Video: Wanted for Medicare fraud

By Correspondent
NBC News
updated 12/11/2007 7:22:17 PM ET 2007-12-12T00:22:17
FIRST OF TWO PARTS

On an FBI undercover tape, the fraud was plain to see: A patient came to a South Florida AIDS clinic, signed some papers, walked into an office and was handed $150 in cash.  She politely thanked the workers and left, her visit to the doctor finished without ever receiving any treatment.

According to records seized by investigators, the office staff (who was assured of the patient's cooperation) used her name to fraudulently bill Medicare for a list of expensive treatment and medications. 

Law enforcement officials said it's just one of the many widespread, organized and lucrative schemes to bilk Medicare out of an estimated $60 billion dollars a year — a staggering cost borne by American taxpayers.

Officials say the array of criminals running these schemes are stealing blatantly from the social safety net that cares for 43 million seniors and the disabled, and along the way are hurting honest patients, physicians and legitimate businesses. 

"These people have absolutely nothing to do with health care," said Kirk Ogrosky, a prosecutor with the U.S. Justice Department. "They're thieves that would be committing other types of crimes if they weren't committing Medicare fraud."

Outrageous fraud called "off the charts"
While Medicare fraud is a national scourge, found primarily in large urban areas, federal authorities said the very worst of it these days is in South Florida— particularly in Miami-Dade County.

Most of these schemes, they said, are found in the cities of Miami and Hialeah, where they are often concentrated in parts of the Cuban immigrant community.

After visiting the region, and seeing the extent of the fraud, Michael Leavitt, the U.S. Secretary of Health and Human Services, said, "In a decade and a half of public service, this was the most disheartening, disgusting day I have ever spent. We have to fix this." 

A recent report by the inspector general for the Department of Health and Human Services noted that 72 percent of the Medicare claims submitted nationwide for HIV/AIDS treatment in 2005 came from South Florida alone.   That percentage is of great concern to authorities, since only eight percent of the country's HIV/AIDS Medicare beneficiaries actually live in South Florida, a clear indication that the level of fraud was, as one official put it, "off the charts."

To attack the fraud, the Justice Department this year set up a strike force at a remote office park near Miami, and in just six months prosecutors filed 74 cases charging 120 people with allegedly trying to steal $400 million from Medicare.

While officials claimed the concentrated law enforcement efforts led to a $1.4 billion drop in Medicare billing in the area (another clear indication of the phony nature of many of the earlier claims), they said they have still barely scratched the surface of the fraud schemes involving bogus clinics, fake medicines, and illegitimate medical supply companies.

"The problem is far from solved," said Timothy Delaney, a supervisor for the FBI's Miami office.  "For every one owner we arrest, another one pops up, maybe even two, tomorrow.  It's so lucrative that we have yet to turn the tide."

Illegal billing for non-existent medical equipment
One of the most common schemes is the illicit billing for DME, or durable medical equipment, such as oxygen generators, breathing machines, air mattresses, walkers, orthopedic braces and wheelchairs. This scheme involves billions of dollars a year in illegal claims.

Raul Lopez, the president of the Florida Association of Medical Equipment and Services and the director of a legitimate medical supply company, said the fraud is so widespread it hurts the many valid DME companies, which are struggling to compete.

"We're here providing services to patients that need healthcare services, and as a result of the fraud our industry is suffering enormously," he said.

Unlike real DME companies, which have showrooms, warehouses, public offices, trained staff and professional record-keeping, the fraudulent companies are usually shell companies with shadowy business practices, hidden owners, and tiny, locked offices which are only there to create the illusion of legitimacy. They rarely have any medical products for actual sale or delivery.

"They're lined up in hallways one after the other, office after office with a locked door, no foot traffic, no employees, no medical equipment," said Ogrosky. "We're talking about billing that goes up in the tens of millions of dollars for places that don't exist."

FBI agents looking for suspected front-companies that Medicare records show are actively billing rarely find much to search.  "We often don't see places.  We find vacant lots, we see mailboxes, we see an office suite shared by 30 companies.  We're not finding legitimate companies where we can go in and do a search warrant," said Delaney.

On a recent trip to some shopping centers and office buildings in the Miami area, FBI agents Brian Waterman and Christopher Macrae knocked on the doors of several purported medical supply companies. Most of the offices were locked during business hours, with no signs of any activity.  Calls to the offices went unanswered. 

Referring to one of the closed offices, Waterman said, "The amount of money in dollars that this company is billing for in the last month are close to a half million dollars. We're just trying to find out what they're billing for and what they're doing."

Across the street, in another small office complex, the agents found another six supposed supply companies that also were locked.  "Building's closed, kinda tough to deliver stuff out of here," Macrae noted.  "It doesn't surprise us at all.  This is typical."

A $5 million wheelchair and phony arms
Most taxpayers likely have no idea of the scope and cost of the Medicare billing schemes, which they all fund through their payroll deductions.

To show just how bad it can be, federal officials in Miami pointed to a red electric wheelchair they seized from an illicit company.  Normally it would cost about $5,000.  But by billing Medicare over and over, nor ever delivering the wheelchair to an actual patient, criminals charged a total of $5 million for that one item alone.

Retired Chief Federal Judge Edward Davis, from the Southern District of Florida, was stunned to learn that someone stole his patient ID number and used it to fraudulently bill Medicare in his name for a number of items, including two artificial arms, which he doesn't need.

When he got his Medicare EOB, or explanation of benefits, Davis couldn't believe his eyes.  "I was amazed.  I looked at it and thought this has got to be a mistake." 

After alerting the U.S. Attorney's Office in Miami, Davis received a visit from two FBI agents, who took pictures of his arms to prove they hadn't been amputated.  They told Davis his case was part of a huge scheme involving dozens of illicit companies. "It's just outrageous," said Davis.  "You just think of the money being lost. It is millions and millions of dollars." 

Prosecutors said it's actually a fairly common scheme that sometimes goes to unbelievable heights.  "We'll see patients time and time again — they've never had an amputation or any problems with their arms and legs — being billed for two prosthetic arms and two prosthetic arms," said Ogrosky.

Judge Davis and others worry about what this means for the future of Medicare.  "This thing is going broke and part of the reason is because (money) is going to people who are criminals doing the $5 million wheelchairs and prosthesis that don't come to anybody."

Short- and long-term schemes with complicit patients
Law enforcement officials said most Medicare fraud can be divided into two time-frames. One technique involves a quick hit where the practitioners set up their companies, bill Medicare for a while and then quit, usually within the 90 to 120 days it takes for many of the more obvious frauds to be detected.

"They get in, they open up a corporation, they bill, they shut it down, and they move on and they open up another corporation," complained Delaney. "By the time the computer processes the claim and there's data for us to dive into, that money's already been paid."

The companies are often set up using straw purchasers and fictitious or "nominee" owners who have nothing to do with running the actual scheme. One purported medical company CEO actually turned out to be an employee of an auto tire store who had been paid by fraud organizers so they could use his name on the corporate records.

"We've actually seen where they recruit this nominee or store buyer/owners from another country.  They pay them for the sole intent of opening up corporations, businesses, bank accounts in their names, and they get the other half of the payment when they go back," said Delaney.

The second technique involves a more lucrative and long-term fraud, which is much more complex and requires the complicity of doctors and patients in order for the billing scheme to continue without the authorities being alerted.

"The office manager, the doctor, the patient, and the patients' families often know what's going on. It runs the entire spectrum," said Delaney, the FBI supervisor.

"We are up against an organized foe here, this is very organized," said HHS Secretary Leavitt, referring to the many experts who specialize in setting up illicit medical companies.

Kirk Ogrosky, who headed the Justice Department strike force against Medicare fraud in South Florida said, "The problem stems from what we've seen in our cases, time and time again, is that there's a culture of corruption. This culture starts with the patient."

Many patients, he said, are paid $500 a month for the use of their Medicare numbers, which the crooked companies attach to repeated claims that they send to Medicare. Anticipating that the patients will receive notices of these claims in the mail, the crooked health care providers instruct the patients to just to ignore them.

"We have a large number of what we call professional patients, people who's livelihood it is to exist off their Medicare numbers," said Delaney. Some of them are actual HIV/AIDS patients who accept kickbacks to receive phony "infusion", or intravenous, treatments which are then billed to Medicare at very expensive rates. 

For many involved in the fraud schemes, Ogrosky added, the illegally-derived Medicare payments are viewed as somewhat of an entitlement. "I've heard people say things like if you don't take this money that the government's giving out, they're just going to give it to someone else, and that's outrageous."

Homemade medicines sold to the public
One of the most disturbing schemes, law enforcement officials said, involved the formulation or "compounding" of homemade aerosol respiratory medications for which Medicare was billed for hundreds of millions of dollars, along with the costs of the machines supposedly used by patients to inhale the drugs.

"These aren't real drugs, they're being whipped up in the back of pharmacies," said Ogrosky. "One of the independent pharmacies that was whipping up medicine had people making the medicine that were not at all qualified."  One of those people, he said, was actually an air-conditioning repairman, who was making medicine that was "disseminated to thousands of patients."

A problem for law enforcement officials is that as soon as they catch on to a certain phony drug, the illicit medical providers concoct something else for which to bill.  "We and the Medicare program catch on to the fact that they are abusing that drug, so we clamp down," Delaney said.  "They switch to another form of therapy that isn't being looked at so closely." 

A criminal's perspective on easy fraud
In a recent interview with NBC News, a man who made millions of dollars by defrauding Medicare before his arrest explained how easy it was to steal from the government.

"First of all, you create a corporation," he said.  "There are some people who are like facilitators, who tell you what it is that Medicare requires."  One requirement is to buy some props -- medical equipment and office furniture -- that can help make the corporation appear legitimate during rare inspections by Medicare officials. "A lot of times an inspector doesn't visit a corporation more than once a year," he claimed.

One thing he found shocking was how agreeable Medicare was in paying his phony claims, even after patients whose names were used without permission filed complaints.  "Why is Medicare paying" he asked. "Medicare keeps on paying, so who's at fault?  I think the government is at fault, the government doesn't have any control of this."

The man said stealing from Medicare can be a very lucrative endeavor. "If in a year you want $6 million or $8 million you can do it."

One Medicare fraud suspect, who is now a fugitive, used to drive a $200,000 Phantom Rolls Royce.  "Everyone should be outraged by it," said Ogrosky, "and should be concerned about their taxpayer dollars going to fund this personal wealth that we're seeing in these people who are a really just thieves."

Federal law enforcement official said they've seen other Medicare criminals also living extravagantly from their ill-gotten gains. 

"We've seized luxury homes on waterfront properties.  We've seized boats, we've seized bank accounts, jewelry worth thousands of dollars," said Delaney. "They're just killing the Medicare program and living the high-life off of it."

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