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Fraudulent Doctors ... Fraudulent Claims

In a Surgery Capital, a Swirl of Fraud Charges



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 burden.

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 costs.

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 added.

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 unsuccessful.

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 ownership.

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 performed.

"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 dollars.

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 receive.

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 stuff."

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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