Davis to Beef Up Medi-Cal Fraud Investigations

Citing estimates of fraud reaching 70% in parts of Medi-Cal, Gov. Gray Davis vowed Thursday to clean up the program with a major expansion of investigative forces and new laws to beef up the legal tools needed to combat health care crime.

“For too many years the state looked the other way. We’re not going to do that anymore,” he said in an interview.

As the probe continues into what FBI agents say will eventually total $1 billion in fraud, Davis said new evidence shows that the illegal activity may be more widespread than originally thought, and that dental services provided by the program appear to have been invaded by criminal operators.

Davis said fraud has become so ingrained in the section of Medi-Cal that provides crutches, adult diapers, wheelchairs and other medical equipment for the sick and disabled poor that his advisors estimate that 70% of the money paid out by that part of the program may be for fraudulent purposes.

The FBI’s $1-billion figure is an estimate of fraud likely committed against the entire Medi-Cal system.

“There are too many people who are willing to cut corners and rip off taxpayers,” Davis said. “It’s like ripping off insurance companies. It’s a third party payer, kind of an unseen victim, and it attracts too many people.”

Fraud in the program that serves 5 million poor Californians was originally uncovered in audits by Controller Kathleen Connell’s office. The auditors discovered that dozens of medical equipment businesses were submitting phony invoices to the state claiming they had provided supplies to poor patients. In reality, the patients were never seen and the supplies were never provided.

But few people were prosecuted until the FBI began an investigation nearly two years ago.

Davis said he became aware last May of heavy infiltration of fraud into the state’s program that provides health care for the poor. He said he realized the seriousness of the problem when he saw budget figures showing costs spiraling despite “a growing economy and high employment.”

He sought, and received, legislative approval to use some of the state’s surplus dollars to hire 41 additional auditors and investigators. Since then, he said, he has learned that the dimensions of the problem are bigger than he thought.

When the Legislature convenes in January, he said, he will push for approval to hire 56 more people, which would more than double the Department of Health Services’ fraud investigative force since he took office.

75 Charged, 300 Others Investigated

So far, the FBI investigation has resulted in fraud charges against 75 people, 36 of whom have entered guilty pleas. The FBI says more than 300 other cases are under investigation.

Nearly all of those charged were in the Los Angeles area. Investigators believe the fraud is concentrated in Southern California, particularly in the San Fernando Valley among immigrants from Armenia.

Davis said he finds the estimates of 70% fraudulent bills to Medi-Cal for supplies staggering.

“That money could be used for good purposes,” he said, “rather than going to the people who are just into fraud.”

Although the investigation is focused on California, Davis said he believes similar fraud schemes may plague other large states. James Wedick, head of the FBI’s corruption squad in Sacramento, said he will brief 100 FBI agents in Washington, D.C., later this month on the California investigations to encourage them to launch probes in other states.

The governor said federal authorities are in a better position to bring charges against fraud operators because they can use tough mail fraud laws that allow them to move especially quickly. He said he will propose that California adopt legislation mirroring the federal law to give state investigators and prosecutors stronger legal tools against fraud.

Federal prosecutors routinely use grand juries to force reluctant witnesses to testify and to issue subpoenas that give them access to bank records.

“California has to step up to the plate,” Davis said. “Legislators have to be bolder and enact stronger laws to crack down on Medi-Cal fraud.”

The governor said his days as state controller gave him a heightened awareness of the seriousness of fraud. In the late 1980s, the controller’s office under Davis uncovered similar fraud rings in the San Francisco area. That fraud, which earned the nickname Diaperscam, involved phony billings for supplies to aid the incontinent.

“I was surprised that it [fraud] was back,” he said. “I was surprised that people had the chutzpah to just mail in a bill for a totally invented transaction. This is a rip-off that should not have reoccurred, and it’s not going to occur again on my watch.”