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NYTIMES: Fraudulent Doctors ... Fraudulent Claims

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  • NYTIMES: Fraudulent Doctors ... Fraudulent Claims

    July 10, 2005
    In a Surgery Capital, a Swirl of Fraud Charges
    SANTA ANA, Calif.

    REAL doctors performed real procedures on real patients. The insurance
    claims were real; so were the surgery centers that filed them. And the
    money that insurers paid - a total of about $500 million, federal
    investigators estimate - was most assuredly real.

    Hundreds of people, many of them recent immigrants unfamiliar with
    America's health care system, volunteered to undergo the medical tests
    and operations. They traveled to surgery centers in Southern
    California for what would be, in another context, routine procedures
    like endoscopies, colonoscopies and pap smears. Some traveled, on the
    clinics' dime, from as far away as Tennessee. Some of them,
    investigators say, received free or discounted plastic surgery, and
    others got cash.

    Any such payment was and is illegal.

    Insurers, meanwhile, were billed tens of thousands of dollars for each
    procedure, far more than they would have paid if the patients had gone
    to in-network providers.

    Over the past two years, federal, state and insurance industry
    investigators have unraveled what they say is one of the most
    egregious cases of doctors manipulating the trust placed in them. But
    this type of fraud - which draws on a web of doctors, surgery center
    owners and staff, and patient recruiters known as "cappers" - is hard
    to spot and stop. The California case may be just a start.

    Last summer, federal and state prosecutors charged a number of surgery
    center owners with fraud. This spring, several Blue Cross and Blue
    Shield companies filed civil suits against several centers, their
    owners and more than a dozen doctors.

    Health insurance fraud is big business. The National Health Care
    Anti-Fraud Association has estimated that of the $1.7 trillion spent
    on health care in the United States in 2003, from 3 to 5 percent was
    lost to fraud, hurting insurers that pay claims, companies that pay
    premiums and patients who are asked to pay assume ever more of the

    Taking just the lower figure, "you get $51 billion," said Michael J.
    Costello, the association's director of investigation support. That
    works out to more than $100 million a day, he said, and "if that
    doesn't get your attention, nothing will."

    Uncovering a well-constructed fraud can be very difficult, because
    nobody has an incentive to blow the whistle - not the doctors, not the
    clinic owners, not the patients receiving kickbacks and, some critics
    say, not even insurers, who can simply raise premiums to cover their

    If investigators' view of the California case is true, "it's not just
    the doctors doing the wrong thing here," said Dr. Susan Dorr Goold,
    director of the bioethics program at University of Michigan. "There're
    lots of people doing the wrong thing."

    A broad effort to identify surgery centers involved in fraudulent
    billing probably had its genesis at a routine meeting of health
    insurers in January 2003 in Tampa, Fla. The executives met three times
    a year to compare notes on suspicious activity, but this session was a
    little unusual because insurer after insurer had observed the same
    thing: patients were driving and flying hundreds, even thousands of
    miles to undergo suspiciously routine procedures.

    "We all kind of looked at each other and said, 'What's going on here?'
    " recalled Byron Hollis, national anti-fraud director of the Blue
    Cross Blue Shield Association. "It just became apparent that we had a
    nationwide problem."

    AT most big insurers, sophisticated software screens claims for
    unusual patterns, and then investigators step in, Mr. Costello said.
    His anti-fraud group has nearly 100 insurers and about 20 government
    agencies as members.

    No one is sure why the suspicious activity was centered in Southern
    California. But several people involved in the investigation said one
    reason might have been that California, like other states, has a
    "speedy payment" law, which requires insurers to pay claims in as few
    as 30 days. Surgery centers could thus collect before insurers could
    thoroughly review a claim's accuracy.

    A few months after the Tampa meeting, insurance executives met with
    law enforcement agencies in Los Angeles. Soon after, the F.B.I. began
    its investigation. In an unusual move, insurers began to share
    information on more than a million claims - though not patient
    identities - with the F.B.I. Gathering evidence took about a year,
    said Mr. Costello, who was at both meetings.

    In March 2004, the F.B.I. executed search warrants at several surgery
    centers in Los Angeles, said Daniel Martino, an F.B.I. supervisory
    special agent. (Agents executed a warrant at another center, which Mr.
    Martino would not identify, about two months ago outside Los Angeles.)
    The investigators found the same disturbing pattern: Claims had been
    submitted for lucrative procedures performed at clinics in Southern
    California on patients from all over the country.

    F.B.I. investigators reviewed claims valued at a total of more than $1
    billion, Mr. Martino said. "We believe that the attempted fraud was
    about $700 million and the actual losses were about $500 million," he

    So far, federal prosecutors have brought charges against just one
    clinic, the Millennium Outpatient Surgery Center in Santa Ana, along
    with its owner and three recruiters. Prosecutors asserted that they
    committed fraud for up to four years. The case is set for trial in
    June 2006.

    The district attorney's office in Orange County last summer brought
    insurance fraud, theft and conspiracy charges against eight people
    tied to the Unity Outpatient Surgery Center. The preliminary hearing
    in that case is scheduled for the fall.

    David Swanson, a lawyer for one defendant in the state case involving
    Unity, Tam Vu Pham, said his client had no role in any fraud. Mr. Pham
    was an investor in at least one of the other surgery centers.

    "Our position is that any surgeries that were done were necessary and
    that he had no knowledge of any improprieties," Mr. Swanson said.

    Efforts to reach other owners of the surgery centers were

    Some insurers have filed civil lawsuits to try to recover money they
    paid on what they now consider fraudulent claims. Last year, Aetna
    Life Insurance sued nine surgery centers, including Unity; the lawsuit
    asserted that all were effectively controlled by the same people.

    Aetna's complaint stated that Unity submitted claims for more than $9
    million; it is not clear how much the insurer paid.

    Earlier this year, with considerable fanfare, Blue Cross and Blue
    Shield companies from several states filed a civil complaint against
    nearly a dozen clinics - including Unity - along with their owners,
    recruiters and about 20 doctors. The Unity clinic alone billed almost
    $97 million to insurers in less than a year, the complaint said.

    The Blues' complaint asserts that the centers recruited patients "from
    across the country to come to the clinics and undergo completely
    unnecessary diagnostic and surgical procedures, so that the clinics
    and the surgeons could submit phony insurance claims." Some procedures
    were highly risky: so-called "sweaty palms" surgery, for instance,
    requires collapsing a patient's lung to sever or clamp a nerve near
    the spine.

    Calls to the doctors named in the Blues' complaint were not returned.

    The centers named in court documents appear to have closed. In
    mid-May, a sign on the door at Millennium's offices referred mail to
    the next suite down, home to a surgical center called Park Center. A
    woman who answered the door there said that it had no connection to
    Millennium but had bought all its equipment.

    ALTHOUGH it is difficult to know what happens inside clinics, some
    former patients have spoken publicly. Julio Hernandez and his wife,
    Sandra Padilla, of Phoenix have talked to reporters about their
    experience at Unity.

    When Mr. Hernandez, who worked for a waste management company, heard
    that he and his wife could get a few hundred dollars and a free
    medical checkup, the opportunity sounded like a good deal. All they
    had to do, Ms. Padilla recalled, was visit the Unity outpatient
    surgery center in Anaheim, Calif., and they would get an endoscopy and
    a colonoscopy and receive $400 or more per procedure.

    "I could get money I needed," said Ms. Padilla, who makes $7 an hour
    as a textile worker. Ms. Padilla said she traveled to the center in
    Anaheim on two weekends in the summer of 2002; Mr. Hernandez said he
    went five times. They said they realized that something was wrong when
    they received checks from insurers for tens of thousands of dollars,
    much more than they were told the procedures would cost. A lawyer for
    the surgery center called to demand the money, threatening them with
    civil litigation, jail time and even deportation, they said. Ms.
    Padilla and Mr. Hernandez said they are legal residents of the United
    States. They found Holly Gieszl, a lawyer at Kimerer & Derrick of
    Phoenix, who alerted the insurers and prosecutors.

    The problem of identifying fraud in medical procedures is more
    difficult than it is in, say, tax collection, said Henry J. Aaron, a
    senior fellow at the Brookings Institute. With tax evaders, regulators
    can identify the types of transactions that might be used to hide
    income. But in medical matters, the situation is different.

    "It's not that you say, 'Oh, tonsillectomies are a problem, but
    appendectomies are not,' " Mr. Aaron said. "The problem in this case
    is you've got some real companies that are real bad apples, and you
    have to audit everything they do. But how do you identify them?"

    It is not easy to figure out how many of the accused centers are set
    up or who owns them. Court documents from a three-year-old dispute
    among surgery center owners offer the best picture.

    A company in Orange County called Lincoln Management filed suit
    against Anaheim West Surgery Center in 2002, saying it had violated
    terms of a 15-year management agreement. Under that agreement, Lincoln
    provided facilities, support personnel and medical equipment and paid
    rent for the center. In return, Lincoln received the fees paid by
    patients and insurers.

    According to an amended complaint filed by Lincoln, Anaheim West's
    owner, Dr. Hamilton Sah, threw Lincoln's 60 employees off the premises
    without warning on June 7, 2002. As a result, Lincoln said, it lost
    $46 million in insurance fees and access to medical equipment.

    According to documents filed in the case, Mr. Pham - the same man
    charged by state prosecutors in the case involving Unity - was the
    office manager at Anaheim West and had invested $300,000 in the
    venture. Mr. Pham and his wife, Huong Thien Ngo, own 40 percent of
    Lincoln through another company nominally based in Nevada, court
    records show; many clinics seem to have these complex layers of

    In a statement filed with the court, Mr. Pham said that Lincoln set up
    the outpatient center in 2001 and hired Dr. Sah as medical director.
    But Dr. Sah "was on the premises only twice in the last year," Mr.
    Pham stated.

    Business was good. At the time of the lawsuit, Anaheim West had fee
    income of nearly $2 million a month, while operating costs were just
    $400,000, according to court documents. The new clinic, St. Francis
    Outpatient Medical Center, was just beginning to generate fee income,
    according to Mr. Pham's statement.

    While Lincoln's court filings offer no possible explanation for its
    employees' eviction, filings by lawyers for Dr. Sah and Anaheim West
    tell an intriguing story. According to Mitchell Rubin, co-manager of
    Anaheim West with Mr. Pham and president of a company that also owns
    40 percent of Lincoln, Mr. Pham had allowed illicit procedures to be

    "Against Dr. Sah's express policy, Tom Vu had permitted physicians to
    routinely perform cosmetic surgeries," Mr. Rubin said in a court
    filing, apparently referring to Mr. Pham by one of the names he also
    used. "Upon further inquiry, I learned that these procedures, and
    others scheduled through Tom Vu's efforts were paid in cash, and that
    records of such cash payments were not maintained."

    The outcome of the lawsuit is unclear. Lawyers representing the two
    sides did not return calls seeking comment. But the court documents
    show how easily center owners can open new clinics. In 2002, Lincoln
    formed Inland Orange Medical Management Inc., which in turn set up the
    St. Francis Outpatient Medical Center. Another doctor, Daniel M. Rose,
    was recruited to serve as the medical director.

    When a reporter called, telephone service had been disconnected at
    both St. Francis and Anaheim West. At St. Francis, in a medical office
    park in Buena Park, Calif., the office appears to be closed.

    That may be telling. Peter J. Diedrich, a lawyer at Beck, De Corso,
    Daly, Kreindler & Harris in Los Angeles who filed the lawsuit on
    behalf of Aetna, said that when insurers stop paying certain clinics
    because investigators have concluded that claims are suspect, often
    the clinics simply change their names and addresses.

    "These guys run a scheme as long as they can get away with it, then
    they shut it down" and reopen, he said.

    IN general, health care fraud is constantly evolving, said Bruce R.
    Chambers, director of Cigna's special investigations unit. In the
    mid-1990's, he said, Cigna investigators noticed suspicious claims
    from Southern California surgery centers.

    "What they were doing back then was cosmetic surgery, and they were
    billing it to insurers as other necessary medical procedures," Mr.
    Chambers said. "They'd go in for a tummy tuck, and we would get a bill
    for a hernia operation."

    Then as now, one giveaway may be the distance traveled by patients.
    Cigna stopped paying such claims, Mr. Chambers said, but also tracked
    the information on everyone involved - doctors, surgery centers,
    anesthesiologists and patients. When some of the same names started
    appearing on claims a few years ago, for patients going cross-country
    for relatively minor procedures, Cigna again did not pay.

    "It involved a lot of review of claims, a lot of research, a lot of
    interviewing people," Mr. Chambers said, but it saved millions of

    Some procedures have had lasting side effects. Mr. Hernandez, who made
    the six-hour trip from Phoenix to Anaheim nearly three years ago in a
    hot van packed with other patients, underwent surgery for sweaty
    palms. He says he now has dry palms, but sweats more in other places.
    He says he never wants to see a doctor again.

    Mr. Hernandez and his wife say they were not asked much about their
    medical histories when they made the trip for a weekend of surgeries.
    On a Saturday morning, they said, they stood in the parking lot before
    their surgery with other patients, comparing how much cash they would

    For their surgeries, they said, they were put under total anesthesia.
    When Ms. Padilla awoke, she said, she had unexplained scars from a
    procedure she was never told of. A van ferried them back to a motel.
    They returned on Sunday for more procedures, they said, then they
    received their cash and were driven home.

    One group of women from Texas has filed a civil lawsuit against the
    Valley Multi-Specialty Surgical Center in Reseda area of Los Angeles,
    where they said they underwent plastic surgery. They are the rare
    patients who, once they concluded that they had been part of a scheme,
    took two smart steps. They hired a lawyer, and they deposited the
    money they received from insurers into a court account.

    The women are not alone in suing Valley Multi-Specialty. In its
    lawsuit last year, Aetna also accused the center of performing
    unnecessary procedures. Aetna contended that Valley Multi-Specialty
    was "in whole or in part, a sham entity established to bill for
    services rendered by Unity."

    A lawyer for the owner of Valley Multi-Specialty, Brian F. Buchanan of
    Haney, Buchanan & Patterson, declined to comment on the Texas lawsuit
    or the Aetna lawsuit. But Wendy Schneider, the center's finance
    director, said that no plastic surgery procedures were performed
    there. "You need different equipment," she said. "We don't have that

    Some surgery centers where questionable procedures were performed may
    well have also performed legitimate services, Mr. Chambers of Cigna
    said. That helped make detecting the problem so difficult, he said.

    The criminal cases in Southern California may have helped reduce the
    number of fraudulent claims there, he added. "We are experiencing
    continual fraud issues because we'll always have fraud to some
    extent," he said, "but nothing like what we had with them."

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