State Hit Hard by Medical Fraud

Doctors, dentists, pharmacists and others in the health-care industry have been stealing huge sums from California’s $25-billion Medi-Cal program despite increased state and federal efforts to combat fraud.

California can ill afford to lose billions of dollars from its health program for the poor, especially now that the state and federal governments both face large deficits and lawmakers are expected to try next year to cut spending on Medi-Cal. Gov. Gray Davis already has proposed trimming $167 million from the program, which is jointly funded by the state and federal governments.

Authorities have made a concerted effort to counter Medi-Cal fraud. In the last few years, criminal charges have been filed against about 700 people and companies accused of stealing from Medi-Cal. The state attorney general and the U.S. attorney’s office in Sacramento, where the bulk of the federal charges are lodged, together have won almost $100 million in restitution. State health officials believe their civil enforcement actions have saved hundreds of millions more.

However, the program is so enormous, and the opportunities for fraud so widespread, that few think the efforts so far have done much more than hold the line. “Health-care crime is rampant in California,” said James Wedick, head of the FBI’s white-collar crime unit in Sacramento. “Even though our efforts have increased and we’re getting good at it, I am still convinced there is as much fraud as ever.”

A clinic owner charged Medi-Cal for perinatal services to women who already had undergone abortions. A dentist charged for filling teeth that already had been extracted. A suspended doctor billed for hundreds of nuclear brain scans although he lacked the proper equipment and expertise. A podiatrist billed for $250 custom-molded foot supports although he had outfitted patients with generic $24 shoe inserts.

The fraud is heavily concentrated in population centers of Southern California where there are large numbers of poor people and many immigrant communities that investigators say are particularly vulnerable to fraud.

Some experts estimate that up to 10% of health-care dollars are stolen. For Medi-Cal, that translates to about $2.5 billion a year, almost half from the state general fund.

State health Director Diana M. Bonta considers such estimates high but says, “Even 1% is too much.... Zero is what we want and why we have been so aggressive.... People need these programs.”

The stakes are enormous in the battle against criminals investigators call “the fraudsters.” Created in 1965, Medi-Cal covers health care for 6 million poor, aged, blind and disabled people by reimbursing providers for products and services.

And people who want to cheat the system have adopted sophisticated methods to stay one step ahead of authorities:

* Some steal the identities and billing numbers of legitimate health professionals, then use the information to submit phony bills to Medi-Cal and collect millions of dollars.

* Others peddle lists of Medi-Cal patient names and identification numbers. Crooked health-care providers use the information to dummy up bills to Medi-Cal without seeing the patients.

* A cottage industry has developed to sell blood from street people and others to laboratories. The labs then bill Medi-Cal for expensive blood tests that were never authorized by physicians or performed by the labs.

“The entrepreneurial spirit of those who commit this kind of fraud is as creative as it is insatiable,” said Collin Wong, executive director of the attorney general’s Bureau of Medi-Cal Fraud. “If one area of criminal activity is closed to them, they’ll migrate to another.”

Immigrant populations pose particular challenges to investigators.

Take the case of L & M Diamond Jewelry Optical in West Hollywood, a mom-and-pop store with wares such as glass beads, Russian stacking dolls and sunglasses.

Despite its modest facade, the store billed Medi-Cal for about 62,000 pairs of prescription eyeglasses from 1993 to mid-2001. State records show patients receiving up to 18 or more pairs during just a few years -- but several told investigators they actually got few if any.

Mila Sigal and her husband, David, were charged with Medi-Cal fraud and the theft of more than $3 million. The couple pleaded guilty. David Sigal received five years’ probation while Mila Sigal faces sentencing on charges that call for up to three years in prison. They paid more than $100,000 in restitution but have been resisting the state’s attempts to get almost $3.5 million more.

Mila Sigal’s attorney, Tracy Green, said her client submitted multiple false claims to cover the cost of designer eyewear that customers wanted instead of less expensive glasses the state pays for.

“Lots of the beneficiaries are from former communist republics who are used to getting around the system,” Green said.

The integrity of Medi-Cal hinges largely on identification numbers issued to health-care providers and patients. But the state has struggled to keep the numbers from being misused. A few years ago, some streets in Los Angeles County were packed with phony medical equipment suppliers. They operated out of storefronts with virtually no inventory or clientele, or simply used mail drops.

Medi-Cal’s weaknesses have been obvious for some time. A U.S. General Accounting Office report in 2001 noted that the program was admitting doctors, labs and others who had questionable billing histories and allowing some to have multiple numbers.

A state audit this year found that controls need further tightening to avoid enrolling or re-enrolling people intent on fraud. Health officials say they have improved procedures and are reviewing new applications more carefully.

As part of a crackdown, the state forced all 1,400 medical equipment suppliers to re-enroll in the Medi-Cal system; when the state did that, more than half dropped out.

“They did not want to come back because [many] were Mail Boxes Etc.-type places,” said Diana Ducay, who oversees the health department’s 200-member anti-fraud force.

To improve the screening, the state now visits all applicants. However, with nearly 150,000 providers, officials say the state lacks the resources to regularly inspect them all.

When medical labs became fertile ground for fraud, the state imposed a moratorium on new applicants in 2001.

Officials say that step, however, came too late to stop Surinder Singh Panshi, whose case illustrates many of the weaknesses in the system.

Panshi had been convicted twice of health-care fraud in New York and served five years. Using blood purchased from addicts and poor people, his labs billed that state’s Medicaid program $3.6 million for unnecessary tests in the late 1980s. Some donors were almost literally bled to death, leading the prosecutor to call it “perhaps the largest and most nefarious [health] fraud ever perpetrated.”

After being released from prison, Panshi came to California, where officials say he and his confederates used a dozen blood labs to bilk Medi-Cal out of $11 million.

Panshi never was listed as a person being reimbursed by Medi-Cal. But investigators heard that a mysterious “Dr. Khan” was a hidden owner of two labs.

A lab accountant had shipped a Federal Express package to New Jersey where Panshi maintained a home not far from a variety store where millions of dollars in Medi-Cal checks were cashed. Confronted by investigators, the accountant said Kahn was Panshi. “This is an organized crime group operating the laboratories, like the Mafia,” he said.

When Atty. Gen. Bill Lockyer’s office filed charges in June, investigators had linked 13 labs to Panshi’s group and found that the labs submitted phony bills for thousands of tests authorized by two dozen doctors whose identities were stolen. Two of the doctors were dead when bills were submitted in their names.

Several labs were run by Linda Dizon, who reached a plea deal and was described in court records as Panshi’s girlfriend. Some, she told state investigators, were “wang bang” labs, meaning they ran no tests. Others tested old and useless “bad blood.” Either way, Medi-Cal got billed.

Dizon also said money from the scheme was used to buy her $75,000 Porsche and a home in Diamond Bar that she and Panshi bought for $350,000 at a Los Angeles County auction.

Supervising Deputy Atty. Gen. Hardy Gold said four defendants in the case are fugitives, and all but two of the others have pleaded guilty and are awaiting sentencing.

Gold said Panshi, who is being held on $2-million bail in Orange County, is scheduled to appear Jan. 3 and respond to a plea bargain offer that would include lengthy prison terms in California and New Jersey.

“It is our belief that [Panshi] has to be sent to prison for a number of years,” Gold said. “His prior convictions have not deterred him from stealing from the public.”

Panshi’s attorney, Sean Singh, declined to discuss the case but said, “He is a very nice guy, very personable. He is a family man.”

As with most health-care frauds, little money has been recovered.

State officials have found that as soon as they close one avenue to fraud in the program, another opens.

It costs almost $7,000 for a one-month prescription of Serostim, a human growth hormone used as an AIDS anti-wasting drug. But there’s also a black market among body builders.

Health investigators uncovered a statewide ring led by a former radiologist who purchased beneficiary numbers, stole physician identities and created phony Serostim prescriptions. The ring got away with filling them repeatedly, at multiple pharmacies. Then the suspects allegedly peddled the drug at gyms and spas.

The cost to Medi-Cal was $3.5 million, according to a San Diego County grand jury indictment a year ago.

After reimbursement levels for dental work were increased in the early 1990s, officials saw Denti-Cal fraud climb.

Mikhail Kopilevich and Micha Chelzinger, veterans of the Russian and Israeli armies respectively, decided to open their own dental clinics after starting out as lowly cappers -- people who recruited Medi-Cal patients for a price.

“They were quick studies,” said Deputy Atty. Gen. Alexandra Ramsburg Kirk.

Forming a partnership with a young dentist in Moreno Valley, they hired other dentists and enlisted cappers who used cash, tennis shoes and other gifts to woo patients.

After the state served a search warrant in 1999, they concentrated on two other clinics. Rather than hiring dentists and finding patients, Kopilevich and Chelzinger stole identifying information. They laundered some of the Medi-Cal money by writing paychecks to ghost employees.

“This is an interesting thing about Medi-Cal fraud,” Kirk said. “You close one hole, and they are not scared or anything. They are so brazen.”

Another dental fraud scheme victimized the very people Medi-Cal is designed to help.

In February 1999, a Spanish-speaking man came to the home of a Latino woman in San Bernardino County, saying he was from the “Medi-Cal Department.”

At his urging, the woman and several of her children joined vanloads of poor patients being shuttled to a Montclair dental clinic. But things went frighteningly wrong. After a dentist began working on the woman’s 11-year-old daughter, the child fainted and started to go into shock. At a local hospital, a doctor said she had received too much local anesthetic as the dentist filled almost a dozen cavities -- an approach that maximizes Medi-Cal reimbursements but can lead to death.

The dentist, it turned out, was unlicensed in California. And the Medi-Cal “employee” was one of dozens of cappers for three clinics operated by dentist Yoram Isaacson. He and his brother, Joseph Isaacson, pleaded no contest in April 2000 to grand theft and making false Medi-Cal claims. Each was sentenced to two years in prison and ordered to pay more than $1 million in restitution and investigation costs.

The integrity of Medi-Cal sometimes has been undermined from within.

Three health department employees were convicted of accepting payments to expedite claims or applications for provider numbers. And another corruption case reached inside Electronic Data Systems, which reviews $200 million in Medi-Cal claims each week. A former company employee recently was convicted of paying gratuities to other employees to facilitate $350,000 in claims.

Wong, the attorney general’s Medi-Cal fraud chief, said the state needs to attack the fraud problem on multiple fronts -- by tightening access to the provider rolls, paying enough to attract legitimate providers and vigorously monitoring payments and prosecuting the cheaters.

Whether the state is able to do that is a “multibillion question,” he said.