State Probing Another Major Medi-Cal Scam

Another multimillion-dollar Medi-Cal scam based in Southern California has been uncovered, this one involving stolen doctor and patient records, state Atty. Gen. Bill Lockyer announced Wednesday.

The newest revelations to shake the troubled program for the poor are apparently unrelated to the federal-state probe of false billings for medical supplies, which FBI officials estimate will eventually cost taxpayers more than $1 billion.

This time, in a sophisticated scheme Lockyer’s investigators first suspected in July but are only now beginning to fully grasp, information from medical records is believed to have been stolen from hospitals and clinics. In some cases, hospital and even government employees are suspected of taking bribes to provide patient lists to the fraud ring.

The information was used to set up phony medical operations of ghost doctors and phantom patients, authorities believe. In one case, the criminals even used a cardboard computer to make an office look real, Lockyer said.

Those fake doctors’ offices then allegedly billed Medi-Cal for services never rendered that Lockyer would only estimate in the “millions of dollars.”

“It’s a continuing investigation,” he said. “When you get deeper into it, it appears to get larger and larger.”

So far, at least 20 doctors’ names have been confirmed stolen by what is thought to be a tight-knit crime ring, and “we’ve only scratched the surface,” said Collin Wong, the new director of Lockyer’s Bureau of Medi-Cal Fraud and Elder Abuse. Wong declined to otherwise characterize the ring’s members.

Typically, the attorney general’s office waits to disclose details of investigations until after it has issued indictments--an action that in this case may still be weeks or even months away. However, Wong said the office decided to warn hospitals and doctors Wednesday because it has so far been unable to halt the operation completely and did not want to risk losing “millions of dollars more.”

Lockyer and Gov. Gray Davis have been pursuing Medi-Cal crimes amid criticism that their predecessors ignored the abuses.

State Controller Kathleen Connell’s office reported Wednesday that her auditors had first uncovered examples of similar schemes in 1997 but that no action was taken until after Davis took office.

According to audit reports, Connell’s office turned up questionable Medi-Cal billings of at least $25 million for tests and other services between 1997 and 1999. In one case, 18 sets of tests were ordered for one patient in a 10-month period, at an average cost of $356 per visit.

Much of the newly revealed fraud has been centered in Southern California, Wong said, and another state official confirmed that most of it has occurred in the Los Angeles area. However, Wong said, there appear to be no links to the fraud revealed in November, which involved dozens of fake medical equipment companies stealing Medi-Cal funds by taking payment for crutches, adult diapers and other medical items that were never delivered to patients.

Indications of the supply fraud also were found by Connell years earlier, though a spokesman for former Gov. Pete Wilson said he was never made aware of it. The past head of the state health department has declined to be interviewed on the subject.

In light of the new investigation, hospitals around the state are being encouraged to review their document security measures, including limiting employee access to files. Doctors also have been advised to consider ways to protect confidential information in hospital files.

Lockyer warned that careless hospitals could be held liable for failing to secure confidential information and that doctors could find themselves under investigation by the state and even federal tax officials.

The state’s new health director, Diana M. Bonta, announced Wednesday that her department will carefully review Medi-Cal provider applications, even calling the original provider to double-check any requested changes.

California receives about $9 billion annually in federal Medicaid money--matched here by about $9 billion--which benefits 5 million poor and disabled Medi-Cal patients. The U.S. General Accounting Office estimates that nationwide about 10% of such money--$1.8 billion in California--is lost to fraud.

The California Department of Health Services brought the new case to Lockyer in July, he said, after becoming suspicious of some billing and check-cashing patterns. One trigger was duplicate Medi-Cal provider applications, Wong said: one from the real doctor and one from the ring fraudulently using the doctor’s name.

Among the information allegedly stolen from medical files and job applications were phone numbers, Social Security numbers, driver’s license numbers and medical license numbers, Wong said. That information was used on applications for new Medi-Cal provider numbers or for provider address changes.

“They’re using that information to go out and set up fictitious businesses,” he said. “They set up storefronts, they obtain mail drops, they contract with billing services, they create the facade that this is actually a legitimate business.”

Investigators believe that the identifying information was taken directly out of paper files or off a computer screen, not by hacking into hospital or clinic computer systems from a remote location.

Authorities suspect that Medi-Cal patients’ names and addresses were obtained in two ways, Wong said: stolen directly from hospitals and government offices by people working with the fraud ring and hospital staff, or purchased illegally from government employees.

The doctors’ stolen identities also were used to open bank accounts, which became part of an elaborate money-laundering scheme that initially slowed investigators’ progress.

Gradually, those attempts at anonymity have proved unsuccessful, Lockyer said. “We’ve caught them, and they’re going to be prosecuted.”