UCI Doctor Stone Indicted on 10 Counts of Mail Fraud

Sergio C. Stone, one of three doctors implicated in a scandal at UC Irvine that rocked the fertility industry, was arrested Thursday on 10 counts of federal mail fraud alleging he carried out an illegal billing scheme against insurance companies.

Stone, 54, who was arrested at his Villa Park home and brought to U.S. District Court in handcuffs, is accused in an indictment unsealed Thursday of filing false claims stating that he was assisted by other licensed physicians while performing medical procedures when he actually was working alone or with trainees.

Following a brief court appearance, Stone was taken to the Santa Ana Detention Facility, where he was being held until a hearing this afternoon.

The indictment--the first to be announced in the year-old fertility scandal at UCI’s Center for Reproductive Health and its affiliates--targets the least well-known of the three physicians, and, according to some patients’ attorneys and university critics, the least culpable. Stone is the only one of the three doctors still living in the United States. His two former partners, Drs. Ricardo H. Asch and Jose P. Balmaceda, left last year for Latin America.

Asked outside court for his client’s response to the charges, Stone’s criminal defense attorney, Allan Stokke, said: “I think his feeling is, he has done nothing wrong. He wants to remain here to clear his name.”

The indictment covers activities not only at the UCI Center for Reproductive Health but also at an affiliated clinic at Saddleback Memorial Medical Center in Laguna Hills.

Handed down by a federal grand jury after months of investigation, the indictment makes no mention of human egg-stealing--the core issue in the scandal. UCI officials have accused Stone, Asch and Balmaceda of stealing eggs and embryos from scores of women and implanting them in others, some of whom gave birth. At least 70 patients may have been victimized at clinics at UCI and affiliates at UC San Diego and in Garden Grove, officials allege.

But some of the attorneys involved in about 50 lawsuits against the three doctors speculated that the indictment could be a strategic move on the part of a joint task force led by federal authorities to force Stone’s cooperation in the probe.

“I’ve seen it happen where they pick off lesser people and then ultimately hope to indict the true targets,” said Larry Feldman, an attorney representing five patients who have sued or filed claims against the university.

“I would imagine Dr. Stone knows an awful lot,” said Melanie Blum, another patient’s attorney. She noted that Stone worked with Asch and Balmaceda since 1990 and may have some knowledge of their practice at a UCI affiliate at AMI/Garden Grove, where the pair worked together since 1986.

However, Stokke said, “No agreement of any sort has been made to provide evidence or testify in exchange for lenient treatment.”

Several UCI critics said they would be dismayed if the federal action stopped with the Stone indictment.

“It’s a heck of an indirect way to address a problem where human beings were ripped off at a much more basic emotional level,” said state Sen. Tom Hayden (D-Santa Monica), chairman of the Senate Select Committee on Higher Education who has introduced a bill to make human egg-stealing a crime. “I would be disappointed if the federal government has no plans to go farther, but fully expect it will bring more serious charges in weeks to come.”

Stokke said he was still reviewing the indictment.

“The allegations involve insurance irregularities and has nothing to do with the egg and embryo investigation,” he said. “It seems to be rather strange to start to focus on one thing and end up with” another.

Stone is accused in the indictment of devising a scheme to defraud insurers and to “obtain money from insurance companies by means of false and fraudulent pretenses.” He is also accused of dictating false operative reports, falsely reflecting that he was assisted in medical procedures by licensed physicians. The allegations cover a period from July 1991 to November 1993.

Mail fraud was charged because the allegedly fraudulent billing reports were sent through the mail. Seven of the 10 counts name Asch or Balmaceda as the assistant physicians who are listed on the bills but allegedly were not present.

Stokke noted that many of the counts involve billings of $1,500 or less.

Asch’s criminal attorney, Ronald G. Brower, said the fact that Stone was only indicted on charges of billing irregularities supports his contention that the doctors did nothing wrong.

“It appears from the nature of the charges that what we’ve been saying all along is true,” he said. “It is much less significant than it was originally portrayed.”

Federal prosecutors were tight-lipped about their strategy, saying that the investigation is ongoing and that the indictment did not preclude other charges against Stone. They added, however, that Stone’s indictment had been sealed for some time, raising the possibility that other indictments could be under seal as well.

“Dr. Stone . . . has been arrested and arraigned first,” Assistant U.S. Atty. Thomas Bienert said. “As to what else is going on, I can’t comment.”

Stone’s civil attorney, Karen Taillon, has said the doctor, an endocrinologist, did not regularly perform egg transfers. Asch, the former director of the fertility clinic, said in a February interview in Mexico City that Stone had “zero responsibility” for any “errors” in egg transfers.

Attorneys representing some of the former patients say no evidence has emerged thus far linking Stone to illicit egg transfers. The doctor has attended most of the depositions thus far in the cases, often chatting amiably with attorneys in the hallways.

Two of the three whistle-blowers who reported irregularities at the UCI clinic had mixed feelings upon hearing of the indictment.

“This is very encouraging that they are taking action and they are moving forward,” said Debra Krahel, a former senior administrator at UCI Medical Center. But “it surprises me a bit in that Stone has been the one person who has stayed here and not fled the scene. I’m surprised that the [U.S.] attorney’s office wouldn’t issue the same charges against the other two.”

Carol Chatham, another whistle-blower and a friend of Krahel’s, said she is “kind of wondering what is going on.”

“Why go after Stone now, after all this time? Why when there are so many other things that have gone on?” she said.

Asch left the country last fall around the time his home was searched by federal agents and is working in Mexico. Balmaceda has returned to his native Chile to practice at a Santiago clinic.

In federal court Thursday, Stone winked at Assistant U.S. Atty. Wayne Gross as he sat down next to Stokke. He clenched his jaw and propped his chin on his left hand as U.S. Magistrate Elgin Edwards told him about his rights to have an attorney at all stages of his defense.

Asked if he had an opportunity to review the 10-count indictment against him, Stone replied, “No, sir.”

Stokke asked the court to postpone the hearing until today. Edwards granted the request, remanding Stone into custody until the 2 p.m. bail hearing.

Prosecutors said they will file a motion to keep Stone detained. “They fear he’s a flight risk,” Stokke said.

As he was led away to court, Stone blew a kiss to his wife, Angelica, and said: “Hey, baby.” He was then led down an elevator and taken to the Santa Ana Detention Facility a block away.

If convicted, Stone faces a maximum of five years in prison and a $250,000 fine on each count.

UCI officials were aware of allegations of insurance fraud at the UCI clinic by 1992, documents show. A January 1992 internal audit recommended improvements to cash controls and security at the clinic. A subsequent audit, completed in early 1993, found that an employee had falsified insurance billing and recommended tighter controls over billing practices in the future.

A November 1992 internal memo to Asch from Patricia D. Hill, UCI Medical Center’s human resources director, states that the employee, Toula Batshoun, admitted to falsifying the claim to cover her own health insurance deductible. But Batshoun, who was forced to resign, told UCI officials the practice had been condoned at the clinic “for the past two years” and that operative reports had been falsified as well.

“Ms. Batshoun . . . claims that you have an outside physician who bills for assistant surgical fees which then are funneled back into your practice,” Hill wrote.

Hill noted that Asch called the practices “standard” in the industry and had agreed to provide necessary records in a probe of the billing practices.

Outside auditors in April 1995 concluded that Asch and Balmaceda both had submitted false insurance claims in the early 1990s, supplying incorrect diagnoses in order to be reimbursed, according to the audit.

In addition to insurance fraud, the task force is looking into possible smuggling of unapproved fertility drugs as well as tax fraud and financial irregularities. The team includes representatives from the California Medical Board, the FBI, the U.S. Food and Drug Administration, U.S. Customs, the Internal Revenue Service, the Defense Criminal Investigative Service and the UCI Police Department.

* STONE’S DISAPPOINTMENT: Doctor who brought in partners faces charges alone. A22

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Stone Charges

If convicted on all the federal charges, Dr. Sergio C. Stone, indicted on 10 counts of mail fraud, could face 50 years in prison and $2.5 million in fines. The indictment filed in U.S. District Court alleges that Stone:

* Conspired with others from July 1991 to November 1993 to list himself as an “assistant surgeon” for medical procedures where he was not present; he then allegedly billed insurance companies for those services

* Dictated bogus reports of medical procedures and filed false insurance claims that listed other physicians as assistants when those doctors were not present, also an alleged attempt to defraud insurance companies

* Violated federal postal laws by then mailing bogus claims to eight insurance companies

Source: U.S. attorney