Whac-a-Mole is the arcade game in which players try to clobber as many moles with a mallet as they can before time runs out. Even the fastest player can’t exhaust the supply of moles, though. Every time one gets bopped on the head, a new one pops up in a different place. Not knowing where the next mole will appear is part of the fun.
Policing health care fraud in America’s politically controlled, third-party payer system is like playing an endless game of Whac-a-Mole. The main differences are that the game involves billions of dollars and the moles always win. Of course, some criminals do get clobbered. But third-party payment makes fraud so easy and lucrative—particularly when the government is the payer—that the supply of fraudsters is endless. No matter how fast prosecutors put them in jail, more get busy. And these moles are stealthy. Instead of signaling their locations by sticking their heads out, they hide their phony claims by making them look just like real ones. Before it can whack these moles, the government has to find them. Worse, by the time it figures out their locations, they’ve often shut down their criminal operations and started new ones in new places. For the government, looking for fraudsters and putting them away is a never-ending, full-time job.
As we said, the moles that the government misses cost taxpayers real money, not meaningless points in an amusing game. How much? By its nature, fraud is hidden, so no one knows for sure. The government says that fraud accounts for 10 percent of the dollars it pays out to health care providers.1 This implies that criminals steal more than $100 billion a year from Medicare and Medicaid alone.
Some experts believe that the toll is far higher. Malcolm K. Sparrow, a professor at the Kennedy School of Government at Harvard University whose book License to Steal is a classic in the field, thinks that Medicare’s fraud-related losses may run “as high as 30 to 35 percent” of its budget.2 If Sparrow is right, criminals steal a staggering $185 billion to $216 billion from Medicare alone. And they steal tens or hundreds of billions more from Medicaid, other federal programs, and private insurers.
In the arcade game, it’s tough being a mole. You keep getting bashed on the head. In real life, being a mole can be sweet. Fraudsters amass fortunes while running little risk of being caught. In some of the stories we discuss below, they literally needed help carrying away bags filled with money. You may think that you pay taxes to provide medical services for the elderly and the poor, but you’re often just helping some scam artist enjoy a fancier lifestyle than you can afford.
It may seem hard to understand why the government lets criminals rob it blind year after year, often by using the same scams. But it’s really fairly easy. One must see, first, that opportunities to commit fraud are everywhere. Every filed claim has the potential to be fraudulent in numerous ways. A doctor may have rendered a service that was unnecessary or inappropriate, delivered a less-expensive service than claimed, performed a service poorly, supplied no service at all, or paid a kickback to a patient in return for an insurance number. A hospital’s bill could include inflated charges, result from an illegal referral arrangement with a physician, seek compensation for medical conditions a patient did not have, or be wholly fictitious. A pharmacist may have filled a prescription with a generic while billing for a name brand, be part of a ring that supplies drugs to the street by filling phony prescriptions written by corrupt doctors for phantom patients, or have created additional doses by diluting drugs. In theory, every claim that a payer receives can be tainted by fraud.
The second thing one must know is that the number of claims is extraordinary. In 2015, the outside contractors that handle bills for Medicare processed 1,222,500,000 claims. That’s almost 3.4 million claims per day.3 And that was just for Medicare Part A and Medicare Part B, which cover treatments delivered by hospitals and physicians, respectively. Medicare Part D, the prescription drug program, generated hundreds of millions of additional claims.4
Medicaid must be considered too. Because each state runs its own system, comprehensive statistics for this program are not available. But Medicaid is now almost as large as Medicare in terms of the total number of dollars that are paid out. So the flow of claims relating to that program is presumably at least as great.
All things considered, Medicare and Medicaid receive something like three billion claims a year. For a human being to spend five minutes reviewing each claim would require 125,000 people each working 2,000 hours a year. That’s not enough time to find and flag a fraud, much less to investigate one. More searching assessments are out of the question. So most claims are submitted and processed electronically without any substantive review. Computer programs check to see if all of the fields in a bill have been completed as the relevant regulations require and, if they have, the bill is paid. Only a tiny fraction of the bills submitted to CMS are individually screened.
The result is predictable. Scammers hide millions of fraud-tainted bills in the stream by making them look ordinary. They fill in the blanks the same way honest providers do, so the bill-processing computers approve their claims. The hard part for the scammers is acquiring the necessary billing numbers for providers and patients. They use many schemes to get them, some of which we describe below.
The ratio of bad guys to good guys is a big part of the problem too. There are far more people trying to defraud the government than there are cops on the beat trying to protect it. In 1991, the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) had a grand total of 1,150 employees who were collectively responsible for preventing fraud and abuse in a combined HHS budget of $485 billion. In 2013, even though HHS’s budget had more than doubled (to $1.01 trillion), the OIG’s headcount had risen only to 1,700 employees, or a 48 percent increase. Stated differently, in 1991, each OIG employee was responsible for preventing fraud in roughly $425 million in annual federal spending; in 2013, the number was $595 million. The states, which run Medicaid programs, are also outgunned. In 2014, “New York ha[d] a Medicaid investigations division of 110 souls (including support staff ) to scrutinise [sic] $55 billion of annual payments and 137,000 providers.”5 That works out to $500 million and 1,245 providers per person. Even working every day of the year, no one could police that many claims or keep that many providers honest.
The police forces are small because preventing fraud is a low priority. Total federal spending on health care fraud and abuse is about $1.25 billion.6 That’s way too little, as the government’s own statistics show. Government sources often boast that every dollar spent on health care–related fraud and abuse investigations generates $7–$8 dollars in recoveries.7 If we assume that this is the marginal rate of return, the government should be spending much more. Instead, it is dropping investigations because it hasn’t the manpower or the money to pursue them.8
How ineffectual are the fraud police? A 2011 article provides one indication. Its title was “How to Commit Medicare Fraud in Six Easy Steps.”9 The ratio of dollars lost to fraud to dollars recovered provides another. In 2016—a banner year—the federal government collected about $4.7 billion in fraud recoveries.10 According to the government’s low-end estimate, criminals stole more than $100 billion from taxpayers that year. The fraud police recovered less than five cents on the dollar.
The size of some conspiracies, the amounts stolen, and the number of years they persist all highlight the inadequacies of the fraud police. The home health care industry provides a raft of examples, many of which follow a pattern. Working with corrupt physicians, home health care agencies (HHAs) defraud Medicare by delivering or claiming to have delivered services to people who don’t qualify for them. The doctors falsely certify that the patients need the visits, then the HHAs bill Medicare and share the proceeds with the doctors and, often, the patients. For the conspirators, the arrangement is win-win-win. For taxpayers, of course, it’s a different story.
In 2012, a single Texas physician, Dr. Jacques Roy, was arrested for helping 500 different HHAs bilk Medicare and Medicaid out of almost $375 million. Over the preceding six years, Roy had signed more than 11,000 eligibility certifications, more than any other medical practice in the United States.11 It should have been easy for Medicare to spot Roy. In 2010, 99 percent of the physicians who evaluated patients for home health services certified fewer than 104 patients. Roy certified about 5,000 patients that year, almost 50 times as many. For years, Medicare simply failed to notice that Roy was running a certification mill even though it bragged in the press release announcing his arrest that, “thanks to our new fraud detection tools, we have greater abilities to identify the kind of sophisticated fraud scheme that previously could have escaped scrutiny.” What about this scam was “sophisticated”?
The story didn’t end there. Prior to his arrest, Medicare had suspended Roy in June 2011 because of suspicions about his billing practices. In response, Roy continued certifying patients and billing, this time under someone else’s name and provider number. Medicare blithely paid the bills. Roy didn’t limit himself to home health care certification fraud either. At his trial, evidence was presented that he had gotten two patients hooked on prescription drugs so he could have sex with them.12 A jury convicted Roy in 2016, and he was sentenced to 35 years in prison.13
Roy didn’t even hold the record for most HHA certifications. Between 2006 and 2011, Dr. Joseph Megwa of Arlington, Texas, signed 33,000 phony prescriptions for home health services. According to Attorney General Eric Holder, Megwa was responsible for more than $100 million in false claims, attributable to more than 230 Dallas area HHAs.14 Similar home health frauds were perpetrated in Florida,15 Illinois, Maryland, Michigan,16 and other states. Many of these scams ran for years before they were finally detected and shut down.
HHA fraudsters are adaptive, too, and often circumvent the controls that CMS imposes. Consider the case of Florence Bikundi, who was suspended from participating in all federal health care programs in 2000. In 2009, she got married, changed her name, opened three HHAs, and secured new Medicaid provider numbers for each. Over the next five years, Medicaid paid Bikundi almost $80 million.17 Another successful con.
Bad behavior is not limited to fly-by-night marginal players in home health care, either. In 2014, Amedisys, the largest home health care provider in the United States, paid $150 million to resolve a host of fraud claims, including the charge that it gamed the payment system by rigging the number of visits that patients received. From 2000 to 2007, Medicare paid a flat rate of $2,200 for the first nine home care visits, plus a second $2,200 for 10 visits or more. According to a 2010 Wall Street Journal article, “Amedisys provided many of its patients just enough therapy visits to trigger the extra $2,200 payment. In 2005, 2006 and 2007, very few Amedisys patients received nine therapy visits while a much higher percentage got 10 visits or more. In 2007, for instance, only 2.88 percent of patients got nine visits, while 9.53% of patients got 10 visits.” A nurse who worked for Amedisys in Tennessee reported that her supervisors had her comb through patients’ files and identify those who were just shy of the 10-visit mark. She would then call the patients’ therapists and have them set up the tenth visit, triggering the second payment.18
When challenged, Amedisys defended itself by saying that its practices were “in line with the industry trends.” That was true. The company’s competitors were gaming Medicare’s fee structure too. The full extent of their strategizing was revealed in 2008, when Medicare scrapped the old approach and adopted a new one that paid an extra fee of several hundred dollars at the 6-visit, 14-visit, and 20-visit levels. After the switch, the industry-wide percentage of therapy visits in the 10-to-13 range dropped by about a third, and new clusters formed around the new break points.19 Of course, this behavior is not unique to this setting. Whenever people can adapt to a payment system in ways that serve their interests, they will attempt to do so.
The history of fraud in the home health care sector is so lengthy that one would expect the police to have gained a handle on it long ago. One wouldn’t think that they’d have allowed a known bad guy to run the largest such fraud in history right under their noses—and of all places in Florida, the hotbed of fraud.
But that is exactly what they did. In 2016, the feds charged Philip Esformes and two accomplices with running a scam that lasted at least seven years. The scam involved a network of corrupt doctors, hospitals, skilled nursing homes, assisted living facilities, community mental health centers, and HHAs that filed false claims for treatments they claimed to have delivered to 14,000 patients. All told, the scam took Medicare and Medicaid for more than $1 billion. In 2006, the very same person (Philip Esformes) had paid $15.4 million “to resolve civil federal health care fraud claims for essentially identical conduct.” And, as we describe in Chapter 10, in 2013, he and his father had shelled out $5 million to settle a whistleblower case that accused them of having an illegal kickback arrangement with Omnicare, which was said to have paid them millions of dollars in return for the right to deliver pharmacy services at certain nursing homes. According to the press release that announced his indictment, Esformes continued his criminal ways after the 2006 settlement, and he and his accomplices used “sophisticated money laundering techniques in order to hide the scheme and Esformes’ identify from investigators.”20
That’s not all they did. According to the revised indictment and news reports, Esformes allegedly paid a state employee thousands of dollars in return for information about upcoming inspections; allowed patients at his company’s facilities to be “used as guinea pigs for the sole purpose of billing medically unnecessary procedures to Medicare and Medicaid”; plied elderly patients with opioids to render them dependent on the drugs and on their facilities to supply more; and plotted to help one of his collaborators flee the country to avoid prosecution.21 Esformes denies the accusations, but two federal judges deemed him to be a flight risk and denied his repeated requests for bail. Because Esformes owned his own jet, that seems an accurate assessment. His trial is scheduled for 2018.
Assuming that the charges against Esformes are true, U.S. Attorney Wifredo Ferrer wasn’t exaggerating when he said, “The magnitude of [the] alleged false claims in this scheme is staggering and outrageous, even by South Florida health care fraud standards. This case illustrates once again that Medicare fraud has infected every aspect of the health care system.”22 He might have added that the fraud police can do little to put the bad guys out of business. Esformes may be behind bars, but there are lots of other moles where he came from.
The impotence of the fraud police is also indicated by the brazenness with which some frauds are committed. In 2010, the U.S. Department of Justice (DOJ) announced that it was prosecuting American Therapeutic Corp. (ATC) for attempting to defraud the government out of $205 million as part of a partial hospitalization program (PHP) scam. ATC was the nation’s largest community mental health center chain, with seven clinics stretching from Miami to Ft. Lauderdale to Orlando. It grew so large partly because its owners, Marianella Valera, Lawrence Duran, and Judith Negron paid illegal kickbacks to assisted living facilities and halfway houses for sending over patients who suffered from dementia, Alzheimer’s disease, and addictions. Valera, Duran, and Negron paid patients kickbacks too. Altogether, ATC filed 866,000 payment claims between 2002 and 2010 and took the federal government for $87.5 million. In a plea agreement, Valera admitted that all of the bills were dishonest. She was sentenced to 35 years behind bars while Duran, her boyfriend and collaborator, got 50 years, reportedly the longest prison term ever imposed for health care fraud. A jury convicted Judith Negron on 24 felony counts in August of 2011, and she was subsequently sentenced to 35 years in prison.23
The ATC fraud lasted eight years before federal prosecutors finally brought the hammer down. The duration of the fraud is remarkable given the patently fraudulent nature of some of ATC’s bills. At Negron’s trial, prosecutors showed that she claimed to have treated patients in Boca Raton and Homestead—cities in Florida that are 80 miles apart—at the exact same time. “In one particularly troubling case, prosecutors claimed that Negron charged for group psychotherapy provided to a patient who was in a neuro-vegetative state, who could not lift her head or respond.” ATC also threw “charting parties” where employees altered patients’ records. Its bills were wholly fictitious, but it took years for federal auditors to figure things out.24
Valera, Duran, and Negron also built a network of cooperating providers, all of whom were in on the fraud.25 For example, they paid Dr. Alan Gumer, a psychiatrist, to certify that patients needed group therapy services, to prescribe psychiatric medications, and to refer hundreds of ATC patients to a related company, the American Sleep Institute, for unnecessary diagnostic sleep disorder testing. Altogether, the feds indicted about 40 people, including ATC employees, psychiatrists, counselors, nurses, marketers, patient recruiters, and others who supplied Medicare beneficiaries in exchange for kickbacks.26
Most criminals keep a low profile to evade detection, but Duran enjoyed rubbing elbows with the elite. He created and served on the board of the National Association for Behavioral Health (NABH), a Washington, D.C., lobbying group that encouraged Congress to provide greater financial support for community mental health centers. NABH, which spent more than $750,000 on lobbying, threw fundraisers for Rep. Kendrick Meek (D) from Florida and Sen. Mary Landrieu (D) from Louisiana.
According to the DOJ, Duran used NABH to “franchise his fraud to others.”27 In view of this, it isn’t all that surprising that there were multiple PHP facilities scamming the government. In 2014, federal agents arrested 42 suspects who lured out-of-state Medicare patients to South Florida with the promise of providing shelter.28 Once the patients arrived, they were placed in assisted living facilities and steered to PHP mental health programs. If they dropped out of the group therapy sessions, they were dumped on the street. The network of corrupt providers included the owners of the Biscayne Milieu Health Center in Miami, physicians, patient recruiters, owners of assisted living facilities, and operators of home health care agencies, HIV-therapy clinics, and medical equipment businesses. Collectively, the defendants were accused of submitting $160 million in false claims on which Medicare paid out more than $90 million. The prosecution produced eight criminal convictions and a host of guilty pleas.29
PHP scams were also being perpetrated in other states. In 2011, the feds arrested the owners of Spectrum Care P.A., located in Houston, Texas, and accused them of attempting to bilk the government out of $97 million. “The indictment allege[d] that Spectrum billed Medicare for mental health services when patients were actually watching movies, playing bingo or engaging in other activities.” Spectrum’s owners allegedly paid the owners of assisted living facilities for referring Medicare patients. Sometimes, they paid kickbacks to Medicare patients as well.30
A year later, the DOJ filed criminal charges against 10 people running a PHP scam out of Riverside General Hospital (RGH), another Houston establishment.31 Assisted living facilities and group care homes allegedly received kickbacks to refer Medicare beneficiaries for treatment at RGH. Patients got cigarettes, food, and coupons redeemable for items available at RGH’s “country stores” in exchange for their participation. Everybody won, except the taxpayers, who had to deal with fraudulent bills totaling $158 million, on which at least $45 million was paid. When Medicare finally responded to the fraud by cutting off all payments to RGH, Texas Rep. Sheila Jackson Lee (D) lodged a protest in which she claimed that CMS was jeopardizing access to care for vulnerable Medicare patients. CMS responded two months later by restoring 70 percent of the payments.32
Durable medical equipment (DME) includes things like oxygen supplies, mail-order diabetic supplies, power wheelchairs and scooters, knee braces, prosthetic limbs, and surgical dressings. From 2009 to 2012, Medicare paid a total of $43 billion for DME. According to some reports, more than 60 percent of that amount—$25 billion plus—may have been paid out improperly.33 Unsurprisingly, DME suppliers lead the list of entities investigated for criminal health care fraud violations.34 But the federal government has recovered only about 3 percent of overpayments.35 Criminals are all about stealing money. They’re not inclined to give it back.
The largest known DME fraud involved Abner and Mabel Diaz, of Miami Lakes, Florida, who pled guilty in 2008. They ran All-Med Billing Corp. (All-Med), a Miami medical billing company that submitted claims to Medicare on behalf of DME suppliers. All-Med submitted almost $420 million in fraudulent claims for 85 separate DME suppliers. The equipment had not been ordered by physicians or delivered to the beneficiaries. Medicare paid the suppliers almost $149 million on these fraudulent claims.36
Most DME frauds are smaller. Some involve hundreds of thousands of dollars or even less. But corrupt DME sellers make up in volume what they lack in size. In July of 2010, the federal government announced that it had indicted an astonishing 94 doctors, health care company owners, and others for participating in DME scams across the United States. These scams collectively generated more than $251 million in false billings. The variety of scams and scammers is also incredible. One scheme involved a pastor who ran a corrupt DME business on the side.37 Another involved a husband and wife team of co-pastors who defrauded Medicare with help from members of their church.38 In a third, Medicare was billed for leg braces that were sent to a customer whose legs had been amputated.39
Frauds involving power wheelchairs and scooters could fill an entire book. To give just one example, in 2013, FBI agents raided the headquarters of the Scooter Store in New Braunfels, Texas, after a federal audit found the company had overbilled Medicare by as much as $87 million from 2009 to 2011. The Scooter Store advertised widely, telling Medicare recipients: “You may qualify for a power chair or scooter at little or no cost to you.”40 Who wouldn’t want one? DME suppliers even exploited Medicare’s generosity after hurricanes Katrina and Rita by falsifying applications for new power wheelchairs that were intended to replace ones that were destroyed by the storms.41
DME fraudsters adapt quickly and are willing to change tactics, making them hard to stamp out. In 2011, the HHS inspector general testified that “investigations have found that criminals set up sham DME storefronts to create the appearance that they are bona fide providers; fraudulently bill Medicare for millions of dollars; and then close up shop, only to reopen in a new location under a new name and continue the fraud.”42 A year earlier, testimony by the chief counsel to the OIG included almost exactly the same language, plus the observation that fraud is viral, in that it replicates rapidly within geographic and ethnic communities. Indeed, he noted that health care fraud “migrates: as law enforcement cracks down on a particular scheme, the criminals may shift the scheme (e.g., suppliers fraudulently billing for DME have shifted to fraudulent billing for home health services) or relocate to a new geographic area.”43
People receive health care in hospitals, emergency rooms, dialysis clinics, therapy centers, and other locations. To receive care in these settings, some need to get there by ambulance. Ambulance companies are supposed to obtain a physician’s certification that a patient needs special treatment, but they can obtain payments without submitting them. Once again, Medicare trusts providers to do the right thing. Want to guess how that has worked out?
Ambulance rides have been a cesspool of corruption. Consider Houston, Texas, where problems with ambulance transportation fraud emerged in the early 2000s, then ballooned. By 2009, Medicare was paying $62 million for ambulance rides in Houston, compared to a mere $7 million for New York.44 And 2009 was not an especially expensive year. During 2005–2010, Medicare paid a total of $488 million, or about $81 million per year, for ambulance trips in Houston. Medicare’s billing contractor for Texas identified nonemergency transports as its number one problem.45
The array of fraud was breathtaking in its variety and simplicity. Ambulances were used to transport patients to routine appointments for medical services of dubious value, even though the patients could have traveled safely, and much less expensively, by ordinary means. When interviewed after being dropped off by an emergency medical services (EMS) company at home, 23-year-old Daniel McCall said he had just returned from “a place where ‘they just fed us junk food . . . we watch TV and stuff.’”46 McCall, who was neither bedridden nor physically disabled, didn’t know why he went to therapy, why he rode in an ambulance, or who paid for it. He did know that he took a 25-mile ambulance ride to the Cadwalder Behavioral Clinic (CBC)—a three-bedroom house with portable toilets in its driveway—six days a week. EMS companies transported many other patients to CBC too. Investigative reporters who visited CBC “found a steady stream of EMS vehicles picking up and dropping off dozens of people.”47
McCall’s trip wasn’t nearly the longest, either. The Houston Chronicle’s reporters watched as three vehicles operated by Promise EMS pulled into the driveway at Desire to Live, an unlicensed and illegal assisted living facility in Alvin, Texas. Each vehicle dropped off an elderly female patient who, like McCall, had received therapy at CBC. For these women, the round-trip ride, which they too made almost every day, covered 135 miles. The cost? More than $1,000 per trip.
Houston may once have been ground zero for ambulance fraud, but the problem has now spread. Thousands of ambulance companies have been investigated, in locations as far-flung as upstate New York,48 Pennsylvania,49 South Carolina,50 Tennessee,51 and Virginia.52 But the prize for sheer chutzpah goes to three services that operated in New York City. After Medicare demanded millions of dollars back from them for ambulance rides that were unnecessary or lacked supporting documentation, the companies appealed. Then they forged and submitted hundreds of documents attesting that the rides at issue were necessary and appropriate.53 When accused of fraud, these companies committed more fraud.
Organized crime has long recognized the benefits of stealing from government health care programs. In 1995, Louis Freeh, then the director of the FBI, observed that, “in South Florida and Southern California, we have seen cocaine distributors switch from drug dealing to health-care fraud schemes. The reason: The risks of being caught and imprisoned are less.”54 Seven years later, a representative of the OIG noted that “drug dealers are switching from trafficking in narcotics to health care fraud, having discovered that defrauding Medicare is safer and more lucrative and carries a lower risk of detection and prosecution. . . . In several major cities, including Miami, Los Angles, and Houston, organized crime is a driving force behind the growing problem.”55
A few examples help make the point more concrete. In 2010, the DOJ indicted 73 individuals, many of whom belonged to an Armenian-American organized crime syndicate known as Mirzoyan-Terdjanian, for $163 million in fraudulent billing.56 The defendants stole the identities of doctors and thousands of Medicare beneficiaries and operated at least 118 different phony clinics in 25 states. When the arrests and indictments were announced, the acting deputy attorney general observed, “The emergence of international organized crime in domestic health care fraud schemes signals a dangerous expansion that poses a serious threat to consumers as these syndicates are willing to exploit almost any program, business or individual to earn an illegal profit.” Mirzoyan-Terdjanian is named for its principal leaders, Davit Mirzoyan and Robert Terdjanian, who are thought to oversee the gang’s U.S. and international activities from Los Angeles and New York. Mirzoyan pled guilty in 2012, and Terdjanian, whose rap sheet included burglary and weapons convictions, was sentenced to 10 years of prison time in 2013.57
Fast-forward four more years. Special Agent Brian Martens testified before the Senate Special Committee on Aging in 2014 that federal agents assigned to Medicare fraud investigations “regularly encounter stockpiles of weapons when we execute arrests and enforcement operations.”58 One news report said that he compared anti-fraud efforts to a game of Whac-a-Mole, noting that, “as enforcement efforts target certain [schemes], others pop up. [Criminal gangs] switch between different parts of the Medicare program, they move from area to area, and they often rely on the muscle of organized crime.”59 Martens also admitted, “we don’t have the staff that we need with the amount of fraud that goes on.”
Perhaps you’re thinking that the wrongdoers who rip off the health care system are criminal masterminds. They aren’t. Health care fraud is so simple that even high school dropouts have stolen millions of dollars. Aghaegbuna “Ike” Odelugo, a Nigerian immigrant, took Medicare for almost $10 million. After being convicted, he told the Subcommittee on Oversight of the House Ways and Means Committee that “DME fraud is incredibly easy to commit. The primary skill required to do it successfully is knowledge of basic data entry on a computer.”60 Odelugo’s billing scheme involved 14 DME suppliers located in 10 different states.
Angel Castillo Jr., of West Miami-Dade, Florida, made an even bigger dent in the Treasury. He was a small-time drug dealer who discovered that his 9th-grade education was more than sufficient to commit Medicare fraud. After serving a couple of years in prison for trafficking in cocaine, he became an electrician and used his newfound skills to build marijuana grow-houses. Then his best friend told him there was money to be made in Medicare fraud, so he concentrated his energies on that. Before he went to jail again in 2008, Castillo controlled about a dozen phony medical equipment companies, all incorporated in the names of Cuban straw owners, that sent fraudulent bills to Medicare for mattresses, knee braces, artificial limbs, and other items that were never delivered. Altogether, these companies submitted almost $50 million in phony bills. So much money poured into his account that “Castillo bribed bank tellers to let his associates pick up bags of cash totaling as much as $100,000 from Bank of America, Union Planters, and Washington Mutual.”61
The government has such difficulty detecting fraudulent providers that even recent immigrants and career criminals can rob it blind. In 2012, the Miami Herald reported, “Dozens of Cuban immigrants charged in South Florida with trying to bilk [Medicare] have fled to the island nation, which historically has turned a blind eye and doesn’t return the fugitives to the United States.”62 The occasion for this observation was provided by the arrest of Armando “Manny” Gonzalez on charges of attempting to steal $63 million from the federal government. Gonzalez was “a convicted cocaine trafficker who joined the Medicare rackets in the mid-2000 era when he opened a pair of mental health clinics in the Kendall and Cutler Bay areas.”
Gonzalez’s clinics were highly successful. Over the seven-year period extending from 2004 to 2011, they reportedly collected $28 million from the Medicare program. What services did they provide? According to the DOJ, Gonzalez used the same approach that Duran employed at ATC. While purporting to offer group therapy treatments, his clinics actually entertained patients with TV shows and movies. Gonzalez even joined Duran’s NABH and helped lobby congressional leaders to provide more Medicare dollars for psychotherapy treatments at community clinics.
And like Duran, Gonzalez lived extremely well. The assets of his that the feds tried to seize included a $750,000 house in Henderson-ville, North Carolina, and 17 vehicles, including two Cadillac Escalades, a BMW, and a Mercedes-Benz, all paid for with taxpayers’ money. Because the “vast majority” of the money Gonzalez’s clinics took in was “laundered through shell corporations,” there was no hope of recovering it. “Pay and chase” failed again.
But the record, so far as we can tell, goes to Alexis C. Norman, who was sentenced to eight years in prison for defrauding Medicaid by submitting bills for counseling services that were never provided. While awaiting sentencing for this crime, Norman set up two companies to continue the fraud under different provider names. She started submitting bills immediately, including the day before her sentencing hearing. And she kept her counseling scam 2.0 going while she was incarcerated, billing the Medicaid program an additional $800,000, on top of the $5.5 million that counseling scam 1.0 billed. The “good” news is that the Medicaid program paid her only $2.5 million on counseling scams 1.0 and 2.0 before they caught on.
Patients also help bleed the treasury. The most famous recent example involves the five dozen Russian diplomats and spouses who got New York’s Medicaid program to cover the medical costs associated with pregnancies and deliveries.63 From 2004 to 2013, they cheated the system the old-fashioned way: by lying about their income.
Patients can rip off the system in multiple ways. We’ve already discussed doctor-shoppers, who accumulate pills to sell on the black market. There are also patients who knowingly allow providers to upcode or provide them unnecessary products and services. And, of course, there are patients who receive cash payments for allowing fraudulent providers use of their Medicare or Medicaid numbers.
Perhaps the most stomach-turning examples are “rent-a-patient” scams, in which bribed patients allow corrupt doctors to perform unnecessary surgeries on them. According to one of the willing victims, during a five-month period, he underwent a circumcision, removal of his sweat glands, a nose operation, a colonoscopy, and an endoscopy at a surgery center in Orange County, California, even though he was “healthy as a horse.” For each procedure, he was paid $800, and the surgery center billed the victim’s insurer for tens of thousands of dollars for the unnecessary surgery.64 The scam came to light only after the insurer sent the check to the patient, who cashed it, rather than sign it over to the surgery center.65 The surgery center sued its former patient to collect its ill-gotten gains, along with another 11 former patients who had also had unnecessary surgeries, and received checks from their insurers. The rent-a-patient scam triggered an FBI investigation of roughly 100 surgery centers and a lawsuit brought by 12 major insurers against 16 clinics or management companies and 34 individuals, seeking $30 million in damages.66
Patient complicity is so common as to stagger the imagination. Most stories simply report that patients were recruited and omit the details. For example, Dora Binimelis, the owner of Blessed Medical Clinic, took Medicare for $2.4 million by bribing senior citizens to sit through unnecessary tests.67 The payments aren’t always in cash, though. In 2014, Drs. Hoi Yat Kam and Chang Ho Lee pled guilty to fraudulently billing Medicare for more than $13 million.68 Their clinics offered seniors free massages, facials, meals, prizes, and social events in return for their Medicare numbers, which were used to bill for medical services that were never provided.
When details do come to light, they can be interesting. Did you know that thousands of patients are enthusiastic co-conspirators in the commission of health care fraud? Prosecutors focus on fraudulent providers, not patients. Consequently, corrupt patients “remain free to move from clinic to clinic, scam to scam, from durable medical equipment and HIV infusion therapy to home health care. Another year, another disease.”69 In the words of Peggy Sposato, a former emergency room nurse who joined the DOJ as an investigator, “To look at health care fraud and not [see] that the beneficiaries are somehow involved is to be blind to the problem. We’ve got people out there who brag about the fact that they are making large amounts of money abusing Medicare.”70
One professional patient was Alexander McCray, a crack addict who needed money to support his habit. According to a news report, McCray received kickbacks of $150 to $300 each time he visited a private clinic, which he did as often as three times a day, three days a week over seven years. Using McCray’s name and Medicare number, clinic operators filed more than $1.1 million in false claims for fabricated HIV-infusion treatments billed in his name. Some 90 doctors signed off on phony prescriptions for drugs that were supposedly given to McCray.71
McCray isn’t an exception. According to the Miami Herald, which has a series of investigative articles devoted to Medicare fraud, there are “thousands of con artists” like McCray in South Florida alone.72 South Florida isn’t exceptional either. Patient recruiters do a thriving business in many cities. Often, they focus their efforts on locations where homeless people and drug addicts gather.
Although federal prosecutors are putting away bad guys as fast as they can, fraud is still rampant. High profile sweeps conducted by the Medicare Fraud Strike Force (MFSF) in back-to-back years make both points. In 2014, the MFSF sweep netted 90 people, including 27 doctors, nurses, and other medical professionals who collectively submitted about $260 million in false bills. The 2015 haul was even bigger, resulting in charges against “243 individuals, including 46 doctors, nurses and other licensed medical professionals, for their alleged participation in Medicare fraud schemes involving approximately $712 million in false billings.”73
In both years, the illegal schemes were similar to those the feds have been prosecuting for decades: billing for services that weren’t needed or provided, paying kickbacks to patients and recruiters, and so on. The bad guys didn’t change all that much either. They were HHAs, mental health services agencies, psychotherapists, physical and occupational therapists, DME suppliers, and pharmacists. As Marilyn May, a lawyer who defends clients accused of defrauding the government, observed:
While the recent nationwide Medicare takedown with charges against 243 people throughout the country garnered lots of headlines—which is, of course, part of the government’s enforcement strategy—a closer look at the types of alleged health care fraud cases packaged together under one umbrella shows mostly the same types of garden-variety health care fraud cases that the government has been prosecuting for years. These types of alleged schemes are not new.
She added that these “are the simplest health care fraud cases to prove” and that “[t]he government’s simultaneous announcement of charges against large numbers of individual defendants for alleged criminal Medicare fraud is nothing new.”74
Simply stated, the endless stream of arrests and convictions is a sign of failure, not of success. Criminals keep using the same types of schemes to steal money from taxpayers year after year. As May wrote, “the more things change, the more they stay the same.”75 Only ignorant members of the general public are fooled into thinking that the government has a handle on fraud. In reality, it’s caught up in an eternal game of Whaca-Mole.
As if to punctuate the point, in mid-July of 2017—just after this chapter was revised for what we thought would be the last time—a new nationwide fraud sweep was announced in which 412 people, including 115 doctors, nurses, and other practitioners, were arrested and accused of taking the government for $1.3 billion.76 This wasn’t a takedown of an enormous criminal gang whose elimination would make a sizable dent in the fraud problem. It was the culmination of investigations into hundreds of separate frauds, most of which were small. One involved the operator of a drug treatment center in Florida who offered addicts gift cards, plane tickets, and other goodies—including drugs—to get their insurance numbers. Another was carried out by a cardiologist in New York who had a kickback arrangement with a medical diagnostic company. A third involved a father-and-son pair of psychologists in Texas, who supposedly billed $300,000 in illegal charges over a period of four years. Other suspects were accused of doling out opioids, billing for drugs that were never purchased, or selling prescriptions for cash. These are the same sorts of cons that have bedeviled the health care system for years.
The real point of the announcement is discouraging, but simple. We are losing a never-ending game of Whac-a-Mole to thousands upon thousands of fraudsters, who are collectively robbing taxpayers blind. When Attorney General Jeff Sessions said that the 2017 sweep “again highlights the enormity of the fraud challenge we face,” he was repeating an observation that has been made many times before and that is certain to be made again. As long as the federal and state governments keep doling out hundreds of billions of dollars to health care providers, the moles will always win.