Clinics Find Surgery Scam Pays

Sandra Padilla traveled 360 miles to let strange doctors in Orange County poke around her insides. She got a colonoscopy, an endoscopy and something else she can’t pronounce. The Arizona resident didn’t need these procedures, but she was paid $1,600 to go through with them.

“I needed the money,” Padilla would explain later.

She is one of thousands of women and men from around the country who federal investigators say are being used as pawns by Southern California outpatient surgery centers in what has mushroomed into one of the biggest and most brazen insurance rackets they have come across.

Recruiters working with clinics offer healthy people -- often immigrants who speak little English, often from out of state -- cash, vacations and even cosmetic surgery to undergo needless and overpriced medical procedures, from routine examinations to major surgery. The clinics are later paid by the health plans, either directly or by patients who agree to sign over the reimbursement checks mailed to them.

Federal investigators are working in 48 states to untangle complex paper trails involving countless clinics -- many of which also perform legitimate work -- as well as doctors, recruiters and patients.

Authorities have conducted several raids -- seizing records in March at clinics in Beverly Hills, Orange County and Reseda -- but have yet to arrest anyone. They say they are working as fast as they can to amass evidence against as many as 200 clinics in Los Angeles and Orange counties.

They estimate the scams, which are perpetrated nationwide, have cost insurance companies at least $500 million in the last few years, and left some so-called rent-a-patients with serious medical complications. Although no deaths have been reported, investigators worry there will be.

“We’re literally talking about thousands of people who’ve been recruited for this. It’s despicable when you think about it,” said Dan Martino, the supervising FBI agent in charge of the case. “We don’t want to see anyone get hurt. But we have to make sure the evidence we have will stand up in court.”

The probe began about a year ago in Southern California, where investigators say the landscape and laws provide ideal conditions for the fraud. Here, clinics can exist in relative obscurity amid the urban sprawl and patients can be lured by all-expense-paid trips to the beach. California also is among the states that require insurance carriers to pay claims in 30 to 45 days, leaving little time for the firms to investigate suspected fraud.

In typical cases being dissected by Martino’s unit, middlemen working for one or more outpatient clinics recruit assembly line workers and other hourly wage earners insured by Blue Cross and Blue Shield, United Health Group Inc., Cigna Corp. and other carriers that allow treatment outside of preferred provider organizations, or PPOs.

These recruits, usually drawn from immigrant populations, have been solicited by word of mouth or handwritten fliers. “Those of you who have Aetna, Cigna, Blue Cross, Blue Shield, or any PPO medical insurance plan and would like to make $4,000-$5,000 in cash! NO WORK INVOLVED!,” read one flier investigators found in a factory break room. Patients can drive themselves or be transported to the clinics by van if they are within driving distance, or come by plane if they are farther away. Hotel rooms are provided to out-of-towners.

Beyond the trip to Southern California, patients are lured with the offer of free cosmetic surgery: face-lifts, tummy tucks and nose jobs, in addition to other unnecessary procedures, all at the expense of insurers.

“If you’re dealing with an hourly wage earner who’s never been to California, and tell them they’re going to pay for their plane ticket and hotel,” it’s not hard to lure participants, Martino said, adding that in some cases recruits “are being told, ‘If you come in for an endoscopy, we’ll throw in a nose job.’ It’s pretty outrageous stuff.”

Martino said the clinics perform medical procedures -- rather than just fake the paperwork -- because going through the motions gives the guilty parties “plausible deniability.” Before they are treated, recruits are coached about what symptoms to describe to justify the procedures they will undergo.

Among procedures being routinely performed are endoscopies, in which a flexible, fiber-optic cable is used to look inside a patient’s stomach or esophagus; and colonoscopies, in which a long tube with a camera lens at the end is inserted in the large intestine to look for polyps and tumors. The average cost of legitimate treatment ranges from $1,500 to about $3,000.

Inflated claims that run upward of 10 times those amounts are then submitted by the wayward clinics that have figured out how to penetrate insurers’ billing systems without triggering software designed to root out fraud and inflated claims.

This is possible in part, Martino said, because there often are extra costs associated with treatment by clinics outside the insurer’s network. Clinics participating in this type of fraud also frequently tack unnecessary surgical supplies onto the bill that insurers -- unless they review the bills line by line -- don’t catch.

Some patients are being paid to take bigger risks, going under the knife for circumcisions, hernia operations and the nerve-snipping surgery for palmar hyperhydrosis, a rare condition better known as sweaty-palm disease.

In the unusual case of a diagnosis for sweaty palms, surgery is considered a last resort, according to Bill Mahon, a private industry consultant who served until May as president of the National Health Care Anti-Fraud Assn. in Washington. An incision is made under the armpit, and a lung is collapsed to allow access to a nerve near the spine that triggers perspiration in the palms, Mahon said. Bills from California clinics have been as high as $74,000 for the surgery, when “in the rare case you do need it, it’s typically going to cost no more than $10,000,” he said.

In Orange County, where Martino said some of the biggest scammers have set up shop, some clinics sued patients who decided to keep the money. Those patients are now cooperating with authorities.

Padilla, the Arizona resident, is one of them. Her husband was working on the loading docks in Phoenix at the time, and his supervisor recruited her. The 52-year-old Cuban immigrant made two trips to a Tustin clinic in 2002. Each time, she arrived in a 15-passenger rental van driven by the supervisor and stayed at an Anaheim motel, and was paid $800 before she went home.

During the first trip, she had an endoscopy. The second time, she got a colonoscopy and also had her uterus scraped.

Blue Cross and Blue Shield was billed more than $50,000 by the clinic. Padilla said she sought legal advice after the insurer sent her bills she hadn’t expected for lab work and other treatment not covered by her policy. Padilla “was afraid she had been scammed,” said attorney Holly Gieszl, who is representing several “rent-a-patients” in Phoenix.

Gieszl and other lawyers for patients cooperating with the FBI say their clients are victims, not accomplices. Most are minorities with low incomes who speak limited or no English.

“The little guys here are the patients who are being butchered. Fortunately, some of them weren’t harmed. But some are having side effects,” Gieszl said.

Martino said the investigation is focused on identifying and punishing the architects of the scam, the clinic owners, the doctors who put patients at unnecessary risk and the recruiters who have been trafficking business to Southern California. Many of the perpetrators are loosely affiliated, investigators say: Recruiters work for more than one clinic, doctors rotate from one clinic to another, and some owners have interests in more than one clinic.

During recent raids, investigators have confronted patients on the spot and seized records. At least one of those clinics was closed when investigators returned days later. Charges investigators expect to file include fraud, conspiracy, money laundering and serious bodily harm.

“We’re being very aggressive,” Martino said. “We feel confident there will be arrests and we’ll have an impact on the problem.”

In the meantime, the insurance industry, which has been working closely with federal investigators and local law enforcement agencies to identify the guilty parties, are working to improve their safeguards.

Many companies were caught off guard by the fraud while others had sophisticated systems that could spot and flag unusually high claims or too many in a geographic area out of state, Mahon said. Still, even some of those systems are designed primarily to pay claims in the timeliest manner possible, not catch crooks.

“At a time when healthcare premiums and the amount of uninsured in this country are going up, it’s important the industry does things so they are not taken by this,” said Mahon, the private industry consultant. “I think at this stage, most of the industry has learned a great deal from the experience. And they’re making changes to try to stop these things at the front door.”