Doctor Gets 20 Years for Health Insurance Scam

A Rancho Palos Verdes doctor, who authorities say was a key player in the largest health insurance fraud case ever prosecuted, was sentenced Monday to 20 years in prison and ordered to pay $41 million in restitution.

William O. Kupferschmidt, 54, acted as a supervisory doctor in the massive medical insurance fraud scheme, a spokesman for the U.S. attorney’s office said.

The scheme generated more than $1 billion in fraudulent billings and resulted in the payment of more than $50 million in fraudulent health-insurance claims, according to court documents.

“It’s rare but appropriate that in a white-collar crime of this magnitude . . . the defendant receives a sentence commensurate with the damage he’s caused,” said U.S. Atty. Nora Manella. “ . . . This 20-year sentence shows that those doctors who abuse the trust of their patients for personal financial gain do so at their peril, and that the practice of fraudulent medicine will not be tolerated in Southern California.”

U.S. District Judge Terry Hatter said during the sentencing that Kupferschmidt violated his Hippocratic oath and deserved a lengthy sentence.

Prosecutor Mark Hardiman said he hopes the sentence “will serve a deterrent function, especially to doctors who think health insurance programs are a way to make fast and illegal money.”

Nine other defendants, including one other doctor and an attorney, have pleaded guilty and have been sentenced by Hatter for their role in the scheme.

Kupferschmidt was convicted in July 1993 after a three-month jury trial on 18 counts of money laundering, racketeering, theft of government property and fraud. He is free on bail pending appeal.

Michael Smushkevich, 49, a Russian immigrant, was described by prosecutors as the mastermind of the scam. He was sentenced to 21 years in prison in 1994 and ordered to pay a $2.7-million fine and more than $41 million in restitution.

When the defendants were indicted in 1991, their arrests wrapped up more than five years of investigation by hundreds of agents from the U.S. attorney’s office, the Postal Service, the Department of Defense, the State Department and the Internal Revenue Service.

Federal authorities allege that between 1980 and 1988 the defendants laundered money obtained through fraudulent insurance claims in overseas bank accounts and set up multiple dummy companies.

The fraud ring solicited patients through phone canvassing, promising free checkups. It also ran mobile diagnostic centers and carried out unnecessary tests. It then billed the tests--an average of $8,000 a patient--to thousands of private insurance companies and government health care programs, said Assistant U.S. Atty. Mark Hardiman.

All of the tests offered by each clinic were performed on every patient, regardless of their physical condition, and many were performed before the patient ever saw a doctor. On insurance claim forms, the doctors involved in the fraud ring would indicate that the patients were gravely ill when most, in fact, were perfectly healthy, Hardiman said.

The mobile diagnostic testing service operated from a dispatch center in Montclair with numerous clinics in Los Angeles, Orange and San Diego counties.

At its peak, the operation involved about 500 separate companies and employed hundreds of doctors, billing clerks, administrators and lab technicians.

Blue Cross received more than $100 million in claims and paid out about $14 million to the fraud ring. The ring allegedly submitted about $25 million in claims to the Defense Department’s Civilian Health and Medical Program.

Some of America’s largest health insurance companies, including Aetna Life & Casualty, which was hit with more than $30 million in fraudulent claims, had been flooded with phony paperwork and cooperated with government agents during the investigation.