Medi-Cal Called an Easy Target for Corruption

California’s Medi-Cal system has become a magnet for criminals seeking easy money, a medical products company president from Glendale told a congressional hearing Tuesday.

Ruben Assatourian, who has testified in more than 20 corruption cases against companies filing fraudulent claims for payment, said that the FBI has wielded a sledgehammer against crooks in California. But he warned that scam artists are looking for new ways to cheat the program.

“This mess and corruption has made life a living miserable hell for distributors such as me and providers who are trying to conduct legitimate business and grow,” he told the oversight and investigations subcommittee of the House Commerce Committee.

California’s problems in losing $1 billion a year to fraud in Medi-Cal, the program that provides health care for the poor, are well known. But the state is in fact among the most aggressive in the nation in its efforts to root out corruption, a General Accounting Office official told the subcommittee.

And members of the subcommittee praised California and Florida for intensive inspection programs to find crooks disguised as legitimate businesspeople.

“You can teach us something,” Rep. Bart Stupak (D-Mich.) told a panel of witnesses, which included California Controller Kathleen Connell and J. Alan Cates, chief of the Medi-Cal fraud bureau in the state Department of Health Services. “It sounds like you had a bad problem and cleaned it up a lot,” Stupak said.

Gov. Gray Davis has doubled the size of the special Health Services unit assigned to detect frauds against Medi-Cal.

Assatourian said the situation has improved since 1998 when, he alleged, it was possible to buy a Medi-Cal provider number from corrupt state employees for $10,000 to $20,000. Anyone with a number could then open a phony business as a supplier to the state.

And the state frequently would pay any bills submitted by providers without question, even if the merchandise being paid for never existed. A provider could “purchase an invoice for $100,000 worth of nonexistent merchandise and pay the distributor the full value of the invoice, and the distributor would keep 25% for himself and reimburse the provider with $75,000 in cash,” Assatourian said.

The FBI came into the picture “with a sledgehammer and an industrial-grade vacuum cleaner” to prosecute many of the crooks involved in creating and cashing phony invoices, he said.

The system, he said, had become a “broken-down ATM machine, which is spitting out cash uncontrollably without the need for even an ATM card.”

Assatourian said that he has been helping the FBI for two years, “with a devastating effect” on his personal life.

“I am not and have never been an FBI informant but rather a witness,” said Assatourian, who had rejected an offer from the subcommittee to deliver his testimony while concealed behind a screen.

He said that he has received death threats and keeps a handgun at one of his offices.

“Because of a few criminals with Armenian background, the entire Armenian community has received a black eye,” said Assatourian. Many immigrants from the former Soviet Union have gone into the Medi-Cal supply business, he said.

“As an American, I am outraged at the fact that this much money has disappeared because of fraud,” he said. “And as an Armenian, I am wounded that the Armenian names are immediately released and distributed to the media and the industry, while the names of the corrupt officials . . . who were selling provider numbers . . . have been swept under the rug.”

He said that American providers can buy merchandise on credit while Armenian business owners “have to purchase on a COD basis because of their last name. . . . Today in Los Angeles, if you are an Armenian and you are in the Medi-Cal business, life looks very grim.”

The efforts to fight fraud in California were praised by Leslie G. Aronovitz, associate director of the General Accounting Office, the investigative arm of Congress, who noted that more than 100 providers, wholesalers and suppliers in the state have been charged with fraud in the last 12 months.

She said that other states could benefit by using California’s model of close cooperation between state and federal law enforcement officials in investigating and prosecuting fraud.