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The War on Medicare Fraud

Medicare loses $60 billion each year to con artists. Here's why

Video: Medicare Fraud Whistleblower Dr. Joseph Ting

Former employee of 21st Century Oncology witnessed over $100 million dollars billed to the U.S. Government unnecessarily and decided to stand up and tell authorities.

WHERE DID ALL THE MONEY GO?  That's what the authorities wondered, even after they searched the house of Jacques Roy. Inside the physician's lakefront home in the Dallas suburb of Rockwall, police found a fake Texas driver's license and Canadian birth certificate — both in the name of Michel Poulin — plus deposit slips from banks in the Cayman Islands and a guide to registering yachts there. Also found: a book called Hide Your Assets and Disappear: A Step-by-Step Guide to Vanishing Without a Trace.

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Convicted Felon, Former Doctor Jacques Roy of Rockwall, Texas

U.S. Marshalls Service

'Doctor' Jacques Roy of Rockwall, Texas, is now a convicted felon for Medicare fraud and abuse.

But before he was able to make his escape, investigators from the Office of Inspector General for the U.S. Department of Health and Human Services (HHS) moved in, tipped off by Roy's astounding billing figures. From 2006 to 2011, prosecutors say Roy's business, Medistat Group Associates, certified over 11,000 Medicare beneficiaries to receive home health care, more than any other doctor in the country. The scheme involved recruiting thousands of healthy patients and billing for home care they did not need, and it netted $375 million from Medicare and Medicaid—the largest home health care fraud in the history of the programs. In April, Roy was convicted of eight counts of health care fraud and other charges.

Here's how it worked: Prosecutors say Roy used home health care companies—which send nurses and aides to care for the homebound—to lure in patients. Recruiters were sometimes paid $50 per head to canvass neighborhoods and round up residents from a Dallas homeless shelter, bribing them with cash or food in exchange for their Medicare numbers. The companies then sent patient files to Medistat, where employees in a boiler room rubber-stamped Roy's signature, certifying the patients for home care. Roy also took financial kickbacks from the home health groups, which billed Medicare for services. And he billed Medicare for bogus additional services for the patients they sent his way.

Empty victory

Roy now faces life in prison, and six of his coconspirators have also been found guilty. But his case, while touted as a big victory for the federal government's fraud fighters, is also a vivid illustration of the challenges of combating Medicare abusers. Even when criminals are discovered and brought to justice, the money they stole is often long gone, lost in an intricate web of fake businesses and offshore bank accounts.

So while Roy forfeits his several bank and life insurance accounts, his 20-foot sailboat One Trick Pony and his 2009 Buick, the government has been unable to track most of the taxpayer funds he was paid. "Where is the rest of the money?" Michael Elliott, a federal prosecutor, asked during a hearing in Roy's case. "We have absolutely no idea."

Doctor-led scams on the epic scale of Roy's are one small part of fraud against Medicare, the federal health program for older people and those with disabilities. The sheer amount of fraud and abuse in the program, including phantom outpatients, ghost clinics, undelivered services, overbilling and identity theft by organized crime, is overwhelming. According to the federal Government Accountability Office, Medicare paid almost $60 billion in tainted payments in 2014, more than any other federal program.

See also: Fighting Medicare fraud on the front lines

Shantanu Agrawal, director of program integrity at the Centers for Medicare & Medicaid Services, cautions that this number is not necessarily an accurate reflection of fraud within the program, since it is intended to include "improper payments" of various sorts. "There is no nationally accepted number or even methodology for arriving at a fraud rate," he says. "I think we have to be really careful about using the word 'fraud.' "

But many experts say that the $60 billion figure likely underestimates the problem. Fraud could account for up to 30 percent of the more than $600 billion a year in program spending, says Malcolm Sparrow, a Harvard professor and health care fraud expert. "The point is, we don't know, and we shouldn't have to guess."

Sparrow says Medicare's payment audit, known as comprehensive error rate testing or CERT, provides "comfortingly low estimates" because auditors do not interview patients and doctors or visit clinics to review patient medical charts. It's just a paper audit that catches the most obvious errors. "The stupid ones are the ones we catch," he says. "Fraud involves deception, and the records might look perfect," he says of the claims that criminals file. "These people are not dummies."

A quick way to get rich

Ask Tyler Smith, the assistant inspector general for investigations at HHS, why criminals target Medicare so aggressively, and he'll echo the famous apocryphal reply that thief Willie Sutton gave to the question of why he robbed banks: With expenditures that could swell to $1.2 trillion over the next 10 years, Medicare, Smith says, is "where the money is."

There are other reasons, too, says Smith, whose agency is involved in the Roy investigation. Criminals can be attracted to health care fraud because they believe the risks of detection and lengthy prison terms are low when compared to crimes such as burglary or traditional drug dealing. "Someone can steal a million dollars and they might see less time than someone who steals $2 worth of BC Powder," Smith says, referring to the over-the-counter headache remedy that street dealers often mix with cocaine to boost volume. The allure of Medicare fraud has attracted the attention of organized crime, such as the Armenian American mobsters who used a network of fake clinics and identities stolen from thousands of real Medicare beneficiaries to run a $163 million fraud scheme that was cracked in 2010.

Medicare fraud rings also often work what Smith calls "schemes within schemes," making it difficult for investigators to determine the ringleaders and prosecute them. From 2013 to 2015, 2,856 cases were brought to trial by his department for Medicare fraud; sentences included some $10 billion in restitution, but not all of that money will be successfully collected.

How patients suffer

Medicare fraud doesn't just harm the financial health of the program it fleeces. Several experts fear that medical research that relies on billing data, such as hospital rankings and cancer studies, may be affected. And Medicare recipients have also been physically hurt, and even killed, in the pursuit of profits. One of the most notorious incidents in recent years involved Farid Fata, a Detroit hematologist arrested in 2013 for improperly administering chemotherapy to more than 550 patients. Several victims subjected to chemo didn't even have cancer. In 2015, he was sentenced to 45 years in prison.

More recently, a federal jury in Baltimore convicted the owner of a medical imaging company for health care fraud in February after he employed fake doctors to examine the X-rays, ultrasounds and cardiac examinations that his company, Alpha Diagnostics, provided to nursing homes throughout the mid-Atlantic. Rafael Chikvashvili, 69, now faces life in prison as he awaits sentencing for a host of charges, including two counts of health care fraud resulting in death. In one case, a fake doctor failed to diagnose congestive heart failure in a chest X-ray, and the patient died after being cleared for elective surgery, according to court documents.

In another, a woman with congestive heart failure was not transferred to an acute care facility because her X-ray was misinterpreted. She later died at the nursing home. (Through his lawyer, Chikvashvili declined to comment for this story.)

The feds try to respond

In its fight against fraud, the federal government added a new weapon in 2006: the Medicare Fraud Strike Force. A collaboration between Medicare's administrator and federal law enforcement agencies, the team operates in nine cities known as fraud hot spots, including Miami, Detroit and Los Angeles. "The idea was simple: Focus on the worst offenders, not simply those who are easiest to catch," says Kirk Ogrosky, the former federal prosecutor who launched the program. Since then, the team has racked up indictments for some 2,300 people charged with filing fraudulent claims of over $7 billion. "But the real impact is what those people would have taken if charges had not been brought," Ogrosky says. "While unquantifiable, I'd estimate that the deterrent impact of the strike force exceeds $5 billion a year, or $50 billion over 10 years. If that's even close, it would be the best return on investment in the history of law enforcement."

The government in 2010 also took a lesson from the credit-card industry's playbook and launched an initiative to use "predictive data analytics" to root out fraudulent claims. Much like the security measures credit-card companies use to swiftly sniff out suspicious transactions, the program was touted as a way to use big data to identify and stop payment on fraudulent claims on the front end—before they are billed. So far, critics say the program has not lived up to the hype. In 2014, according to a June 2015 report by HHS, the initiative saved Medicare around $130 million, a drop in the bucket compared to the billions lost every year.

More effective has been an old-fashioned fraud-fighting tool: whistle-blowers. Under the False Claims Act, insiders who turn in employers and coworkers for defrauding Medicare can sue in the name of the federal government and receive a percentage of the money recovered. In 2015, the government recovered almost $2 billion in false claims against Medicare, Medicaid and the military health care program Tricare, most of which were reported by whistle-blowers.

In March, for example, the cancer-treatment centers 21st Century Oncology and South Florida Radiation Oncology agreed to pay the federal government more than $34 million to settle a whistle-blower's allegations that they charged Medicare for a medically unnecessary imaging procedure for thousands of patients. The companies admitted no wrongdoing. The suit was brought by Joseph Ting, a medical physicist employed by the companies before he resigned. Ting, who works with radiation oncologists to minimize the harmful effects of radiation therapy on cancer patients, sued over the company treating patients using "gamma imaging" technology, which aims to measure radiation during cancer treatment to ensure accuracy.

Whistleblower Joseph Ting reported his former employee of improper Medicare billing.

John Loomis

Whistleblower Joseph Ting, 67, reported his former employee of improper and fraudulent Medicare billing.

Blowing the whistle

The company claims that gamma imaging improved care; Ting counters that the company's technicians weren't trained to use the technology or interpret the results. But the company charged the federal health plan for it anyway, using a billing code that is reserved for radiation-dose planning.

It wasn't the first time that 21st Century Oncology settled a false claims lawsuit. In December, the company paid almost $20 million to resolve allegations that it billed for unnecessary laboratory tests and paid doctors bonuses based on the number of tests they ordered.

In his case, Ting says the business side of the company forced the medical staff to look the other way on something they knew was wrong. "The amazing thing is everybody on the medical side said, 'This is stupid,' but nobody was willing to do anything," he says.

For some health care companies, payments from whistle-blower cases are just part of doing business, says David Scher, a Washington lawyer who represented Ting in the case against 21st Century Oncology. Even when they get caught—which is rare—they are seldom forced to pay back all of what they took. "It's all about corporate greed for these people," Scher says. "It's about how much money can we steal from the federal government before we get caught."

See also: Meet a Medicare fraudster's worst enemy

Exterior of South Florida Radiation Oncology

Edward Linsmier

Florida clinic exposed by Ting paid millions to the federal government after unlawfully charging Medicare for unnecessary procedures performed on thousands of patients.

Ting, who now works at a different South Florida clinic, won a $7 million award for filing the case against 21st Century Oncology. Despite the prospect of a lucrative payout, it's not easy for doctors and other medical staff to blow the whistle, he says, because of the potential for career-ending blowback if they lose the case.

"I'm 67, and I could retire tomorrow," Ting says, but he admits that his experience as a whistle-blower may not be typical. "A lot of people in their 30s, 40s or 50s, they couldn't do that. They are concerned they would be blacklisted and never get a job again."

What more can be done?

Critics of Medicare's approach say its administrators could be doing more. Medicare Fraud Strike Force architect Ogrosky singles out the way Medicare primarily pays and investigates claims, known in the industry as "pay-and-chase."

Much like the IRS, which pays income tax refunds and later launches audits against suspicious returns, Medicare contractors typically pay medical claims they receive without scrutiny. Later, a different contractor charged with investigating claims for accuracy may ask for the money back. By then, the scammers may be long gone. Ogrosky says Medicare should investigate before payment, as private medical insurers do, instead of issuing regulations that only real doctors try to follow: "Criminals don't care about rules. It's like setting up roadblocks for people who don't drive on the road."

See also: Phony 'IRS' threatens fines

Albert MacKenzie, a former Los Angeles County deputy district attorney who developed a program to prosecute those who abuse Medicare for tax evasion, says the program has long overlooked low-hanging fruit and potentially simple fixes. For example, to root out "ghost clinics"—medical facilities that exist in name only—he thinks every medical facility that registers to bill Medicare should get a mandatory site visit before it's allowed to file claims. "Any doctor who files for Medicare, go interview them," he says. "Make sure it's not a dead doctor and a post office box. Let's hire a bunch of college kids. Have them drive up and check the place out."

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