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Criminals Bilk Medicare of Billions Each Year

En español | Editor's Note: Even with a fresh new emphasis on investigations and prosecutions, crooks continue to bilk Medicare out of billions of dollars a year—some with frauds breathtaking in their scope and audacity.
Last month, in the largest Medicare fraud bust in history, federal agents indicted 94 people in five cities on charges of submitting more than $251 million in false claims. Those indicted included doctors, nurses and owners and executives of health care companies.

“These criminals have siphoned resources from the most vulnerable among us, “ U.S. Attorney General Eric Holder said at a news conference in Miami after the big takedown. “Their actions have also helped to drive up health care costs nationwide.”

The new health care law passed last spring is adding $350 million over the next 10 years to step up the fight against these thieves and scammers, who can use one stolen or purchased Medicare number to bill Medicare for millions of dollars of services never performed—from home health care to physical therapy—and devices never needed or delivered—from wheelchairs to prosthetic legs.  

Just this week officials in Miami said that Medicare even paid for penis pumps to treat erectile dysfunction—in women.

The new law also helps investigators: For the first time the government will have the authority to stop paying a health care provider that they suspect is cheating the system.

“We’re putting would-be criminals on notice. Health care fraud is no longer a safe bet,” Holder said.

But some critics contend the funds provided in the Affordable Care Act aren’t enough to combat criminals that who have found devious ways to outwit the system for years. Referring to the two men arrested last week for the alleged penis pump scam, Pulitzer Prize winning reporter Jay Weaver wrote in the Miami Herald: “The criminal case highlights, yet again, Medicare's chronic problem of paying bills quickly without first verifying them—a glaring flaw that has undermined the taxpayer-funded system during the past decade.”

Three bills in Congress aimed at combating Medicare fraud would strengthen penalties, give law enforcement officials quicker access to Medicare claims information and put more stringent reviews on claims.

Who are these criminals and how do they work? And what do they do with the taxpayer money they steal? For an astonishing inside look at fraud so lucrative that drug dealers are deserting cocaine for Medicare, read the award-winning Bulletin piece by Weaver below.


They indulge their wildest whims—a private helicopter, Lamborghini sports cars, thoroughbred horses, even a “Pirates of the Caribbean” water theme park. For the schemers and scammers, Medicare fraud is one crime that does pay—and pay and pay.

The Benitez brothers of Miami—Carlos, Luis and Jose—can vouch for that, federal prosecutors say. The brothers, who operated fake storefront clinics there, were indicted last year on fraud charges after allegedly collecting $84 million from Medicare for phony medical treatments. They spent their Medicare millions on the helicopter, the horses, a rental car agency and tourist hotels—all items the government is now trying to seize and reclaim for taxpayers.

Medicare frauds are often inelegant—but they’re outrageously lucrative and relatively low-risk. So lucrative, and so low-risk, the FBI reports, that a number of cocaine dealers in Florida and California have switched from illicit drugs to Medicare fraud.

Medicare loses billions of dollars to fraud each year. “Those billions of dollars,” said Eric Holder, U.S. attorney general, “represent health care dollars” that could be spent on medicine or care or hospital visits, “but instead are wasted on greed.”

Yet Congress has denied Medicare the money officials say it needs to truly police itself. Four years ago, as fraud began spinning out of control, lawmakers ignored Medicare’s request for $300 million to fight these crimes—even though the agency’s Office of Inspector General says that every dollar spent protecting the program returns $17.

Now, with Congress and the Obama administration hoping to help finance health care reform with $500 billion in savings wrung from Medicare over the next 10 years, cracking down on fraud is a fresh priority. And it shows. Just this year, anti-fraud efforts have seen a marked increase in money and agents.

Miami vice

The nation’s first federal Medicare fraud strike force hit the ground in Miami two years ago—with agents from the FBI and investigators from the Department of Health and Human Services’ Office of Inspector General, as well as federal prosecutors. Altogether, the strike force and the southern Florida U.S. Attorney’s Office indicted 197 suspects in 2007, almost doubling Medicare fraud prosecutions.

In one Miami case alone, the team charged 16 people with orchestrating a $101 million fraud involving phony bills for medical equipment that Medicare patients neither needed nor received. Now, strike forces are operating in Medicare fraud hot spots like Los Angeles, Detroit and Houston, and officials say more cities will be targeted later this year. The scams are many, varied and spreading.

The Houston strike force, for example, shut down clinics billing Medicare for $3,000 “arthritis kits” that were only heating pads and knee and shoulder braces. A $16 million bust last July netted 32 doctors and executives. Some of the clinics, prosecutors charge, also were billing for liquid food supplements for patients who were deceased.

Since 2007, the strike forces have indicted nearly 300 defendants who allegedly stole $680 million, according the U.S. Department of Justice. Sentences range from two to 15 years, with one doctor receiving 30.

Half of those defendants were arrested in Miami—the Medicare fraud capital of the nation. Schemes hatched there are perfected, then exported to other parts of the country.

“We know the fraud is viral and spreading to other communities,” says Kirk Ogrosky, deputy chief of the Justice Department’s criminal fraud section, who coordinates the strike forces.

Take the case of the two Miami men who allegedly set up a chain of about 40 clinics—with names like Fast Cure Company—in Florida and then four other states. Prosecutors contend the two men ran a ring that bilked Medicare out of $100 million for therapies—never administered­—for cancer, HIV and other illnesses. Investigators found some of the “clinics” were empty storefronts with hand-lettered signs; others were post office boxes.

Scammers obtain Medicare numbers by buying or stealing them from doctors, clinics or patients. Ogrosky says that once a “professional” patient sells his Medicare number, it can be reused again and again—or sold to others cheating the system.

Just one Medicare number—in the wrong hands—tricked Medicare into paying more than $1.1 million for phantom treatments. Alexander McCray of Miami paid for his crack cocaine habit by helping dozens of clinic operators file false claims for phony HIV infusion treatments billed in his name.

Hardened criminals

Medicare is now a magnet for miscreants, including not only dishonest doctors and white-collar crooks, but hard cases like Guillermo Denis Gonzalez, a convicted murderer. He bought a Medicare-licensed medical equipment company and submitted more than $500,000 in phony claims—two years after walking out of prison.

He pleaded guilty to defrauding Medicare in August but still faces murder charges. Florida investigators say that after an argument, he killed and dismembered an acquaintance. The victim’s body parts were found in six black garbage bags in three different dumpsters around the Miami area.

Calculating an exact national figure on the costs of Medicare fraud—estimates of losses range from $11 billion by the Centers for Medicare & Medicaid Services to $60 billion by industry experts—is difficult.

Criminals intent on stealing as much as they can as fast as they can “have a relatively easy time breaking through all the industry’s defenses,” Malcolm Sparrow, a one-time fraud investigator and now a professor at Harvard’s Kennedy School of Government, told a Senate committee in May.

He said that if the crooks learn to submit their bills correctly, then for the most part their bogus claims “will be paid in full and on time, without a hiccup, by a computer, and with no human involvement at all.”

Why is Medicare so vulnerable to crooks? The entitlement program is based on an honor system that many experts say is broken.

And Medicare officials admit that with their skimpy anti-fraud budget they are hamstrung because the system’s goal is to pay for medically necessary services quickly—within 14 days—which leaves little time to verify the millions of claims handled each week.

Shady health care operators have repeatedly proved they can circumvent Medicare’s weak technological defenses by simply altering computer billing codes to get their claims approved or by changing their scams to stay one step ahead of the system.

But this year Congress stepped up, allocating an extra $200 million for Medicare’s anti-fraud budget. Another $300 million is on tap for 2010. The money has enabled the agency to make more unannounced visits to providers, launch more audits of dubious claims and upgrade its computer software that flags suspicious bills. And Medicare crime fighting is becoming more resourceful to keep up with the crooks. Now, for example, the agency is trying to rein in billing for expensive home visits to Medicare patients that are not needed or never made.

Miami’s average cost for each Medicare home health care patient with diabetes and related illnesses runs $11,928 every two months, according to a new HHS report—32 times the national average of $378. “That’s how bad things have gotten in Miami,” says Cecilia Franco, who heads the Medicare office there. So her office is sending nurses and investigators door-to-door to see if beneficiaries that health care agencies claim as clients really need twice-daily visits by skilled nurses. To discourage this scam, in January federal officials will impose a 10 percent cap on payments while they investigate claims—a first in Medicare history.

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