Money Crunch Hurts State’s War on Fraud : Health care: The GAO says lack of funds is keeping authorities from pursuing costly Medicare and private insurance scams.

The General Accounting Office said Wednesday that California’s ability to investigate massive Medicare frauds involving rolling laboratories has been severely “impaired” by a lack of money and personnel.

Although the U.S. attorney’s office in Los Angeles filed a massive indictment against 12 defendants charged with a $1-billion Medicare fraud last year, authorities were aware of at least six other similar operations but could not pursue them, the GAO said.

The state has been unable to “pursue other cases that ‘copycat’ the rolling labs scheme in Southern California” because of lack of resources, according to the study by the GAO, the investigative arm of Congress.

Bill Schulz, spokesman for the California Department of Insurance, confirmed Wednesday that a lack of money is hampering the ability of the state to investigate and prosecute health care frauds.

He said that Gov. Pete Wilson cut $12 million out of the state budget earmarked for combatting fraud. The cutback, part of larger effort to close the budget deficit, was “a major shock” at the department, Schulz said.

The report by the GAO, requested by Rep. Fortney H. (Pete) Stark (D-Oakland), discussed the typical rolling lab fraud in which companies used vans to transport medical equipment to nursing homes, health clubs and churches, offering a variety of tests and examinations.

“Typically, the tests were of questionable medical necessity,” the GAO said.

To get Medicare payments, the van operators hired doctors to certify diagnoses, or else the other employees of the firms simply created phony diagnoses.

“Private insurers are even more vulnerable to these scams” than public programs such as Medicare, said Stark, chairman of the House Ways and Means health subcommittee.

The biggest single case in this type of fraud was filed in July, 1991, against 12 defendants involved in a $1-billion rip-off of Medicare through phony billings. The ring was headed by two Russian emigre brothers, Michael and David Smushkevich.

The case, which is still pending, involves 175 counts of fraud and misconduct. The Smushkevich brothers’ organization used vans throughout Southern California as mobile laboratories, offering free tests to patients and sending huge bills to Medicare for tests the people didn’t need or tests never performed.

“Medicare stopped paying these fraudulent claims in 1986,” Stark said. “It took another five years before the Department of Justice moved to close the operation down. During this time, these operators continued to defraud private insurers in California of millions of dollars.”

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Stark, who has introduced legislation to create a national anti-fraud program covering both government and private insurance, said the private firms are not sufficiently aggressive in pursuing “unethical doctors, labor operators and others” who submit phony bills.

“What is shocking is how these (fraudulent) operators are able to continue to run their scams even after they have been identified and prosecuted,” he said. “All they have to do is move on to another insurer.”

The attitude of the private insurers to health fraud is, “take two aspirin and we’ll look for the crooks in the morning,” Stark said.

He was also sharply critical of sloppy procedures by federal officials investigating the overpayments and improper payments by Medicare for the phony bills.