FBI Cites Massive Medical Fraud Investigation

Clinics Allegedly Billed Insurance Companies for $1.3 Billion in Bogus Health Claims

Medically Reviewed by Brunilda Nazario, MD on March 11, 2005
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March 11, 2005 -- California clinics allegedly paid thousands of patients to undergo unnecessary surgical procedures and then billed insurers and employers for as much as $1.3 billion in fraudulent medical services, federal and state investigators said Friday.

Law enforcement officials say that insurers and companies have already paid an estimated $350 million in bogus health claims to surgical clinics in Southern California.

The scam, which first came to the attention of investigators in 2003, has already resulted in criminal charges against a pair of clinics and their owners in two separate cases.

But officials said Friday that their investigation of the operation has revealed a much bigger and more complex fraud network involving dozens of doctors, up to 100 clinics, and many thousands of patients willing to have unwarranted surgery in exchange for payment.

Participating clinics are accused of using networks of recruiters who traveled the country in search of patients, who were paid between $200 and $2,000 to have usually unnecessary colonoscopies or surgeries.

Doctors allegedly created false diagnoses and symptoms and in some cases coached patients on how to lie about their illnesses if ever asked by investigators, officials say.

Clinics would then bill insurance companies highly inflated prices for the operations, claiming that they were emergency procedures and charging more because they were performed outside the plans' usual doctor networks.

Thousands of patients were flown to California from 44 states, Puerto Rico, and the District of Columbia over three years, and many were given free or discounted cosmetic surgeries instead of cash as payment, says Daniel M. Martino, acting chief of the Federal Bureau of Investigation's health care fraud unit.

From Arizona alone, as many as 4,500 patients traveled to California, Martino says. "I would say, conservatively, that 90% of those patients were paid to participate in the fraud. Some recruitment activity is continuing. It's not stopped," Martino tells reporters.

'Rent-a-Patient' Scheme

Government and insurance company investigators say they were struck by the size and scope of the alleged fraud operation, which they have dubbed "Rent-a-Patient."

Clinics initially focused on Vietnamese patients, who they recruited through newspaper advertisements and in nail salons. They then moved on patients in Latino communities, eventually fanning out to members of dozens of health plans across the nation, Martino says.

Investigators also said that the leaders showed a deep understanding of the medical insurance industry, focusing at first on patients with comprehensive insurance plans and gradually shifting to workers at self-insured corporations and in the federal government.

Clinics also aggressively sought payment from insurers, often threatening legal action if claims were not paid, says Steven E. Skwara, director of fraud investigation for Blue Cross Blue Shield of Massachusetts.

"They'd call constantly, they write nasty letters, they write nasty letters to your boss," he says.

"This is one of the most complex and sophisticated operations they've ever seen," says Paul F. Brown, deputy general council for the Blue Cross and Blue Shield Association, an umbrella group representing Blue Cross insurance plans.

$30 Million Medical Fraud Suit

Twelve Blue Cross plans filed a federal civil lawsuit yesterday seeking $30 million in payments from nine Southern California outpatient surgery clinics, several medical management companies, and 34 individuals.

Eight people affiliated with one former clinic, Unity Outpatient Surgery Center in Buena Park, Calif., have been charged by Orange County prosecutors with a total of 106 felonies, including mail fraud and conspiracy. Several doctors associated with the clinic are also under investigation, though William J. Feccia, the county's senior assistant district attorney, would not give details as to how many could be charged.

Feccia's office has accused the clinic of stealing more than $14 million from insurers. Owners and alleged recruiters from another clinic, Millennium Surgical Center in Santa Ana, Calif., face similar federal charges.

Both clinics are included in the group sued this week by the Blue Cross plans.

William H. Ginsburg, an attorney representing the clinic in the criminal case, did not respond to requests for an interview. Ginsburg said in a 2004 interview with the Bureau of National Affairs newsletter that his clients were "wrapped up in a dragnet because they are a surgical center."

Phone numbers listed for several other clinics named in the Blue Cross suit were disconnected. A man who answered the phone at a number and address listed for another defendant clinic, Premium Outpatient Surgery, of Huntington Beach, Calif., said that his business was an outpatient surgery clinic but that it was called Princess Cosmetic Surgery.

The man, who identified himself as Danny P., said that he has managed the business for a year and has never heard of Premium Outpatient Surgery and was not familiar with the lawsuit.

In addition to an unspecified number of injuries caused by the surgical procedures, Martino also says that in a few patients colonoscopies appear to have revealed previously undiscovered polyps.

"There were a couple of times," he says.

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SOURCES: Daniel M. Martino, acting chief, health care fraud unit, FBI. Steven E. Skwara, director of fraud investigation, Blue Cross Blue Shield of Massachusetts. William J. Feccia, senior assistant district attorney, Orange County, Calif. William H. Ginsburg, attorney, Cotkin, Collins & Ginsburg, Los Angeles. Bureau of National Affairs Health Fraud Report, March 31, 2004. Danny P., Princess Cosmetic Surgery, Huntington Beach, Calif.

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