Burbank Lab, Doctor Accused of Billing Fraud

In a case that renewed fears of organized crime moving into the lucrative health-care business, federal prosecutors have accused a Burbank medical laboratory of paying kickbacks to dozens of California doctors as part of a widespread billing fraud scheme.

The complex scheme was allegedly masterminded by Dr. Aramais Paronyan, who runs Health Line Clinical Laboratory in Burbank and several other labs in California, prosecutors said Friday.

Paronyan, 40, was arrested March 20 on conspiracy, money-laundering, mail fraud and wire fraud charges hours after federal and state agents raided clinics in Burbank, Ventura, San Francisco and other cities.

Paronyan is accused of paying kickbacks to doctors who referred patients to his business and of billing the government for at least $13 million worth of blood tests that were unnecessary or never performed, according to a search warrant affidavit unsealed by a federal magistrate Friday. The court papers also allege that Paronyan’s wife, Natella Lalabekyan, was involved in the conspiracy.

The alleged scheme may involve 30 to 40 doctors, many of them of Russian or Armenian background, law enforcement sources said.

Government sources said they believe they have evidence of a link between the plan and Russian organized crime, but wouldn’t elaborate. The case is overseen by Assistant U.S. Atty. Stephen Larson, who heads the Russian organized-crime strike force in Los Angeles.

Larson declined to comment on any link to organized crime. “This was a large-scale scheme to defraud Medicare, Medi-Cal and private insurance companies orchestrated by Dr. Paronyan and his associates,” he said.

Paronyan is the only person charged so far. Larson said the government expects grand jury indictments of others within several weeks.

Richard Kirschner, a Los Angeles attorney representing Paronyan, declined to comment, but Gary Burkhartsmeier, Health Line’s lab director in Burbank, said: “I am absolutely and completely mystified as to where these allegations come from. We find it absolutely preposterous.”

Paronyan was released Friday from the Metropolitan Detention Center after posting bail of $750,000, an amount set at a hearing earlier in the day before U.S. Magistrate Rosalyn M. Chapman.

Fraud investigators have long feared that organized crime would target the $1-trillion-a-year health-care business because it is such a rich and, many would say, easy target for rip-off artists. But only a handful of health fraud cases have come to light in which organized crime was believed to play a role.

Russian immigrants Michael and David Smushkevich were convicted in the mid-1990s of engineering a $1-billion medical insurance fraud scam through a chain of Southern California clinics. At the time, authorities alleged that the Smushkevich brothers had ties to Russian organized crime.

“There are a lot of criminal rings operating in health care that are organized, many of which are ethnically based,” said William Mahon, executive director of the Washington-based National Health Care Anti-Fraud Assn.

Mahon said one or two health fraud cases involving Russian immigrants have been uncovered, including a Medicare-fraud ring in Brighton Beach, N.Y. But he said there is no indication of involvement by “a single, cohesive Russian Mafia.”

Prosecutors allege that Health Line Clinical Laboratories has been defrauding government health programs and private insurers since at least October 1994.

In 1996, a former marketing employee of Health Line was convicted on one felony count of paying kickbacks for referrals of Medi-Cal patients. Medi-Cal is the state’s version of the federal Medicaid health insurance program for the poor.

A January 1997 audit by the state controller’s office of Health Line’s Medi-Cal billings concluded that the laboratory had routinely overbilled the state for tests not ordered by the patients’ doctors. The auditors concluded that Health Line had inflated its billing by 41% in 1995 and 1996.

Larson said the state estimates that Health Line, a medical lab, may have submitted $13 million in bogus claims in 1997. He estimated that the amount of fraudulent billings to government and private insurers is “significantly higher” than $13 million.

Health Line performs tests on blood and tissue samples for doctors and medical clinics. The company operates a number of “draw stations” throughout California--where patients are sent for testing--and also places technicians in doctors’ offices in Los Angeles, San Francisco, Ventura, Monterey and other cities, authorities said.

FBI agents have interviewed numerous doctors in the last several days who received payments from the laboratory, officials said.

Paronyan is no stranger to controversy. In 1987, his name surfaced when questions were raised over whether state Supreme Court nominee Marcus Kaufman had violated judicial ethical codes by writing letters to state medical board officials on behalf of Paronyan, an Armenian-trained doctor who was seeking a California medical license. The issue involved a new law in which foreign-trained doctors who had passed a licensing exam were required to complete a training course within a specified period.

Both Kaufman, who later joined the Supreme Court, and state medical regulators denied that Kaufman had done anything improper to help Paronyan, whom Kaufman described as a family friend.

At Friday’s hearing, Larson said federal agents discovered 13 to 14 firearms in Paronyan’s residence during last week’s search. Kirschner, Paronyan’s lawyer, said his client “is a hunter.”