent years has hit West Virginia especially hard. When the CDC studied trends in drug overdose mortality per capita, it found that West Virginia had moved from the bottom quartile of the states in 1999 to the very top of the list in 2015. In comparison with the national average of 16.3 deaths per 100,000 people, West Virginia’s rate of 41.5 was almost off the charts. This wasn’t a one-time blip. In 2016, West Virginia again led the nation in drug overdose deaths per capita, with 35.5 per 100,000.20 Things are so bad in West Virginia that in August 2016, 28 people overdosed in a four-hour span in Huntington, a town of 50,000 residents.21 The spike in deaths even overwhelmed a state program providing burial assistance to indigent families.22
Of course, these problems aren’t limited to West Virginia. Drug overdoses have increased the death rate of young white Americans to levels not seen since the height of the AIDS epidemic. Nationwide, drug overdoses account for 28 percent of deaths among white males aged 15–34, and 8 percent of all fatalities among white males age 35–64.23
Problems caused by opioid abuse affect people who aren’t users too, as U.S. District Court Judge Joseph Goodwin explained in a thoughtful opinion providing a detailed description of the nationwide opioid crisis and West Virginia’s particular situation:
West Virginia leads the nation in the incidence of babies born exposed to drugs and has the highest rate of babies born dependent on opioids. In Huntington, for example, one in ten babies born at the hospital suffers withdrawal from substances such as heroin, opiates, cocaine, or alcohol. That is about fifteen times the national average.24
If there is one bright note in this sea of bad news, it is that West Virginia Governor Jim Justice (R) signed a law in 2017 that will make medical marijuana available in the state starting in mid-2019.25 A 2017 study by researchers at the University of California San Diego found that in states that legalized medical marijuana, the number of hospitalizations for abuse and addiction to painkillers fell by 23 percent from 1997 to 2014, and hospitalizations for opioid overdoses declined by 13 percent.26 These declines occurred at the same time that opioid-related deaths and hospitalizations in other states were skyrocketing. These findings suggest that people wanting to experience pain relief or drug-induced euphoria will use safer substances when they are available. Addicts may be addicts, but they’re not suicidal. If we’re right about that, West Virginia’s opioid crisis might be nearing its end—even though the law was intended to help cancer victims and other people with terminal illnesses who need help managing pain.
Writing prescriptions for millions of pills requires a terrific work ethic, which Dr. Michael R. Brown certainly had. Known as “Dr. Feel-Good” by his clients, Brown was responsible for almost one-third of the OxyContin prescriptions filled at Massachusetts pharmacies in 2004—an astonishing 288,859 prescriptions out of a statewide total of 922,985. To sustain that rate, Brown would have had to write 33 prescriptions an hour, 24 hours a day, 7 days a week, every week of the year. He was convicted of dealing drugs and committing Medicaid fraud in 2007. When the state medical board finally stripped him of his license, its investigator reported that Brown had been “dealing OxyContin to the entire South Shore.”27
Prescription drug fraud isn’t limited to narcotics either. For years, Dr. Huberto Merayo wrote hundreds of prescriptions for powerful and expensive anti-psychotic drugs at his office in Coral Gables, Florida. In 2009 alone, these prescriptions cost Florida’s Medicaid program nearly $2 million. But, by comparison to Dr. Fernando Mendez-Villamil, Merayo was a rank amateur. Mendez-Villamil wrote more than 96,000 Medicaid prescriptions for mental health drugs from July 2007 to March 2009. In 2009 alone, his prescriptions for anti-psychotics cost the state’s Medicaid program $4.7 million. Eventually, the state caught up with both Merayo and Mendez-Villamil, but it took years for it to do so.28 Both doctors eventually pled guilty to health care fraud.29
Egregious overprescribing of the sort just described is easy to detect. Just look for extreme outliers. “Pill mill” doctors get away with their frauds for so long because no one is paying attention. But even if someone were looking for outliers, lower-volume frauds would fly under the radar. Unlike consumers, law enforcement officers cannot be present every time a prescription is written. They have to rely on physicians’ honesty and records. But honesty cannot always be assumed. Records may be phony. Barring extreme facts, regulators are inevitably left guessing much of the time—and they will understandably tend to give physicians the benefit of the doubt. Meanwhile, in 2010, Medicaid spent more than $27 billion nationwide on prescription drugs. We don’t know exactly how much of that was wasted, but we can be sure that billions were.
How do we know that? The government has studied prescription drug fraud in public programs repeatedly, and each time it has concluded that fraud is rampant. A 2009 GAO report on the Medicaid programs in five large states (California, Illinois, New York, North Carolina, and Texas) opened with the observation that investigators “found tens of thousands of Medicaid beneficiaries and providers involved in potential[ly] fraudulent purchases of controlled substances, abusive purchases of controlled substances, or both.”30 Sixty-five thousand beneficiaries had engaged in “doctor shopping,” by acquiring prescriptions for the same type of controlled substances from six or more different medical practitioners during fiscal years 2006 and 2007. Four hundred of them got prescriptions for controlled substances from 21 to 112 medical practitioners and visited up to 46 different pharmacies to have them filled.31
Some of the specific findings were macabre. An Ohio physician who specialized in pain management was convicted of filing $60 million worth of fraudulent Medicaid, Medicare, and insurance claims. The doctor got patients hooked on controlled substances “so that he could profit from their habit[s] and increase the income he received from their medical claims. Two patients who regularly saw him died under his care, one from a multiple-drug overdose in the physician’s office and one from an overdose of OxyContin taken on the same day that the prescription was written.”32
Other findings remind us that the government often misses even patently fraudulent claims. Medicaid paid pharmacists for dispensing controlled substances to over 1,800 dead beneficiaries and for filling prescriptions for controlled substances written by more than 1,200 dead physicians. No wonder the GAO concluded that the five states it examined “did not have a comprehensive fraud prevention framework” for dealing with controlled substances.33
Similar problems beset Medicare Part D, which was enacted during President George W. Bush’s administration and now pays for one out of every four prescriptions filled nationwide. A 2011 GAO report found that doctor shopping was widespread, with more than 170,000 Medicare beneficiaries receiving prescriptions for controlled substances from five or more medical practitioners in 2008. Six hundred Medicare beneficiaries obtained prescriptions from 21 to 87 medical practitioners in a single year.34
These examples are part of a much larger phenomenon. In 2014, researchers at Harvard Medical School released the results of a study of more than 1.2 million medical records of Medicare patients who took opioids like hydrocodone, fentanyl, morphine, and oxycodone. Nearly 35 percent had prescriptions from more than one doctor. One-third of this group got their prescriptions from four or more doctors.35 In 2016, half a million Medicare beneficiaries (excluding those with cancer or in hospice) were prescribed “excessive” amounts of opioids (relative to standards set by the CDC), including 70,000 who received “extreme” amounts of narcotics (i.e., more than 240 mg of morphine every day for the entire year), and 22,000 who appeared to be “doctor shopping” (i.e., going to multiple physicians to obtain multiple prescriptions for opioids).36
ProPublica, a leading source of investigative journalism, has also documented fraud problems under Medicare Part D. After analyzing Medicare records it obtained via the Freedom of Information Act, it reported a host of abuses:
The underlying scams take many forms, but one common strategy involves identity theft. Dr. Ernest Bagner III worked at a clinic in a strip mall in Hollywood, California, and saw a small number of patients with psychiatric problems. Then someone began forging his name on prescriptions for expensive medications for a wide array of nonpsychiatric problems. Medicare paid $3.8 million for phony prescriptions supposedly written by Bagner in 2010, and another $2.6 million in 2011. Even though Bagner repeatedly informed fraud control personnel that he had not written the prescriptions in question, Medicare took no action to prevent payment on newly submitted prescriptions.38 Instead, the U.S. Centers for Medicare and Medicaid Services (CMS) kept shoveling money out the door.
Bagner’s case is not an isolated event. According to a 2012 article in the Journal of the American Medical Association, there were more than 12,000 cases of identity theft involving physicians between 2007 and 2009. In 32 percent of these cases, the thefts went undiscovered for more than a year, meaning that the criminals had many months in which to submit fraudulent bills in the names of the doctors whose identities they purloined.39
A much more elaborate phony prescription operation involved Babubhai Patel, the owner of several Detroit-area pharmacies. Patel “had a stable of doctors willing to write Part D prescriptions for any drug he wanted, any time he wanted. In return, the doctors got cash, a flock of new patients and, in at least one case, a down payment for an office building.”40 Patel got paid by Medicare and other insurers for filling the bogus prescriptions and then made even more money by reselling the drugs. Thirty-nine people were indicted in August 2011 for participating in Patel’s scheme, including 8 doctors, a podiatrist, 15 pharmacists, 3 home health agency owners, an accountant, and a psychologist. Most pled guilty. Patel was convicted in 2012 and is serving 17 years in prison.41
One of the physicians who went down with Patel was Dr. Mark Greenbain. Patel paid him $500 a week for prescribing expensive antipsychotics in 2011, the year Greenbain was indicted. Within a month, Medicaid suspended Greenbain from further billing. But Medicare kept him on and paid $862,000 for prescriptions he had written in 2012, even though Greenbain was under indictment for health care fraud. Even after Greenbain pled guilty in 2013, Medicare took several months to revoke his billing authorization.42
Scams like Patel’s succeed for many reasons. First, to external appearances nothing was amiss, apart from the total volume of drugs being prescribed. Physicians were writing prescriptions for patients, and patients were having those prescriptions filled at pharmacies. To a bureaucracy, paperwork is reality, and all the paperwork was in order. One key to a successful scam is for everything to look normal. Second, Medicare’s structure makes it easy for fraudsters. Medicare Part D gives the private insurance companies that administer the program only 14 days to pay for prescriptions. And once the money goes out the door, there’s little hope of recovering it. Third, the insurers can’t block suspect doctors’ prescriptions or review patients’ medical records to confirm that the patient actually saw the doctor who wrote the script. Fourth, the frauds often involve multiple insurers, each of which sees only part of the picture.
Finally, many patients in whose names bogus prescriptions are written either cannot detect the frauds or do not care because the frauds cost them no money. A scam that used identities stolen from nursing home patients came to light only because Denise Heap happened to check a form Medicare sent about her mother, a victim of Alzheimer’s disease. Upon learning that her mother was being given all sorts of unnecessary and expensive medications, Heap complained to Medicare. Predictably enough, Medicare wasn’t interested. But Heap persisted and contacted local law enforcement officials. Her call “launched an investigation that uncovered a large Part D scheme allegedly connecting the owners of the nursing home to a North Hollywood pharmacy operation, including evidence that other residents’ identities were used.” Reporters who interviewed Sergeant Steve Opferman, head of the local anti-drug task force, wrote that “investigators might never have known of the scheme without Heap’s tip.”43
In 2014, the federal government finally adopted a rule allowing officials to exclude overprescribing doctors from Medicare. But the rule isn’t self-enforcing, and there are good reasons to be skeptical of the ability and willingness of CMS to use their newly granted powers to crack down on problem overprescribers. After all, CMS swung into action only because the media exposed its ineptness, not from a deep-seated desire to protect taxpayers’ money. Even as the new rule was being announced, Medicare officials were reassuring providers that they intended to use it only in “very limited and exceptional circumstances.”44
For this reason, we weren’t surprised when, in a follow-up article published in 2015, ProPublica reported, “Fraud and abuse continue to dog Medicare’s popular prescription drug program despite a bevy of initiatives launched to prevent them.” Examples included the following:
Oscar Wilde famously said, “Second marriage is the triumph of hope over experience.” The same is true of anti-fraud measures like those adopted in 2014. They may save a billion dollars here or there, but that’s no reason to celebrate when criminals are carting off an order of magnitude more. Sterner measures are required, but Congress will never embrace them. They’d be of limited effectiveness anyway because anything that restricts the flow of illegal prescription drugs will only strengthen the incentive to violate the law by causing their price to rise. Like the police officers who carry out the War on Drugs, the administrators responsible for preventing fraud in the Medicare and Medicaid prescription drug programs are playing an unwinnable game of Whac-a-Mole. The next chapter explains why this metaphor is apt.