"A recruiter will identify a physician and work out a deal, saying, 'I'll bring you so many patients,' and the recruiter will pay a physician $10,000 to $15,000 to write scrips like crazy, pad after pad, for a week," says one Detroit agent.
"When you have a dirty doctor writing 500 scrips for Oxycontin a month, you have to have a pharmacy that is going to fill them. If a pharmacy sees a Dr. ABC's scrip 500 times a month, they will call and ask, 'What's up, Doc?' The recruiter plays a role here too and says, 'I'm taking care of the pharmacy.' "
The scheme has even spawned subspecialties such as "quality assurance" experts. They're typically former doctors from overseas who read through patient charts to flag anything that might prevent Medicare from paying.
And since frauds realize that Medicare auditors see red flags when there's a billing spike from one company, they'll incorporate seven or eight to spread the grift. Some even launch check-cashing businesses to launder their money.
"Now we're seeing people who aren't doctors open these clinics and hire other dirty real doctors to 'work' in the clinic," says the Detroit agent. "Almost every day, there's a new thing."
Like many states, Minnesota pays HMOs to administer its Medicaid programs. But David Feinwachs, an attorney for the Minnesota Health Association, a trade group for the state's hospitals, noticed something odd. While actual providers had seen their reimbursement rates frozen for more than a decade, HMOs were hiking their management fees 10 percent a year just for playing middleman.
So Feinwachs started examining the HMOs' finances. "Because they're nonprofits, nobody ever looks at them," he says. "It's the perfect cover, because everybody goes, 'They're nonprofits. What's the problem?' "
He soon found they'd turned Medicaid into a cash cow, making it several times more profitable than their private insurance. But when Feinwachs asked for more data on their costs, the state blocked him, claiming it was proprietary information.
He was outraged. "You can't take tax-funded programs, turn them over to vendors, and claim that what happened to the money is a trade secret."
He also found evidence that HMOs were overbilling Medicare to cover for cuts in its state Medicaid program, thus making every taxpayer in America chip in for Minnesota's duplicity. Two months later, Feinwachs was fired for insubordination.
Though Congress eventually began investigating his claims and multiple investigations continue, Feinwachs remains unemployed. He now spends his time agitating for reform.
"The interesting thing about health-care fraud is that our government always goes after low-hanging fruit," he says. "If they were storekeepers, we'd put in surveillance systems and armed guards to catch kids stealing gum from around the cash register. Meanwhile, we have people backed up to our warehouses with semitrailers loading the merchandise, and we're oblivious to that."
Some of the Medicare fraud is so ridiculous, it's hard to believe. Take Armen Kazarian, kingpin of Los Angeles' Armenian Mob. The feds say his gang stole the identities of doctors and patients while setting up fake clinics across the country. They knew nothing of medicine, sending Medicare fake bills that showed eye doctors doing bladder tests, obstetricians testing for skin allergies, and dermatologists billing for heart exams. Medicare paid out $163 million before Kazarian and 73 henchmen were caught by the FBI. In February, Kazarian received a sentence of just three years.
Not all schemes are this flamboyant. Some simply employ sleights of paperwork. A Detroit podiatrist billed Medicare $700,000 for performing toenail removals that amounted to little more than toenail clipping. Two Miami doctors billed back rubs as physical therapy, taking in $57 million. In 2009, private ambulance services in Harris County, Texas, billed Medicare $62 million for emergency shuttles. By comparison, New York City received $7 million for the same services.
Some scams are so brazen that they advertise on TV. Remember those late-night Scooter Store ads, promising to get you a motorized wheelchair "at little or no cost to you"?
In 2007, the San Antonio company agreed to pay $4 million in civil fines and forfeit another $43 million for advertising one scooter but delivering a more expensive model on Medicare's dime.
Executives didn't learn their lesson. The Scooter Store was soon caught again, this time for overcharging Medicare by as much as $87.7 million between 2009 and 2011, according to an audit. But the federal Centers for Medicaid & Medicare Services (CMS) agreed to a spectacularly lenient settlement, allowing the company to repay just a quarter of that figure.
The feds would get tough only after CBS aired an investigation illustrating how the company browbeat doctors into writing unnecessary prescriptions for scooters. They raided Scooter Store headquarters in February. It finally appears the company has been barred from federal health programs.