NME Offices Raided in Major Fraud Probe : Health care: Federal investigation focuses on accusations of false billing and diagnoses by the giant hospital operator.
In one of the biggest health care fraud investigations ever undertaken, federal authorities Thursday raided the Santa Monica headquarters of National Medical Enterprises Inc. and other company offices across the country.
The criminal investigation of the giant hospital operator focuses on allegations of false billing and diagnoses, as well as suspicions that illegal payments were made to doctors for referring Medicare patients to National Medical facilities, sources close to the investigation said.
The investigation primarily involves the company’s psychiatric hospitals, which are also the subject of a bevy of civil lawsuits by patients alleging malpractice and by 19 major insurers who accuse National Medical of hundreds of millions of dollars in overbilling.
John Hoos, a spokesman for the FBI’s office in Los Angeles, said the search was part of an “ongoing investigation into possible criminal conduct” at National Medical. He declined to elaborate.
Authorities said National Medical, a $4-billion-a-year company and one of the nation’s largest health services firms, is cooperating with the investigation.
“We are hopeful that the records obtained today will help the government put to rest many of its concerns and . . . lead to a prompt resolution of the government’s investigation,” Scott Brown, National Medical’s acting general counsel, said in a statement.
The federal government has estimated that health care fraud is costing billions of dollars and is a major factor in soaring medical costs. Earlier this year, the Justice Department doubled the number of FBI agents investigating crimes in the $738-billion health care industry and set up special prosecution units in Los Angeles and 11 other cities.
National Medical has been a top priority in the government’s crackdown on health fraud, according to government sources. The government has been investigating activities at National Medical’s psychiatric hospitals for about two years.
The National Medical case could prove to be the largest investigation ever of health fraud in the United States, a government source said, adding, “I can’t think of any case where this kind of effort has been expended.”
Federal authorities, armed with a search warrant, entered National Medical’s five-story brick headquarters building on Colorado Avenue in Santa Monica early Thursday morning. Authorities, using hand trucks and carts, could be seen loading a big white truck with filing cabinets and cardboard boxes seized from the company’s offices.
As some 40 federal agents worked inside, employees peered out from windows to watch reporters and television camera crews, who were prevented by security personnel from entering the building.
Government officials have said privately that they expect charges to be filed against National Medical and some of its employees.
A government source said federal grand juries are investigating National Medical in several districts, including Los Angeles. The source declined to discuss the timing of any criminal charges, saying: “Any time you’re involved in an investigation like that, you hope you’re on the right track. . . . This is a huge case.”
Sixteen insurers have sued National Medical in federal court in Washington, accusing it of submitting more than $750 million in bogus bills. Three other insurers have filed suit in Texas, also alleging billing fraud. On Aug. 19, National Medical filed two suits against all 19 insurers in Washington, alleging conspiracy, consumer fraud, defamation and restraint of trade.
National Medical also faces more than 100 civil suits alleging abuse and mistreatment of patients at company-owned facilities.
The firm said authorities also searched its regional offices in Dallas and Fairfax, Va., as well as nine of its 61 psychiatric hospitals. It said the government has also subpoenaed records at its regional offices in Tampa, Fla., and Indianapolis.
The FBI said its offices in Dallas, Denver, Houston, Indianapolis, Phoenix, St. Louis, San Diego, Washington, Miami, Norfolk, Va., New Orleans, Detroit, Tampa, Atlanta, Milwaukee and Minneapolis are participating in the investigation.
Other agencies involved are the Department of Health and Human Services, the Internal Revenue Service, the Defense Criminal Investigative Service and the U.S. Postal Inspection Service.
Trading of National Medical’s stock was suspended on the New York Stock Exchange on Thursday morning and never resumed. The last trade for the day was $11.125, off 25 cents.
Times staff writer Ronald J. Ostrow in Washington contributed to this report.
